According to Law360, the IRS needs the additional funding promised in August under the Democrats' Inflation Reduction Act to hire more accountants, data scientists and economists to examine the nearly 400,000 tax filings made each year by wealthy individuals, partnerships and corporations, IRS Commissioner Daniel Werfel told a House committee Thursday.
The Internal Revenue Service currently has only about 2,600 employees with the specialized skills to audit these complex returns, and they can't keep up with the work of processing the approximately 390,000 such returns filed annually, Werfel said in testimony before the House Ways and Means Committee.
"When we have multiple sources of income, like large partnerships, corporations, billionaires and multimillionaires, it takes up to 15 times longer for the IRS to assess and then audit those returns," Werfel told the committee.
"It Takes About Five Hours, On Average,
To Audit A Middle- And Low-Income Taxpayer
When Those Audits Do Occur.
It Takes 250 Hours, Or More, To Audit
A Wealthy Or More Complex Return."
Werfel's remarks came a day after the House of Representatives voted 217-215, mostly along party lines, to pass the Limit, Save, Grow Act, or H.R. 2811. The bill would tie an increase to the limit on the federal government's borrowing authority to a clawback of the increased IRS funding for enforcement and operations support, along with a repeal of most of the Inflation Reduction Act's climate and clean energy tax credits.
Earlier this month, Werfel released the agency's plan to spend the increased enforcement funding on hiring the personnel needed to carry out enforcement work, including attorneys, accountants and data scientists. The IRS is receiving $45.6 billion for enforcement as part of the nearly $80 billion funding increase over a decade provided by the new law.
The Spending Plan Calls For Hiring And Onboarding
The First Groups Of Compliance Specialists To Focus
On High-Income Individuals And Large Corporations
And Partnerships In The 2023 Fiscal Year.
Under the plan, the agency would start using new compliance tactics for the wealthy and large corporations in the 2025 fiscal year.
Werfel echoed the statements made by Treasury Secretary Janet Yellen when she testified before the committee in March, saying that IRS enforcement resources will not be used to raise audit rates for households making less than $400,000 annually relative to historical levels.
He Noted That Audit Rates Of Wealthy Corporations Have Dropped From As High As 30% In 2010 To About 5% Currently, Which Encourages These Taxpayers To Take Risks When Filing Their Returns Because They Don't Fear Getting Audited.
"But if we have the right amount of resources, and if we are effective in looking at these complex returns, then we can rebalance that and they'll take less risk, and that will be beneficial to the U.S. government," Werfel said.
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