March 17, 2023

U.S. Senators to IRS & Treasury: Target Funds to Protect Taxpayer Rights and Restore Tax Enforcement on High-Income Individuals and Large Corporations

WASHINGTON, DC – In an effort to keep taxes low for all Americans and crack down on wealthy tax cheats and illegal corporate tax avoidance schemes, U.S. Senators Jack Reed (D-RI) and Sheldon Whitehouse (D-RI) joined 19 of their Senate colleagues in signing a letter, led by Senators Elizabeth Warren (D-MA) and Angus King (I-ME), to Internal Revenue Service (IRS) Commissioner Daniel Werfel and Treasury Secretary Janet Yellen, expressing strong support for Secretary Yellen’s directive for the IRS not to raise audit rates for small businesses or households making under $400,000 annually and that new enforcement funds provided in the Inflation Reduction Act will focus on reducing tax avoidance by large corporations and the mega-rich.

Due in large part to the fact that their tax returns are simpler, the IRS currently audits the poorest families at five times the rate of higher earners, whose tax returns are vastly more complex and time consuming to review, according to a report from Syracuse University’s Transactional Records Access Clearinghouse (TRAC IRS).  Reed and Whitehouse believe that is unfair.  The senators and their colleagues are urging the IRS to increase transparency, improve customer service, and aim tax enforcement at large corporations, complex pass-through entities, and high net-worth individuals to close the tax gap — the difference between taxes owed and taxes collected.  The senators say new funds should not be used to increase audit rates on small businesses and households earning less than $400,000.

“We… understand that the Administration is still working on the operational plan regarding implementation of the new funding and Secretary Yellen’s directive. We ask that this plan, when finalized, continue to reflect and elaborate on your stated focus on protecting taxpayer rights and increasing enforcement for high-income individuals and large corporations,” wrote the 21 U.S. Senators.

From 2010 to 2021, Congress cut about one-fifth of the IRS’s funding, adjusted for inflation.  The loss of resources led to significant staff reductions, even as the number of annual tax returns the IRS must process increased.  According to CNBC: the audit rate of Americans earning more than $5 million a year decreased from 16 percent in 2010 to 2 percent in 2019.  The news outlet also shows that households earning over $10 million annually had their audit rate drop from 21 percent in 2010 to 4 percent in 2019.  And during FY 2022, the odds a millionaire was audited by an IRS revenue agent was just 1.1 percent, according to TRAC IRS.

In response to increased funding for the IRS in the Inflation Reduction Act, Secretary Yellen directed former IRS commissioner Rettig: “that any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels. This means that, contrary to the misinformation from opponents of this legislation, small businesses or households earning $400,000 per year or less will not see an increase in the chances that they are audited. Instead, enforcement resources will focus on high-end noncompliance.”

The senators expressed support for this clarity and asked the IRS to elaborate on its focus on protecting taxpayer rights and increasing enforcement for high-income individuals and large corporations. They urged the IRS to use the new funding to support tax fairness and close the tax gap caused by tax avoidance from the ultra-wealthy and large corporations, protect the rights of lower-income taxpayers, and swiftly improve taxpayer customer service and information technology.

Additional cosigners of the letter include U.S. Senators: Chris Coons (D-DE), Bernie Sanders (I-VT), Alex Padilla (D-CA), Ron Wyden (D-OR), Martin Heinrich (D-NM), John Hickenlooper (D-CO), Tammy Duckworth (D-IL), Edward Markey (D-MA), Sherrod Brown (D-OH), Tom Carper (D-DE), Bob Menendez (D-NJ), Cory Booker (D-NJ), Ben Cardin (D-MD), Richard Blumenthal (D-CT), Michael Bennet (D-CO), Tammy Baldwin (D-WI), and Patty Murray (D-WA).

Chip Unruh (Reed), (202) 224-4642

Meaghan McCabe (Whitehouse), (401) 453-5294

Press Contact

Meaghan McCabe, (202) 224-2921