IRS Commissioner Danny Werfel faced questioning from lawmakers on Capitol Hill regarding the possibility of increasing tax audits for Americans earning under $400,000, contrary to previous assurances. The issue of whether the IRS would use its $80 billion funding boost to enhance tax enforcement for this income group has been a contentious one.
Treasury Secretary Janet Yellen has directed the IRS not to exceed historical audit rates for these taxpayers, and Werfel has echoed this commitment. However, a watchdog has cast doubt on this promise due to the IRS’s lack of a clear definition of “high-income.”
Recent data indicates a growing tax gap, which puts pressure on the IRS to ramp up enforcement efforts. During the hearing, some lawmakers questioned the wisdom of using increased audits as a means to reduce the tax gap.
In response to the funding boost, the IRS plans to hire additional staff, including enforcement agents. When asked if the IRS would raise audits for those earning less than $400,000, Werfel reiterated his commitment but hinted at the possibility of unintentional increases.
The Treasury Inspector General for Tax Administration (TIGTA) criticized the IRS for its vague definition of “high-income” earners and the use of outdated thresholds. TIGTA recommended reevaluating income thresholds, but the IRS disagreed, citing the need for flexibility in definitions.
The watchdog warned that without a clear definition, the IRS might conduct more audits on lower-earning Americans, making it less effective in closing the tax gap. The IRS partially agreed with TIGTA’s recommendation but did not fully satisfy it.
The IRS’s pledge not to increase audits for Americans earning less than $400,000 faces skepticism due to the lack of a clear definition of “high-income.” The IRS’s response to a watchdog’s recommendation falls short of addressing the issue, raising concerns about the effectiveness of tax enforcement efforts.
Below is the hearing referred to in the article: