The Democratic drive to strengthen tax collection for the corporate and wealthy has gained momentum on Capitol Hill after the IRS is estimated to lose up to $ 1 trillion in taxes owed but not paid annually.
Several key Democrats said the Internal Revenue Service commissioner Chuck Rettig's rough estimate of a current annual tax gap $ 1 trillion would bolster support for more IRS funding and enforcement for businesses and businesses wealthy taxpayers. That estimate, which Rettig made in a Senate hearing on Tuesday, is down from the official estimate of $ 441 billion a year between 2011 and 2013, before late payments and enforcement work were taken into account.
Items on the table that could move along with portions of President Joe Biden's recovery plan and additional IRS funding include mandates for new information reporting forms and more extensive audits of businesses and wealthy taxpayers.
Rep. Mike Quigley, D-Ill., Who chairs the subcommittee on funds responsible for the IRS, said Rettig's testimony would encourage support for Biden proposed 10.4% increase in IRS funding to $ 13.2 billion in fiscal 2022; and new tax enforcement measures for businesses and wealthy taxpayers. He said such tax enforcement measures could be developed along with the higher corporate taxes Biden was seeking in support of his recovery plan, which includes an infrastructure plan and an emerging package of family incentives.
"We have a $ 1 trillion tax gap. We have to do something. That's money that could help us protect ourselves and make sure people get quality education and health care," Quigley told Law360.
Quigley predicted strong pressure on Biden's demand for an enforcement upgrade of up to $ 900 million, mainly to collect more unpaid taxes from large corporations and high-income individuals.
A summary of Biden's plan said the government would develop a full enforcement initiative in the coming weeks to tackle alleged tax evasion by high-income businesses and taxpayers. A tax enforcement agenda was outlined that would "remove pieces of tax law that are too easily abused", allow the IRS to conduct more audits, and "ensure businesses pay their fair share".
The enforcement plan would be followed up Efforts by Rettig Case for upgrades to IRS funding and initiatives to redesign the agency and improve taxpayers' experience and training.
In addition to Biden's emerging tax enforcement agenda, some Liberal Democrats have promoted plans to get the IRS to expand audits on corporations and wealthy taxpayers and automatically collect more data on their finances.
For example, Rep. Ro Khanna, D-Calif., Endorsed a proposal, HR 1200, to provide $ 70 billion in IRS funding over a 10-year period, combined with new mandates to review 95% of the IRS Company with assets of more than $ 20 billion and 50% of taxpayers with incomes of more than $ 10 million. The bill would also require banks to file a new tax information form – similar to Form 1099-B for investment brokers – to report deposits, withdrawals, and other transactions made by high net worth clients, including pass-through business owners.
Senate Finance Chairman Ron Wyden, D-Ore., And House Ways and Means Chairman Richard Neal, D-Mass., Have expressed general support for broader enforcement efforts targeting businesses and the wealthy to address the issue Taxpayer First Act of 2019 to be followed up . You have opened the door to research into new measures that could expand information reporting by banks and banks virtual currency broker, but have taken a cooler stance on mandatory exam quotas proposed by Khanna and other liberal lawmakers.
"We will be looking at information reporting," Wyden told Law360, citing several proposals for new tax information reporting requirements for banks and cryptocurrency brokers.
Wyden has also called for the development of a comprehensive tax gap reduction plan that includes more IRS funding and focused enforcement efforts.
All new data collection mandates would be followed up a determination in the American Rescue Plan Act Lowering the threshold for an online platform to submit a Form 1099-K to report third-party self-employed person's network transactions to a flat $ 600 instead of the old benchmarks of $ 20,000 and 200 transactions under the Housing and Economic Recovery Act of 2008.
Proponents of increased reporting of information and mandatory audit rates for large corporations and high net worth taxpayers have pointed to a 2020 study by the Congressional Budget Office that found IRS audits increased 46% for corporate returns and 37% for individual returns. have decreased. According to the report, a $ 20 billion increase in IRS funding over 10 years would generate $ 61 billion in revenue, while a $ 40 billion increase in funding would generate $ 103 billion .
However, former IRS Commissioner John Koskinen said he doesn't think mandatory audit records would be an effective way to improve tax enforcement.
"The better approach is to increase funding for the IRS enforcement and let the agency, with its automated returns review, determine where to put those resources," Koskinen told Law360 in an email.
Charles Rossotti, another former IRS commissioner, confirmed that he had had discussions with Khanna's office about one facet of the legislature's bill: the banking information reporting requirement. He said the deployment of the Khanna Bill was similar to a proposal he helped develop when developing a new form for reporting information for banks called Form 1099-NEW.
Rossotti said more IRS funding was certainly needed. He noted, however, that it could take some time for lawmakers to push for a new information requirement for banks, which it is considering as part of a longer-term strategy to close the tax gap.
"We are trying to create the conditions for a long-term solution to a major problem," Rossotti told Law360.
While some Democrats in Congress are promoting new mandates for information reporting and for broader audits of businesses and wealthy taxpayers, some Republicans have advocated a more modest increase in IRS funding, focusing on investigation, technology, and customer service. The administration's request for a large general increase in IRS funding coincides with an expansion of responsibilities for the agency, including providing payments for economic impact and efforts to modernize and implement computer systems Agency restructuring plan mandated by Congress.
GOP lawmakers have resisted efforts by the Democrats to rapidly increase the agency's current presence of around 80,000 employees and to get closer to the agency's high water mark set about a decade ago – ahead of the cuts in the 2011 Budget Control Act – when it funded $ 14 billion and had nearly 95,000 employees. Some Republicans have questioned whether expanding tax enforcement and new mandates for intelligence reports or IRS audits would raise privacy concerns and hamper efforts by businesses and families to counter the fallout from the coronavirus pandemic.
Senator Jim Lankford, R-Okla., A senior appropriator and member of the finance committee, said he was skeptical of Biden's request for a large increase in IRS funding and a broader enforcement agency for the agency. He said some additional funding for technology might be warranted, but noted that he was skeptical of the agency's requests for more funding to upgrade systems over the years.
"At some point they have to change their line or try to figure out the problem and fix their systems," Lankford told Law360.
Lankford said he opposed mandatory audit rates for large corporations and wealthy taxpayers. He said it would be similar to asking taxpayers to "prove their innocence".
Other Republicans have questioned the need for better banking reporting on deposits, withdrawals and other high net worth transactions.
Rep. Steve Stivers, R-Ohio, former chairman of the National Republican Congressional Committee, said financial services companies have already filed a Form 1099-INT to report interest payments. He questioned the need for a proposed new form for banks to provide details of deposits, withdrawals and other high net worth clients' transactions.
Given the opposition from the GOP and mixed Democratic views, Senator Mark Warner, D-Va., A senior finance committee member, said he doubted the mandatory audit records would meet consensus lawmakers' approval. And he said a mandate for banks to submit a new information report form containing data on deposits, withdrawals and other transactions by wealthy taxpayers is a delicate prospect.
"That would be an upgrade," Warner told Law360.
– Editing by Tim Ruel and Robert Rudinger.
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