Dive Brief:

• Internal Revenue Service Commissioner Daniel Werfel requested on Wednesday a 15% increase in agency funding for fiscal year 2024, aimed partly at cracking down on tax cheats, just eight months after Congress approved $80 billion in extra funding for the coming decade.
• “We will build capacity to pursue high-income and high-wealth individuals, complex partnerships and large corporations that are not paying the taxes they owe,” Werfel said in a request for $14.1 billion for the coming fiscal year during testimony before the Senate Finance Committee. The budget increase would enable the agency to narrow the roughly $496 billion “tax gap” while fulfilling a pledge to improve taxpayer services.
• The budget request drew fire from Republican lawmakers. “This plea is essentially for another blank check,” Senator Mike Crapo from Idaho, the committee’s senior Republican, told Werfel. “Americans rightly have a hard time understanding how an agency provided more than six times its annual funding can still claim poverty.”

Dive Insight:

The IRS plans during the next decade to channel $45.6 billion of the funding increase toward enforcement, with special attention to reducing tax evasion by large companies, partnerships and wealthy individuals.

The $80 billion outlay to the IRS under the Inflation Reduction Act will help fund an expansion of enforcement staff — including accountants, attorneys and data scientists — and boost federal revenue by more than $180 billion during the next decade, the IRS said in a 149-page Strategic Operating Plan, citing estimates by the Congressional Budget Office.

Congress cut the IRS budget 22% from 2010 through 2021. Agency technology became obsolete. Also, staff levels during the period shrunk nearly 20% even as the U.S. population rose 7% and tax complexity increased, Werfel said.

“These reductions caught up with us,” Werfel said. “You can see that in the poor taxpayer service levels in previous years, including last year.”

The recent surge in funding during the current tax filing season enabled the IRS to hire 5,000 employees to answer taxpayer questions by phone, Werfel said. As of April 7, the agency cut wait times to four minutes from 27 minutes last year and answered 6.5 million calls, an increase of 2.5 million compared with 2022.

“We delivered a strong tax season for the nation, the best in several years,” Werfel said. “I am confident we will continue this trajectory if we have adequate annual funding for day-to-day operations coupled with the long-term resources.”

In order to sustain improvement, the IRS requires a $1.8 billion budget increase for the coming fiscal year, Werfel said.

The budget request “aims to ensure the IRS stays current with paper inventory and can provide both live phone assistance and in-person service; facilitates optimal oversight of high-income, large corporate and large partnership tax returns; and maintains digital tools to enable efficient and cleaner communication with taxpayers,” Werfel said.

Higher funding will enable the IRS to increase audits of large companies and taxpayers annually earning more than $400,000, Werfel said.

After several years of congressionally mandated budget cuts, the audit rate of filings by large corporations fell to 1.7% in 2019 from 10.5% in 2011, the IRS said in its strategic report. The audit rate for partnerships was 0.05% in 2019, the agency said, noting that the number of partnerships rose to 4.3 million in 2020, 32% higher than in 2010.