The IRS says its 87,000 new employees could help collect about $1 trillion -- by forcing tax evaders to pay.  But will more "fire-breathing dragons" really do the trick?

The IRS says its 87,000 new employees could help collect about $1 trillion -- by forcing tax evaders to pay.  But will more

The IRS says its 87,000 new employees could help collect about $1 trillion — by forcing tax evaders to pay. But will more “fire-breathing dragons” really do the trick?

Get ready, ultra-wealthy Americans: President Joe Biden wants you to start paying your share.

Through the Inflation Reduction Act, Biden plans to increase funding for the IRS to help the agency catch sneaky tax evaders — especially high-income earners who like to find loopholes.

A May 2021 Treasury report estimated the extra money would allow the agency to hire about 87,000 new employees — which could include revenue and customer service agents and IT staff — by 2031.

Advocates estimate the increased funding could raise as much as $1 trillion by forcing tax evaders to pay their dues, especially after years of budget cuts gutted the system.

However, some critics worry that increased scrutiny on taxpayers could backfire in a big way.

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The IRS desperately needs the support

The $80 billion in funding, spread over the next 10 years, will help the IRS modernize its infrastructure, increase enforcement and replace its aging workforce (50,000 of the IRS’ 80,000 employees are expected to leave over the next five years).

The agency has reportedly been underfunded by about 20 percent for a decade, prompting it to cut both staff and technology upgrades.

Stuck in a processing system that is over half a century old and a backlog that includes millions of unprocessed paper documentsThe IRS has needed more resources and support for some time.

The customer service department is also woefully understaffed. During the 2022 filing season, the IRS received about 73 million phone calls from taxpayers, but only 10% were actually answered.

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“The combination of more than 21 million unprocessed paper tax returns, more than 14 million math error notices, an eight-month backlog in processing taxpayer correspondence, and extreme difficulty reaching the IRS by phone has made this filing season particularly challenging.” , National Taxpayer Advocate Erin M. Collins wrote in her mid-year report to Congress.

Adding to these problems, former IRS Commissioner Charles Rettig estimated in 2021 that the agency was losing $1 trillion in unpaid taxes each year — particularly due to tax evasion by the wealthy and big business. He also pointed out that they may slip in, in part, due to the loosely regulated cryptocurrency market, foreign-sourced income and abuse of pass-through provisions.

Rettig has long called for increased funding “to confront the fire-breathing dragons” who hold fraudsters accountable.

Could strengthening law enforcement do more harm than good?

Supporters say the funding will help close the “tax loophole” by helping catch more evaders.

Of the $80 billion total, $45.6 billion is earmarked for enhanced law enforcement — which will go toward hiring more judicial agents, providing legal support and investing in “investigative technology” to determine who should or should not be audited.

But not everyone is thrilled with the news.

“They’re not going to get this ‘magic money,'” Brian Riordan told Bloomberg. Reardon is president of the S Corporation Association, which represents small, privately held businesses that pass taxes on to their shareholders.

“If you crack down on people who otherwise follow the rules and pay what they owe, you create resentment and anger. You are undermining people’s confidence in the tax system.”

However, the Biden administration has argued that the increased enforcement will be focused on the ultra-wealthy and large corporations and is not intended for small businesses or households making less than $400,000 a year.

A Treasury Department study shows that the richest 1 percent of Americans may be evading up to $163 billion in taxes each year.

That being said, while Eli Akhavan, a partner at Steptoe & Johnson in New York, expects audits to increase, he tells his wealthy clients that “there’s nothing to worry about except some headaches,” provided follow good advice and have their “ducks in a row”.

“If there’s nothing to find, there’s nothing to find,” says Akhavan.

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This article provides information only and should not be construed as advice. Provided without any warranty.

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