Smith Statement on Report Showing IRS Failure to Protect Law-Abiding Families and Small Businesses

Washington, D.C. - Today, Congressman Adrian Smith (R-NE) released the following statement after the Treasury Inspector General for Tax Administration (TIGTA) released a new report finding the Internal Revenue Service (IRS) has not yet fully implemented a 2022 directive by Treasury Secretary Janet Yellen prohibiting the agency from using its $80 billion in stimulus funding to increase audits on taxpayers with incomes below $400,000.

"This week's TIGTA report validates what has been clear all along. Secretary Yellen's instruction not to increase IRS audits of taxpayers earning less than $400,000 was not a serious policy directive. It was hollow political messaging intended to provide cover for congressional Democrats who had just voted to increase audits on law-abiding middle-class families and small businesses in their districts. Not only has IRS made little demonstrable progress on this directive, TIGTA's report reveals many of the problems IRS faces with utilizing its supersized funding while meeting this standard. To make its own numbers work, it is likely IRS will need to shift resources away from audits focused on instances of higher fraud and improper payment rates and instead target law-abiding small business owners and middle-class families.

Given the challenges with implementing this policy which have been acknowledged by IRS, the best course of action is to enact my bill to repeal the remainder of IRS's $80 billion in mandatory funding and work through the appropriations process - the correct way to provide funding to federal agencies - to ensure IRS is appropriately funded and is prioritizing cases with the highest likelihood of fraud or error for audit."

BACKGROUND:

Smith, along with Rep. Michelle Steel (R-CA), introduced the Small Family and Small Business Taxpayer Protection Act (H.R. 23) to repeal $80 billion in IRS funding signed into law by the Biden-Harris Administration in 2022 (Public Law 117-169). H.R. 23 was passed by the U.S. House of Representatives in January 2023. According to a 2021 Treasury Department report, this funding was intended to increase the IRS workforce by 87,000 employees, with most funding dedicated to increasing the IRS's capacity audit taxpayers.

TIGTA's findings in this week's report include:

• The IRS has not yet finalized a methodology for calculating audit coverage in 2018, the historical year against which it is basing its compliance with the 2022 Treasury directive.
• The IRS is not considering the risk of a marriage penalty between individual filers and married couples earning $400,000 or more per year.
• IRS has not yet defined "small business" for purposes of measuring compliance with the 2022 Treasury directive.
• The IRS has not established a timeline to develop definitions and calculations.
• The IRS has not consistently documented work pertaining to implementing the 2022 Treasury directive.

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