Collateral Damage of IRS Audits

Chris EdwardsThe Inflation Reduction Act of 2022 boosted the Internal Revenue Service (IRS) budget over the coming decade by $79 billion, most of which is for increased enforcement. President Biden ’s March budget includes the new spending and would more than triple enforcement outlays by 2031. House Republicans have proposed cutting the new IRS funding as part of the debt deal being negotiated.At a  Senate Finance Committee hearing last week,I  argued that jacking up enforcement and auditing would cause collateral damage to the private sector. There are better ways to reduce taxpayer errors, including simplifying the code and overhauling IRS operations. Some analysts claim there is vast cheating by the wealthy and corporations, but the official IRS “tax gap”has not increased in decades relative to the size of the economy.The IRS needs to audit at some level, but there is a  balance. Higher audit rates would impose more costs on individuals and businesses in the form of time consumed, legal fees, anguish, and financial uncertainty. Another harm is that “audited firms are more likely to go out of business following the audit,”concluded one statistical study.Policymakers should recognize that with such a  complex tax code, it’s not just taxpayers who make mistakes. The IRS makes mistakes on calculations, sending notices, auditing, and other administrative and enforcement functions. In auditing, the IRS uses algorithms, discrepancies, and other factors to target ...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs