New report on IRS audits validates ‘hollow political messaging,’ says congressional lawmaker

A new report released by the Treasury Inspector General for Tax Administration (TIGTA) validates what U.S. Rep. Adrian Smith (R-NE) says has been clear all along: that the Internal Revenue Service (IRS) has not yet fully implemented a 2022 directive that prohibits the agency from using its $80 billion in stimulus funding to increase audits on taxpayers with incomes below $400,000.

U.S. Treasury Secretary Janet Yellen’s instruction not to increase IRS audits of taxpayers earning less than $400,000 “was not a serious policy directive,” the congressman said Aug. 30.

“It was hollow political messaging intended to provide cover for congressional Democrats who had just voted to increase audits on law-abiding middle-class families and small businesses in their districts,” Smith said. “Not only has IRS made little demonstrable progress on this directive, TIGTA’s report reveals many of the problems IRS faces with utilizing its supersized funding while meeting this standard.”

TIGTA’s findings in its Aug. 26 report show that the IRS has not yet finalized a methodology for calculating audit coverage in 2018, the year against which it is basing its compliance with the 2022 Treasury directive.

The IRS also isn’t considering the risk of a marriage penalty between individual filers and married couples earning $400,000 or more per year, the report says.

Likewise, the IRS has not yet defined “small business” for purposes of measuring compliance with the 2022 Treasury directive.

“To make its own numbers work, it is likely IRS will need to shift resources away from audits focused on instances of higher fraud and improper payment rates and instead target law-abiding small business owners and middle-class families,” said Smith.

Additionally, the IRS has not established a timeline to develop definitions and calculations, TIGTA found, and has not consistently documented work pertaining to implementing the 2022 Treasury directive.

Smith in January 2023 sponsored the Small Family and Small Business Taxpayer Protection Act, H.R. 23, alongside 82 of his Republican colleagues to repeal $80 billion in IRS funding signed into law by the Biden administration in 2022. The U.S. House of Representatives on the same day of the bill’s introduction narrowly passed the measure, which has yet to see action by the U.S. Senate.

“Given the challenges with implementing this policy, which have been acknowledged by IRS, the best course of action is to enact my bill to repeal the remainder of IRS’s $80 billion in mandatory funding and work through the appropriations process… to ensure IRS is appropriately funded and is prioritizing cases with the highest likelihood of fraud or error for audit,” Smith said.

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