A Stronger IRS Helps Make Our Tax System Fairer For Families

As tax filing season begins, you may be wondering about recent efforts to strip the IRS of billions of dollars of funding. Last week, House Republicans voted to rescind the $80 billion in new IRS funding included in the Inflation Reduction Act of 2022. While this cut will not ultimately be enacted (the Democratically-controlled Senate will not pass the bill and President Biden has indicated he would veto it), it brings attention to the critical need for more – not reduced – IRS funding. Increased investment in the IRS is especially important for low to moderate-income households that are owed thousands of dollars in tax refunds, including the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).

Last year’s Inflation Reduction Act provided the IRS with much-needed funding to improve IRS customer service and increase tax enforcement efforts among wealthy and large corporate tax evaders. Chronically underfunded, the IRS has struggled with both. In her recent 2022 Annual Report to Congress, National Taxpayer Advocate Erin M. Collins noted that while Inflation Reduction Act funding is not a silver bullet, it represents a “critical opportunity to significantly improve its delivery of taxpayer services…”

Because the IRS was understaffed, millions of taxpayers waited months for their tax refunds during the last three years. In her report to Congress, the National Taxpayer Advocate put it plainly, “For the third year in a row, the IRS failed to meet its responsibility to pay timely refunds to millions of taxpayers.” While e-file returns were generally processed in a timely manner, taxpayers who submitted paper returns or whose e-file returns had been “suspended” (suspended returns require additional review by IRS staff) faced delays. In its December 2022 report, the Treasury Inspector General For Tax Administration found that despite improvements in the number of tax returns processed, the IRS will still have a backlog of millions of returns moving into the 2023 Filing Season. 

In addition, the vast majority of taxpayers hoping to speak with the IRS via phone in 2022 were unsuccessful. While a higher percentage of calls were answered in 2022 than 2021, only 13 percent of callers to the IRS in 2022 reached a telephone assistor. And hold times for callers actually increased six minutes to 29 minutes on average in 2022.

Not only have inadequate funding and the ongoing ramifications of the Covid pandemic eroded the IRS’s ability to provide acceptable service to taxpayers, they have hamstrung the agency’s capacity to collect taxes from wealthy individuals and corporate taxpayers. As Indivar Dutta-Gupta of the Center for Law and Social Policy & Gary Cunningham of Prosperity Now noted in a recent article, “Audit rates for the wealthiest individuals and large corporations have dropped sharply since 2010. Families with low incomes, especially families of color, are relatively easy and inexpensive to audit compared to the rich who can protect themselves with expensive legal services.” Indeed, Treasury Department spokesperson Ashley Schapitl noted that, “The I.R.S. audits nearly 80 percent fewer millionaires than a decade ago…” 

While some Republicans have painted a picture of an intrusive IRS using its expanded funding to go after ordinary Americans, it is wealthy individuals shirking their tax obligations who will feel the agency’s increased enforcement capacity. Low to middle-income families stand to benefit from these investments. Adequate IRS funding is critical to ensuring that families receive their tax credits, like the CTC and EITC, in a timely fashion. As community partners, you have likely helped families navigate challenges accessing their tax credits. Even once they file tax returns, families may struggle to receive the money they are owed because of various issues, including instances in which more than one person claims the same dependent. The IRS needs adequate funding to help taxpayers resolve these issues promptly. Only then can families get the money they are owed and use it to pay for food, housing, utilities, and other critical needs.