Stop me if you’ve heard this before, but for the Internal Revenue Service to do its best job collecting money for federal government programs, the agency needs adequate money.
The perennial funding issue was once again the lead topic in the Internal Revenue Service Advisory Council's (IRSAC) 2024 annual report.
The IRS collects 96 percent of all federal revenue, with around 85 percent of taxes owed paid voluntarily and on time, notes the IRSAC report. But while 85 percent is not a bad compliance rate, it’s been stuck at that level for two decades.
That means the IRS needs to go after those taxpayers, both individual and corporate, that are not meeting their tax responsibilities. They are the prime contributors to the Tax Gap, which the IRS estimates is around $625 billion.
Noncompliant wealthier filers: Much of the problem is that taxpayers in the highest income brackets often have income that is subject to little or no third-party reporting, such as the W-2 income reports filed for typical wage earners.
Instead, many of the highest-income taxpayers have multiple income streams from complex business structures, offshore accounts, and sophisticated tax avoidance strategies.
The IRS has made these types of returns a prime audit target. Despite initial success, these examinations are time-consuming and require auditors with specialized training, as well as counsel to litigate disputes in court.
IRS funding return on investment: So, IRSAC notes, the IRS needs money to implement the procedures that bring in more revenue.
“IRS enforcement activities more than pay for themselves,” according to the report. “The Congressional Budget Office (CBO) estimates that each $1 of additional funding for IRS enforcement activities results in $5 to $9 of increased revenues.”
But wait, there’s more.
IRSAC pointed to additional data showing even better returns of an increased IRS budget. The Council of Economic Advisers (CEA) estimates that $1 of additional funding spent auditing taxpayers with incomes above the 90th percentile will yield more than $12 in revenue to our nation’s treasury.
And the Congressional Budget Office scored the $20 billion rescission of IRS funding demanded by Republican in a June 2023 federal debt limit deal as costing the federal treasury $44 billion, increasing the deficit by $24 billion.
The literal bottom line, notes the IRSAC report, is that “a tax system that functions well is crucial to our nation’s economy and national security.”
Compliance equity: In conjunction with the recurring IRS money considerations, IRSAC noted that enforcement of tax laws instills confidence in those who are compliant with the tax laws, assuring them the administration of the tax is fair.
“Although it is difficult to quantify, studies suggest enforcement activity also creates a deterrent effect against future noncompliance, with audits encouraging better compliance in subsequent tax years,” noted the IRSAC members.
On the other hand, added the report, public perception that noncompliance has no consequences may result in lower rates of compliance and undermine the public’s faith in the fairness of our nation’s tax system.
Improve Tax Gap education: The panel also recommended that the IRS work to inform the taxpaying public of the Tax Gap so that there’s a better understanding and appreciation of the importance of sufficient funding for IRS enforcement activities, taxpayer services, and agency modernization.
It recommends that the IRS develop a single, comprehensive Tax Gap webpage to help readers understand the uncollected tax problem and what the IRS is doing to collect the unpaid tax.
Currently, there are two different pages on IRS.gov addressing the topic, a statistics page with data that includes the most recent Tax Gap data that is available, and a newsroom page that contains no information after the 2014-2016 tax gap estimate.
“A single, well-maintained web page devoted to the Tax Gap that uses charts, graphs, and illustrations to present the information in a visually interesting manner would help to engage the public,” according to the report
Panel composition: The IRSAC serves as a federal advisory committee to the IRS commissioner. It is designed to serve as a public forum for discussion of relevant tax administration issues between IRS officials and the public.
IRSAC members come from the taxpaying public, the tax professional community, representatives of the low-income community, small and large businesses, tax-exempt and government entities, the payroll industry, and academia.
You also might find these items of interest:
- IRS collection from rich nonfilers exceeds $1.3 billion
- TIGTA celebrating 25 years of keeping an eye on the IRS
- Money, modernization and messaging are IRSAC report focus
Advertisements
🌟 Search Amazon Business and Money Books 🌟
The text link above is an affiliate ad. If you click through and then buy a product, I receive a commission.
