Tax AuditAvoiding IRS Audits Just Made Easier by Congress

Every year, Congress members promise better funding for the IRS so it can serve taxpayers more efficiently, which benefits everyone. However, our tax attorneys have found that people believe Congress has once again underfunded the IRS.

According to Robert Weinberger, an analyst at the Tax Policy Center, the 2020 fiscal budget passed by Congress in December of 2019 is a continuation of the decades-long, inflation-adjusted depreciation in IRS funding. The 2020 funding was increased by 1.8%–which is actually a reduction when adjusted for inflation. Moreover, almost 100% of the increase goes to mandatory wage raises for IRS staff. This means that, since 2010, IRS funding has decreased by over 20%, factoring for inflation.

Ten-Year Budget Decline Still Going Strong

Weinberger’s report states that the 2020 IRS funding is merely a continuation of a decline that has been going on for over ten years. This means that the IRS is less able to collect federal taxes owed by taxpayers because there is less funding for enforcement and auditing.

ProPublica has stated that over the past 10 years, the enforcement budget for the IRS has been reduced by more than 25%. Also, the number of IRS employees has decreased by 30,000 over that same decade.

Auditing by the IRS has also decreased. A new report in The Wall Street Journal states taxpayers are now 50% less likely to be audited than in 2010, and that only about 0.45% of tax payers, including the wealthy, are likely to be audited due to lack of staffing. Audits have decreased for taxpayers earning $10 million or more from 14.52% in 2017 to less than 7% in 2018.

Treasury Secretary Promises May Not Hit the Mark

When the 2020 IRS budget was prepared, Treasury Secretary Steven Mnuchin stated that taxpayers could expect from the IRS “a customer experience comparable to the best financial institutions in the world.” Services for taxpayers were emphasized, but the biggest benefit for taxpayers actually hinges on compliance: it is estimated that each dollar invested in the IRS produces a minimum of four dollars in additional revenue generated by pursuing and acquiring uncollected taxes. The IRS says the current tax gap–the difference between money collected and taxes theoretically owed–is now approximately $380 billion.

Additionally, the IRS is now more prone to problems of identity fraud and cybersecurity threats due to poor technology and a lack of funding. Weinberger has stated that the IRS still has grave problems with reduced resources resulting in more filing-season glitches predicted to affect over 150 million taxpayers. Our tax attorneys in San Francisco will continue to follow these issues and offer updated information as it becomes available.

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