For the first time in years, rich Americans who cheat on their taxes face a growing threat from the Internal Revenue Service.
And, despite the Republican Party's best efforts to invoke the tax bogeyman in this month's midterm elections, it's a menace that's unlikely to go away.
At issue was the $80 billion earmarked to the IRS over the next decade in President Joe Biden's Inflation Reduction Act. Advocates argued reinvigorating the agency after a decade of debilitating budget cuts would raise as much as $1 trillion by forcing tax evaders to pay their fair share; opponents doubted their estimates and decried paying tens of thousands of agents to pick apart Americans' finances.
Charles Rettig, the IRS commissioner appointed by former President Donald Trump, made little secret where he stood after overseeing an agency with the fewest experienced auditors since World War II.
He often expressed his long-held wish through a reference to HBO’s Game of Thrones: “Funding to bring on the fire-breathing dragons.”
His term expired days after the 2022 midterms, and just before it became clear on Wednesday which party would control each chamber of Congress: Democrats retained a slim majority in the US Senate, while Republicans eked out more House seats. Democrats' better-than-expected margins make it more likely that former acting Commissioner Danny Werfel — Biden's nominee to succeed Rettig — will keep getting the money in future years.
“Overseeing the implementation of these investments will be a big focus in the next Congress,” Ron Wyden, an Oregon Democrat who chairs the Senate Finance Committee, said in statement Wednesday.
Wyden and his allies have argued new employees are needed to help the IRS keep up with high-priced advisers of the ultra-rich and their complex tax strategies. Of the $80 billion, $45.6 billion is devoted to increased enforcement, which the Biden administration has vowed to target only at the well-off. Much of the new enforcement money will go toward technology, like hiring data scientists to deploy artificial intelligence to identify who should — and shouldn’t — be audited.
No one knows how many Americans are cheating on their taxes, and the rise of cryptocurrencies makes past estimates even more questionable. An IRS study released in October, based on random audits from 2014 to 2016, found Americans owe almost $500 billion more each year than they pay. Recent academic research suggests the number could be higher, with the richest Americans using offshore structures and private businesses to hide more than a fifth of their income from the IRS. Salaried workers have fewer options to cheat, since their income is reported automatically.
Despite perceptions of widespread cheating by businesses, the vast majority comply with the law, said Brian Reardon, president of the S Corporation Association, which represents privately owned companies that file their taxes on individual — rather than corporate — tax returns.