IRS Announces it Will Increase Audits of 2021 Tax Returns Thanks to 'Additional Staff'
The Internal Revenue Service will be increasing its scrutiny on the American citizens who fund it, looking to bring more cash into federal coffers.
The federal government announced Thursday that it would be increasing “[a]udits and other enforcement” to bring in the $688 billion it claims taxpayers still owe from 2021 but haven’t paid, The Wall Street Journal reported.
That gap represents the largest in history and is largely the result of economic growth during the administration of former President Donald Trump.
Nearly 80 percent of the shortfall — $542 billion — comes from income the government claimed was under-reported.
The rest is due from taxpayers who never filed a 2021 return or did but owned taxes for the year that remain unpaid.
The IRS said some of the issue derives from the shift to a “gig economy” in the U.S., in which fewer workers have taxes withheld from their paychecks, resulting in greater noncompliance with tax laws.
But that, the agency told the Journal, is about to change.
“The additional staff and hiring at senior levels is really a critical aspect of being able to expand our coverage,” Melanie Krause, IRS chief data and analytics officer, told the Journal.
She was referring to money that was allocated by the so-called Inflation Reduction Act to increase both customer service and enforcement by the IRS. Some of those funds were reduced by later bills, however.
“This increase in the tax gap underscores the importance of increased IRS compliance efforts on key areas,” IRS Commissioner Danny Werfel said in a statement cited by the Journal.
The outlet said that about $182 billion that should have appeared as business or farm income on 2021 returns was never reported, but that “[t]axpayers’ overall compliance rate” was expected to remain at historical levels, around 86.3 percent.
Those, of course, are estimates.
“When it comes to noncompliance, there’s a lot that’s difficult to measure,” said Natasha Sarin, a Yale law professor and former Treasury official quoted by the Journal.
More “gig workers” were expected to report income more accurately in 2023, however, as payment apps being following new IRS rules that went into effect this year.
“If people know the IRS has that information, they’re not going to underreport,” Sarin explained.
The IRS estimated that through increased compliance, it could reduce the gap between what it claimed Americans owned in 2021 taxes and what they actually paid to about $625 billion.
“If we do a better job of collecting revenue, we can make a down payment on fiscal sustainability and our spending priorities,” Sarin said.
However, the IRS noted that its estimates of taxes owed were probably low, as Americans consistently implemented evaded federal taxes in ways that were difficult to quantify, such as cryptocurrency and offshore bank accounts.
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