Talk of new IRS agents has been in the news since the Inflation Reduction Act allocated $80 billion in increased funding for the IRS over ten years. The idea is that the funds could help improve tax compliance, which could bring in an estimated $203 billion in increased revenue. It’s too early to know the impacts, and a recent debt ceiling agreement claws back some of the IRS funding. But you may have heard some lawmakers say that because of the IRA, an “army” of 87,000 new IRS agents will be coming to audit ordinary taxpayers.
Funding for 87,000 IRS Agents
After Kevin McCarthy (R-Calif.) became Speaker of the U.S. House of Representatives, Republican lawmakers renewed their pledge to strike down the funding in the IRA for the IRS. That action came with more discussion of the 87,000 IRS agents that could target middle-class taxpayers.
For example, on the first day of House business in the new Congress, the GOP voted to rescind much (i.e., $72 billion) of the $80 billion in IRS funding from the Inflation Reduction Act. That's in part because the effort to “repeal the 87,000 IRS agents” is included in the House Republicans’ Commitment to America agenda for the 118th Congress.
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That party-line vote to repeal the IRS funding was mostly symbolic because the bill (i.e., the Family and Small Business Taxpayer Protection Act) won't pass the U.S. Senate. (The Congressional Budget Office estimates that the GOP IRS defunding bill would increase the deficit by about $114 billion over ten years.)
Abolish the IRS
House Republicans have also proposed a bill that would abolish the IRS.
The “Fair Tax Plan,” would not only eliminate the IRS but also get rid of the existing U.S. income tax system in favor of a national consumption tax. (A consumption tax essentially taxes what you spend unlike income tax, which is a tax on the money that you are paid or receive.) The bill was introduced by Rep. Buddy Carter (R-GA), who said in a release, that the legislation is designed to simplify the tax code to “encourage growth and innovation.”
Note: The Fair Tax Plan won’t become law because of the Democratic-led Senate. But it is still important to have some information about what’s being proposed when you hear about a bill to abolish the IRS. Also, the repeal vote and the bill to abolish the IRS show that House Republicans remain focused on IRS funding for "87,000 IRS agents."
Because of that legislative agenda (and the fact that the reality of certain tax policy is sometimes hard to figure out), it's important to know a few things about IRS funding and enforcement. That includes how more IRS hiring under the Inflation Reduction Act might impact you.
IRS $80 Billion Funding in the Inflation Reduction Act
- Of the $80 billion for the IRS in the Inflation Reduction Act, $45.6 billion is designated for enforcement.
- Since the new law calls for more IRS hiring, there will be more IRS agents in the coming years.
- Those new agents will have to be trained to conduct compliance audits (which takes time), but ultimately, there will likely be an increase in audit activity as well.
- A recent debt ceiling agreement claws back some of the IRS's $80 billion.
Why does Speaker McCarthy mention 87,000 agents? The 87,000 number appears to have come from a Treasury Department estimate of the level of hiring needed to maintain IRS efficiency and keep up with retirements and other staff declines. However, the actual number of new IRS agents that will be hired remains to be seen.
It should also be noted that enforcement doesn’t only mean more IRS agents. The Congressional Research Service points out that more enforcement could include legal support (e.g., the Tax Court gets about $150 million under the new law), and investments in technologies that aid IRS investigations.
Increased staffing would also likely include a variety of positions and roles that need to be filled at the IRS—not just enforcement agents. During the 2023 filing season, the agency hired 5,000 new IRS staff members.
Who Gets Audited by the IRS?
Since increased IRS enforcement will eventually lead to more audits, a common question is whether those audits will focus on low and middle-income earners.
A Government Accountability Office report found that in the past, lower-income taxpayers have seen higher-than-average IRS audit rates. Other FY 2021 data show that IRS audit rates for people with less than $25,000 a year in income were five times higher than audit rates for high-income taxpayers.
But so far, the Treasury Department has indicated that low or middle-income earners, and small businesses, won't be the focus of increased IRS enforcement activity under the Inflation Reduction Act.
Ultimately though, the IRS wants to close an estimated $600 billion “tax gap.” (The tax gap is the difference between what people owe in taxes and what they actually pay.) To do that, the agency plans to focus on high-earners, large corporations, and complex partnerships. That’s potentially good news if you’re a household making less than $400,000 a year or a small business.
But, if you are wealthy, you could see some increased audit activity in the coming years. Although, it’s hard to know what higher audit rates will look like, partly because IRS audit rates have historically been low.
Tax Refund Status
The IRA also provides $4.8 billion to modernize business systems. So, the IRS could improve outdated phone systems and technology that currently get in the way of serving customers like you. Did you know that the IRS still uses computers that rely on COBOL—a more-than-50-year-old computer programming language?
Additionally, you may remember that during the COVID-19 pandemic, millions of tax returns and refunds were caught in a massive IRS backlog. The $3.2 billion for taxpayer services could be used to improve customer service. That includes more people to answer the more than two million phone calls that the IRS reportedly receives each day during tax season.
The money could also help the IRS avoid ending the tax season with millions of unprocessed returns, as they did in 2022.
IRS Criminal Investigation
So, it’s true that the IRS is supposed get $80 billion in additional funding over the next ten years and will use some of those funds to hire agents and other staff. And yes, the Inflation Reduction Act is designed to increase tax compliance, which is expected focus on wealthy people and large corporations. So, what’s all the talk about armed IRS agents?
Talk of the IRS hiring armed agents could be referring to the IRS CI, a division that focuses on enforcement of criminal tax cases. IRS criminal investigation special agents are authorized to carry firearms in certain circumstances. That’s because those approximately 2,100 agents work on cases where arrests are sometimes warranted. However, the IRS does not arm its typical enforcement agents, despite what you may have heard.
In an attempt to dispel viral information about IRS agents, an op-ed was published on Yahoo Finance in August last year. In that piece, former IRS Commissioner Rettig addressed the ongoing debate, and concerns over the Inflation Reduction Act funding for IRS enforcement. The former Commissioner also reportedly sent a letter to IRS staff, saying that the agency will conduct a comprehensive review of its safety and security measures.
That review came as the IRS experienced increased threats that it attributed to online misinformation about IRS enforcement under the Inflation Reduction Act.
So, while enforcement activity, taxpayer services, and operations at the IRS could get a boost in the coming years because of the Inflation Reduction Act, you shouldn’t have to worry about a literal army of new IRS agents coming for your tax dollars.
Instead, stay informed, and tune in to any announcements or audit requests from the IRS.
What's in the Inflation Reduction Act
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