The current Administration spending proposals are the largest in history and require more funds for the U.S. Treasury. Large tax increases are on the table, but another way of increasing the government’s take is through increased enforcement by the Internal Revenue Service. The Congressional Budget Office (CBO) estimates that proposed increases to IRS funding of $80 billion over the coming years will lead to more audits and an increase in revenue to the government of $200 billion. This doesn’t include the impact of additional information reporting on revenue. It is estimated that enforcement along with the reporting requirements being advanced by the spending bills will raise revenue in the range of $500 to $700 billion over the next decade.
The CBO found that audit rates will increase for all taxpayers, but higher-income taxpayers face the largest increase. The policies advanced by the current Administration would focus IRS resources on enforcement activity (audits, etc.) on high-wealth individuals, large corporations, and partnerships. Over the past 12 years audits had declined as IRS enforcement budgets declined. It is estimated that approximately $500 billion in taxes goes uncollected every year.
The Administration proposes to require banks to turn over client’s business and personal bank deposits and withdrawals/payments (debits and credits) from accounts with a balance of more than $600 regardless of the taxpayer/client tax liability. It would apply to almost everyone—$600 account balance. Banks have raised objections including rights to privacy and concerns over hacking and identity theft. Debt collectors have also objected, sending lawmakers a letter to scrap the idea due to “significant privacy concerns” and the “tremendous liability for all affected parties by requiring the collection of financial information for nearly every American without proper explanation of how the IRS will store, protect, and use this enormous trove of personal financial information.”
The IRS believes that substantial information reporting could double the current rate of tax compliance. The IRS also wants resources to find foreign-held bank accounts and technology to deal with cybersecurity attacks. The IRS’s analysis estimates an additional $700 billion in tax collections over the first 10 years and $1.6 trillion over the course of the second decade.
Gene M. Bowman
Bowman Law Firm, Huntsville, Alabama
