ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – TREASURY SECRETARY YELLEN TELLS IRS TO LAY OFF THE LITTLE GUY
By Robert S. Schriebman
The Inflation Reduction Act is now the law of the land. As part of this legislation the IRS will receive $80 billion to improve its operations and to hire new auditors and collectors. There have been several articles and commentaries expressing concern that the IRS will now become a new version of Big Brother. The concerns expressed fear that the IRS will become the new bully on the block to terrorize the American taxpayer.
In the late 1990s, the Senate Finance Committee held a series of oversight hearings because they felt the IRS had gotten out of control and was not being accountable to the American taxpayer. I testified twice during these hearings, and the result of my testimony created a Collection Due Process (CDP) procedure to see to it that people who owed the IRS received some due process when it came to settling their accounts with the IRS.
I doubt if there will be new oversight hearings in the near future, but Treasury Secretary Janet Yellen has taken upon herself a campaign to make sure that the IRS does not pick on the little guy. Secretary Yellen’s concerns were the result of the latest GAO Report.
By way of background let’s take a look at the latest GAO Report that came out a few months ago that said in no uncertain terms that the IRS does indeed audit the small taxpayer more than the big guy.
The GAO Report
On May 17, 2022, a hearing was held before the Subcommittee on Oversight, Committee on
Ways and Means, House of Representatives. Speaking before the Subcommittee was James R. McTigue, Jr., IRS Director of Strategic Issues. Mr. McTigue’s testimony was published in a GAO Report, GAO-22-106032 (May 18, 2022).
The testimony covered audit rates between 2010 to 2019 and the collection of taxes as a result of audits. The audit rates do show that lower-income taxpayers are audited more frequently than higher-income taxpayers. The Report also stated that it is one thing to audit and assess, but quite another to collect on those assessed taxes.
Audit Rates According to the GAO Report
From tax years 2010 to 2019, audit rates of individual tax returns decreased. On average, individual tax returns were audited over three times more often for tax year 2010 than for tax year 2019. Audit rates for taxpayers with incomes of $200,000 and above decreased the most, largely because higher income audits tend to be more complicated and require more audit hours.
It’s all relative. Small taxpayers generate small change while big taxpayers generate big bucks even though they are audited less than the little guy. The GAO Report stated that the average dollar collected for audits of $25,000 or less $5,169. Audits for taxpayers reporting $200,000 or more average $18,263 per audit.
Another reason why large-income taxpayers are audited less frequently is due to the fact that they can afford to fight the IRS and to tie them up in court. The IRS manpower is at its lowest point in decades. They are fewer auditors, and the government is not willing to invest the manpower to challenge the big guy.
Enter Secretary Janet Yellen
On August 10, 2022, Secretary Yellen sent a letter to IRS Commissioner Rettig expressing her concerns that newly hired IRS auditors (IRS agents) not be used “to increase the share of small businesses or households below the $400,000 threshold that are audited relative to historic levels.” The letter went onto state, “This means that contrary to the misinformation from opponents to this legislation, small businesses or households earning $400,000 a year or less will not see an increase in the chances that they are audited.” Secretary Yellen wants to make sure that the targets for future audits are “high-end compliance.”
On August 22, 2022, Secretary Yellen requested a detailed plan from the IRS on how it plans to spend the $80 billion in additional funds. She wants the plan on her desk within the next 6 months.
It is refreshing indeed to see a political appointee, especially the Secretary of the Treasury, going to bat for the little guy. The IRS is planning to hire 87,000 new agents who will be trained to audit and collect from lower and middle-class taxpayers. This is a long-term projection over ten years. So, we do not have to worry about several divisions of IRS troops camping on our doorsteps too soon.
Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments. Mr. Schriebman is in private practice. He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.
Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.
Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.
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