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With Funding Increase, IRS Likely to Focus on Tax Evaders

By:
S.J. Steinhardt
Published Date:
Nov 21, 2022

GettyImages-174879501 IRS Internal Revenue Service

The IRS, under incoming Commissioner David Werfel, will devote more than half of its $80 billion allocation under the Inflation Reduction Act to increased enforcement, Bloomberg reported.

Advocates for the increased funding have said that the IRS could collect as much as $1 trillion in uncollected taxes. The $45.6 billion enforcement budget includes funding for technology and the hiring of data scientists to identify potential audit targets.

In a paper by the National Bureau of Economic Research, cited by Bloomberg, the bureau estimated that wealthy Americans shielded as much as 20 percent of their income from taxation through devices such as offshore structures and private businesses.

But one critic disputed these estimates of widespread evasion.

The IRS is “not going to get this ‘magic money’ that they think,” Brian Reardon, president of the S Corporation Association, told Bloomberg. “If you dial up enforcement on people who are otherwise following the rules and paying what they owe, you create resentment and anger. You undermine people’s confidence in the tax system.”

Former Commissioner Charles Rettig, whose term expired this month, told tax practitioners earlier this year that that IRS is looking at “abusive” transactions by the ultra-rich and increasing sanctions on tax advisers who advise them on such actions.

Some advisers told Bloomberg that $104.5 million of the IRS allocation, designated for the Department of the Treasury's Office of Tax Policy, could be used to hire staff to write new regulations regarding tax-avoidance strategies. Treasury has identified more than 200 separate priorities for the coming year, such as new rules for digital assets and charitable tax breaks.

One adviser has told his high-net-worth clients that they just have to follow the existing rules.

“Obviously audits are going to go up,” said Eli Akhavan, a partner at law firm Steptoe & Johnson in New York. But, “if there’s nothing to find, there’s nothing to find.”