Increased IRS funding under the Biden administration enhances tax enforcement and improves taxpayer services

On December 3, 2024, the Internal Revenue Service (IRS) made headlines by collecting over $1.1 billion from 1,600 wealthy Americans with known but unpaid tax debts. This marked a significant increase from the previous year, where only $38 million was collected. This boost in tax revenue was attributed to the Inflation Reduction Act, signed into law by President Joe Biden in 2022. The act allocated $60 billion in new funding for the IRS over 10 years, aimed at enhancing enforcement efforts and improving the taxpayer experience by modernizing outdated systems and hiring additional staff.

The goal of the funding was to address the tax gap, which refers to the difference between taxes owed and taxes paid. In 2022, Americans collectively owed about $696 billion in unpaid taxes, a concerning issue for the IRS and budget experts. To tackle this gap, the IRS tripled audit rates on large corporations and increased audits on partnerships with more than $10 million in assets. Additionally, the IRS invested in advanced technologies like artificial intelligence to make enforcement activities more efficient and successful.

The results of the increased funding were remarkable, with the IRS securing nearly $100 billion through audits of filed tax returns in the 2024 fiscal year. This represented an additional $25 billion in revenue from audits compared to the previous year. Notably, the IRS spent only 34 cents for every $100 collected through audits, showcasing the effectiveness of their efforts.

In addition to enforcement, the IRS also focused on improving service for taxpayers who file on time and comply with tax laws. The agency used $3.2 billion to enhance customer services, offering more pre-filing assistance, expanding education and filing services, and stepping up taxpayer advocacy efforts. Another $4.8 billion went towards modernizing the IRS’ outdated computer systems, introducing upgrades like callback technology for customer service lines and online platforms for document uploads and responses.

The IRS also hired 5,000 additional customer service representatives, significantly increasing the success rate of phone calls answered during the tax season. Online services were improved, allowing taxpayers to create accounts for payments, view transactions, and upload documents. The IRS also piloted the Direct File system in select states, enabling some taxpayers to file federal returns directly with the IRS for free.

Looking ahead, the future of IRS funding and priorities remains uncertain under the new administration. Some Republicans have campaigned on reducing IRS funding, citing concerns about expanded audits impacting middle-class taxpayers and small businesses. However, past administrations have recognized the importance of tax enforcement in generating revenue and have proposed increasing IRS enforcement budgets.

Overall, the increased funding of the IRS has had a significant impact, narrowing the tax gap, improving taxpayer services, and enhancing efficiency. The investments in trained agents and modernized systems have laid the groundwork for a more effective IRS in the years to come. As the landscape of tax enforcement continues to evolve, it will be interesting to see how future administrations approach funding and priorities within the IRS.