Short title

This Act may be cited as the

IRS Enhancement and Tax Gap Reduction Act of 2021

Findings

Congress finds the following:(1)According to the Office of the Taxpayer Advocate, the difference between tax liabilities owed to the Internal Revenue Service and those liabilities actually collected by the IRS, known as the tax gap, averaged roughly $381,000,000,000 annually in unpaid taxes from 2011 to 2013.(2)Recent studies project that the tax gap will be a cumulative $7,500,000,000,000 between 2020 and 2029.(3)Between 2010 and 2018, the share of individual income tax returns it examined fell by 46 percent, and the share of corporate income tax returns it examined fell by 37 percent.(4)Individual income taxes are the largest group of uncollected taxes before audits, representing about $314,000,000,000.(5)Estimates suggest that at least 70 percent of the tax gap comes from underpayment by the top 1 percent.(6)In 2020, the Treasury’s Inspector General for Tax Administration announced that roughly 880,000 high-income individuals who didn’t file tax returns between 2014–2016 failed to pay more than $45 billion in owed liabilities. Of those 880,000 cases, more than 325,000 were closed without ever being entered into the Internal Revenue Service’s (IRS) enforcement system, more than 40,000 cases were entered but were then subsequently closed without ever being worked on, and the remaining 500,000 cases are sitting in one of the collection function’s inventory streams and will likely not be pursued as resources decline.(7)In 2011, more than 12 percent of individuals making $1,000,000 or more annually were audited. In 2018, only 3.2 percent of such individuals were audited.(8)For 8 years in a row, IRS tax enforcement has declined. The IRS audited 0.45 percent of personal income-tax returns in fiscal year 2019, the lowest level in at least 4 decades.(9)Individuals are about half as likely to be audited now compared to 2010.(10)Audit rates for those making $10,000,000 or more fell from more than 14 percent in 2017 to roughly 6.5 percent in 2018.(11)Over the course of the past decade, the number of income tax returns has increased by roughly 9 percent.(12)Audit rates for the largest corporations in 2011 were more than 90 percent. Now, they are closer to 50 percent.(13)The corporate share of Federal tax revenue has dropped by more than two-thirds in the past 65 years.(14)In 2010, corporate taxes accounted for 9 percent of Federal revenue.(15)The Tax Cuts and Jobs Act has pushed business taxes to record lows, and, according to the Institute on Taxation and Economic Policy, 91 of the Fortune 500 companies paid $0 in income tax in 2018 despite turning a profit.(16)According to a report from the Office of the Taxpayer Advocate, the average United States household is paying an annual surtax of more than $3,000 to subsidize taxpayers who aren’t paying all that they owe.(17)According to the Congressional Budget Office, the IRS’s budget is roughly 20 percent below its peak 2010 inflation-adjusted budget.(18)According to the IRS, the agency has lost roughly 30,000 full-time positions since 2010, more than 20 percent of its staff.(19)The amount of IRS funding and staff allocated to enforcement activities has declined by about 30 percent since 2010.(20)According to the IRS, roughly 30 percent of its workers will retire within the next 5 years.(21)Despite this, the agency has also seen increased workload due to the implementation of the Affordable Care Act, the Tax Cuts and Jobs Act, and the COVID–19 pandemic.(22)Studies have shown that investing in enforcement and tightening rules could generate more than $1,000,000,000,000 over a decade.(23)The Federal Government estimates that each additional dollar spent on tax enforcement could yield more than $4 in revenue.(24)IRS data demonstrates that an extra auditor-hour spent auditing returns for those earning $5,000,000 or more raises nearly $5,000.(25)In fiscal year 2018, the IRS collected nearly $3,500,000,000,000 on a budget of about $11,430,000,000.(26)The Congressional Budget Office estimates that increasing the IRS’s funding for examinations and collections by $20,000,000,000 over 10 years would increase revenues by $61,000,000,000, and that increasing such funding by $40,000,000,000 over 10 years would increase revenues by $103,000,000,000.

Improving resources available to the Internal Revenue Service to reduce the tax gap

(a)

Improving audits

(1)

In general

There is appropriated $5,000,000,000 for an additional amount for the Department of the Treasury—Internal Revenue Service—Enforcement account, for each of fiscal years 2022 through 2031—(A)for the salaries and expenses of additional staff to increase audits to not less than the minimum levels described in paragraph (2); and(B)for necessary expenses for tax enforcement activities in order to determine and collect owed taxes, to conduct criminal investigations, and to enforce criminal statutes related to violations of internal revenue laws and other financial crimes.(2)

Auditing levels

The minimum levels described in this paragraph are as follows:(A)Fifty percent of individuals or joint returns with gross income of not less than $100,000,000.(B)Thirty-five percent of individuals or joint returns with gross income of not less than $10,000,000 and less than $100,000,000.(C)Twenty percent of individuals or joint returns with gross income of not less than $5,000,000 and less than $10,000,000.(D)Ten percent of individuals or joint returns with gross income of not less than $1,000,000 and less than $5,000,000.(E)Ninety percent of corporations with gross income of not less than $20,000,000,000.(F)Fifty percent of corporations with gross income of more than $1,000,000,000 and less than $20,000,000,000.(b)

Improving technology infrastructure

There is appropriated for each of fiscal years 2022 through 2031, for efforts collecting and protecting taxpayer information, reducing tax-related theft and fraud, and modernizing the technology infrastructure of the Internal Revenue Service—(1)$3,800,000,000 for an additional amount for the Department of the Treasury—Internal Revenue Service—Operations Support account; and(2)$500,000,000 for an additional amount for the Department of the Treasury—Internal Revenue Service—Business Systems Modernization account.(c)

Enhancing taxpayer services

There is appropriated $2,500,000,000 for an additional amount for the Department of the Treasury—Internal Revenue Service—Taxpayer Services account, for each of fiscal years 2022 through 2031, for the salaries and expenses of additional staff to achieve adequate staffing levels to provide taxpayer services, including pre-filing assistance and education as well as filing and account services.