According to Law360 improving the Internal Revenue Service's ability to combat high-income tax evasion could lead to $2.3 trillion in additional tax revenue over the next 20 years, according to a report published Thursday by the U.S. Treasury Department.
Boosting the budget for the IRS, allowing the agency to use third-party information reporting to verify businesses' income, overhauling antiquated agency technology and regulating paid tax preparers would all help close the tax gap, or revenue lost due to noncompliance, according to Treasury's report.
"Working to close the tax gap reflects a commitment to ending our two-tiered tax system, one where most American workers pay their full obligations, but high earners who accrue income from opaque sources often do not," the report said.
A Way That Will Pay Large Dividends In This Decade
And In The Decades To Come."
The tax enforcement initiatives, if enacted, would lead to $700 billion in additional tax revenue raised over the next decade and $1.6 trillion in the second decade, according to Treasury's report. Those additional revenues in the first decade equate to about a 10% reduction in the tax gap, Treasury said.
Treasury released the report after President Joe Biden unveiled his American Families Plan last month, which included the tax enforcement initiatives and higher taxes on wealthy individuals to help offset plans to expand tax credits for child care, working adults and health insurance.
Biden's tax enforcement plan calls for an $80 billion investment in the IRS over the next 10 years to hire new enforcement officers, overhaul the agency's information technology infrastructure and improve taxpayer services, according to the report. Those investments would be directed toward combating tax evasion by those earning more than $400,000 in income, Treasury said.He Increase In The IRS Budget Would Represent A Nearly 40% Increase Over Its 2011 Levels But Is "Necessary" Given The Breadth Of Responsibilities That The Agency Has, Which Have Only Increased Over Time, Treasury Said.
Biden's plan also calls for financial institutions to increase the information they report to the IRS on business income beginning in 2023, but those new reporting requirements wouldn't apply to smaller entities that fall under a "gross flow" threshold, according to the report. The new reporting regime would apply to banks and other financial institutions, including cryptocurrency exchanges, Treasury said.
"Specifically, the annual return would report gross inflows and outflows on all business and personal accounts from financial institutions, including bank, loan and investment accounts but carve out exceptions for accounts below a low de minimis gross flow threshold," the report said.
Allowing the IRS and Treasury to regulate paid tax preparers would also improve tax compliance, as oftentimes those tax preparers who are unregulated "make costly mistakes" inaccurately reporting income to the agency, the report said.
Senate Finance Committee Chair Ron Wyden, D-Ore., told Law360 in a statement that he is working on legislation to implement pieces of Biden's tax enforcement plan.
"The Treasury Department has put forward a comprehensive plan to rebuild the IRS and crack down on tax cheats who are stealing billions from the American people," Wyden said. "Increased funding and staffing, information reporting, and an emphasis on pass-through businesses are critical to making real progress in collecting taxes owed."
A spokesperson for the House Ways and Means Committee Democrats said that they support Biden's call for increasing the IRS' budget, and would work with the administration to develop legislation in accord with its tax enforcement plan.