August 11, 2022
ICYMI: IRS Will Not Target Families Making Less Than $400K Or Small Businesses
Charleston, WV – The U.S. Department of Treasury released updated guidance about the purpose of the Internal Revenue Service (IRS) funding in the Inflation Reduction Act. The guidance clarifies that neither West Virginia families making less than $400,000 per year nor any small business will be subject to any additional audits. This updated guidance is consistent with a separate letter the Trump-appointed IRS Commissioner released last week. According to a report from Syracuse University, the number of millionaires being audited has plummeted over the last decade with a 72% decline from 2012 through 2020. This new guidance is designed so that the very richest will pay their fair share, just like the vast majority of Americans who already pay their taxes.
“This guidance from the U.S. Treasury on the implementation of the Inflation Reduction Act should debunk the false information spreading about what’s truly in this legislation. West Virginia families making less than $400,000 and small businesses will not be targeted because they are already paying their taxes. And I encourage any West Virginians who feel targeted or harassed by the IRS to please call my office at 304-342-5855,” said Senator Manchin.
The letter can be read below or in full here.
The Inflation Reduction Act includes much-needed funding for the IRS to improve taxpayer service, modernize outdated technological infrastructure, and increase equity in the tax system by enforcing the tax laws against those high-earners, large corporations, and complex partnerships who today do not pay what they owe.
These crucial investments have been a focus of the Biden Administration since the President’s first day in office, and I was heartened to see the legislation pass the Senate this weekend.
Notwithstanding the changes that arose because of Republican challenges during the Byrd process, I write today to confirm the commitment that has been a guiding precept of the planning that you and your team are undertaking: that audit rates will not rise relative to recent years for households making under $400,000 annually.
Specifically, I direct that any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of households below the $400,000 threshold or any small businesses that are audited relative to historical levels. This means that, contrary to the misinformation from opponents of this legislation, households earning $400,000 per year or less or any small businesses will not see an increase in the chances that they are audited.
Instead, enforcement resources will focus on high-end noncompliance. There, sustained, multi- year funding is so critical to the agency’s ability to make the investments needed to pursue a robust attack on the tax gap by targeting crucial challenges, like large corporations, high-net- worth individuals and complex pass-throughs, where today the IRS has resources to initiate just 7,500 audits annually out of more than 4 million returns received.
This is challenging work that requires a team of sophisticated revenue agents in place to spend thousands of hours poring over complicated returns, and it is also work that has huge revenue potential: indeed, an additional hour auditing someone making more than $5 million annually generates an estimated $4,500 of additional taxes collected. This is essential work that I know the IRS is eager to undertake.
For regular taxpayers, as you emphasized last week, the result of this resource infusion will be a lower likelihood of audit by an agency that has the data and technological infrastructure in place to target enforcement resources where they belong—on the high end of the income distribution, where the top 1% alone is estimated to not be paying $160 billion in owed taxes each year. That’s important as a matter of revenue-raising, but it’s also essential as a matter of fairness.
Crucially, these resources will support a much-needed upgrade of technology that is decades out- of-date, and an investment in taxpayer service so that the IRS is finally able to communicate with taxpayers in an efficient, timely manner. I look forward to working with you on creating new digital tools to allow taxpayers to get information from the IRS instantaneously and on improving taxpayer service, so the agency is well-equipped to answer calls when they come in.
This historic investment in our tax system will accomplish two critical objectives. It will raise substantial revenue to address the deficit; and it will create a fairer system, where those at the top who do not today comply with their tax obligations find it far less easy to do so, and where all taxpayers receive the service from the IRS that they deserve, and that your dedicated workforce is eager to deliver. The importance of the work ahead cannot be overstated.
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