Yellen eyes $80B boost as ‘monumental opportunity’ to ‘transform’ IRS

Treasury Secretary Janet Yellen is preparing the IRS for an overhaul of the U.S. tax collection system made possible by an $80 billion funding boost for the agency included in Democrats’ Inflation Reduction Act.

In a Wednesday memo from Yellen to IRS Commissioner Charles Rettig obtained by The Hill, Yellen said she’s giving the IRS six months to deliver an in-depth operational plan to figure out exactly how that $80 billion should be spent.

“This operational plan should include details on how resources will be spent over the ten-year horizon on technology, service improvement, and personnel. This operational plan is key to ensuring the public and Congress are able to hold the agency accountable as it pursues needed improvements,” Yellen’s memo said. “It must include metrics for areas of focus and targets over the course of the coming years that the agency will strive to achieve.”

“Ahead of us is a monumental opportunity to transform tax administration in this country,” Yellen wrote. “It is also a significant operational challenge. The work will require an all-hands-on-deck approach from the dedicated employees of the IRS.”

Many Democrats have long viewed the IRS as chronically underfunded, but the $80 billion allocated to the agency has Republicans fuming. GOP lawmakers argue that the funding will be used to hire tens of thousands more IRS agents and will result in increased tax audits on those making $400,000 or less.

However, Yellen has previously stated that the money should not be used to conduct additional tax audits on Americans below this threshold.

In the memo, Yellen stressed again that “these investments will not result in households earning $400,000 per year or less or small businesses seeing an increase in the chances that they are audited relative to historical levels.”

Still, Republicans pointed to a May 2021 Treasury report that found that a funding boost comparable to the one in the IRA could allow the Treasury to hire 86,852 new full-time employees, and have claimed that audits would increase on the middle class.

Former Senate Finance Committee Chairman Chuck Grassley (R-Iowa) even depicted them as armed and dangerous.

“Are they going to have a strike force that goes in with AK-15s already loaded, ready to shoot some small business person in Iowa with these, because I think they’re going after middle class and small business people,” Grassley said last week on the “Fox & Friends” television program.

Current Senate Finance Committee Chairman Ron Wyden (D-Ore.) suggested that such depictions counted as “incendiary conspiracy theories.”

“It’s unbelievable that we even need to say this, but there are not going to be 87,000 armed IRS agents going door-to-door with assault weapons,” he said in a statement to The Hill.

In interviews with The Hill, law enforcement agents from the IRS criminal investigation division also pushed back against this characterization of the IRS’s work, saying that “the bulk of IRS’s tax administration work is done by civilian auditors and revenue collectors.”

However many new civilian auditors are going to be hired, the IRS is anticipating a wave of upcoming retirements at the agency. In her memo Yellen said it was a priority “to replace the attrition that is on the horizon from the expected retirement of at least 50,000 IRS employees over the next five years.”

The Inflation Reduction Act breaks down the $80 billion in funding, which will be allotted over the next decade, into big chunks, which Yellen’s Wednesday directive to Rettig will further refine.

Of that $80 billion, $45 billion is going specifically to enforcement activities, so the line items in the IRS operational plan for that category, such as additional equipment and personnel, will most likely be of special interest to lawmakers.

Other spending categories to be further broken down in the next six months include $3 billion for taxpayer services, $25 billion for operational support and nearly $5 billion for new technology.

Yellen’s memo also addresses the backlog of millions of outstanding tax returns that piled up during the pandemic as IRS facilities were shut down and agents were forced to work remotely.

She said it was a priority of the agency “to fully resolve the inventory backlog and make significant improvements in taxpayer services,” adding that she was “prepared to approve the near-term use of funds to improve services for next filing season.”

“I would like the IRS to work closely with the Deputy Secretary to identify specific operational initiatives and associated timelines that will improve taxpayer service, modernize technology, and increase equity in our system of tax administration by pursuing tax evasion by those at the top who today do not pay their tax bill,” Yellen wrote.