Yellen orders IRS not to use new funds to increase chances of audits of Americans earning less than $400,000
The letter to IRS Commissioner Charles Rettig comes amid attacks from Republicans that the $80 billion the Cut Inflation Act would give the IRS over the next 10 years would drive more Americans middle class and small businesses audited. The Biden administration has repeatedly said the IRS will focus on increased enforcement activity on very wealthy taxpayers and large corporations and will not target households earning less than $400,000 a year.
“Specifically, I direct that any additional resources – including any new staff or auditors hired – not be used to increase the share of small businesses or households below the $400,000 threshold that are audited against the historical levels,” Yellen wrote in the letter to Rettig. “This means that, contrary to misinformation from opponents of this legislation, small businesses or households earning $400,000 a year or less will not see an increased chance of being audited.”
Enforcement resources, Yellen said, “will instead focus on high-end non-compliance.”
New IRS funding is expected to generate $124 billion in additional tax revenue over the next 10 years, which is a key way for Democrats to offset the cost of their plan to cut prescription drug costs and fight against climate change.
Rettig, who was appointed by former President Donald Trump to lead the IRS, told lawmakers last week that low- and middle-income taxpayers would not face increased enforcement action. He said better technology and customer service would also make it less likely that compliant taxpayers would be audited.
The bill itself says the new funding is not “intended to raise taxes for taxpayers or small businesses with taxable income below $400,000.”
But Republicans continue to vehemently oppose new IRS funding and push for increased audits on middle-class Americans.
The Republican National Committee and several Republican lawmakers, including House Minority Leader Kevin McCarthy and Sen. Ted Cruz of Texas, say the new funding will create 87,000 new IRS agents. But this number is misleading. The Treasury estimated in 2021 that an investment of nearly $80 billion in the IRS could enable the agency to hire 86,852 full-time employees over a decade. But this figure concerns all workers, not just enforcement agents. Rettig also told lawmakers that the IRS would need to hire 52,000 people over the next six years just to maintain current staffing levels to replace those who retire or otherwise leave.