IRS RECEIVES ADDITIONAL FUNDING

ON AUGUST 16, 2022,

President Biden signed into law the Inflation Reduction Act of 2022, Pub. L. No.
117-169 (“IRA”). The IRA purports to curb inflation by reducing the national deficit and includes tax,
climate, and healthcare provisions. According to the nonpartisan Congressional Budget Office (“CBO”),
the IRA will reduce the national deficit by an estimated $305 billion in aggregate through 2031. For
perspective, the national deficit was $3.13 trillion in 2020 and $2.77 trillion in 2021. According to the
CBO, the IRA will have no distinguishable impact on inflation. But it is expected to significantly impact
taxpayers.

Thanks to the IRA, the Internal Revenue Service will receive approximately $80 billion in additional
funding over the next 10 years to (i) increase enforcement, (ii) support IRS operations, (iii) improve
taxpayer services and (iv) modernize technology. Over $70.9 billion of that additional funding, however,
is allocated to increased enforcement and operations support. Thus, almost all additional funding would
be used for determining and collecting past due taxes, conducting criminal investigations, increasing
digital asset monitoring and compliance activities, providing the IRS with additional legal and litigation
support, and improving IRS facilities and information technology. The IRS is also expected to use the
added funding from the IRA to hire approximately 87,000 additional full-time employees, prompting
concerns about increased audit rates on all taxpayers.

The President and IRS have attempted to reassure Americans that these additional resources will not be
used to target the middle class. Treasury Secretary Janet Yellen sent a letter to IRS Commissioner
Charles Rettig specifically directed that the new resources not be used to increase the audit rates on
small businesses or households making less than $400,000 per year. And in a letter to the U.S. Senate,
Commissioner Rettig specifically advised that the 87,000 new employees that would be hired will not be
focusing on middle-class Americans. President Biden has similarly stated that the IRA will be focused
primarily on big business, “mak[ing] the largest corporations pay their fair share without any new taxes
on people making under $400,000 a year.” However, a report by the nonpartisan Joint Committee on
Taxation indicated that the new legislation would increase taxes on all taxpayers except for those
earning less than $30,000. Only time will tell how the IRA will affect audit rates for small businesses and
middle-class taxpayers.

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