IRS Plan to Collect $400 Billion in Unpaid Taxes Relies on ‘More Cops on the Beat’: Treasury

Then U.S. Deputy Secretary of the Treasury nominee Wally Adeyemo speaks during an event at the Queen Theater in Wilmington, Del., on Dec. 1, 2020. Alex Wong/Getty Images

The federal government is aiming to obtain $400 billion in new revenue over the next decade as part of the White House-backed $1.75 trillion social spending plan, according to a top Treasury official.

Increased Internal Revenue Service enforcement to collect unpaid taxes makes up the largest source of revenue in the legislation to be considered by Congress this week, Deputy U.S. Treasury Secretary Wally Adeyemo told Reuters on Monday. Adeyemo said that the agency is planning to carry out more audits to deter tax avoidance among wealthier Americans.

Adeyemo said that the IRS is planning to hire more agents, pursue more audit cases, and update its systems. The flurry of increased activity, he argued, will put more pressure on some individuals to hide their income.

“When you are focusing on audits and people see that audits are happening—especially amongst people who are situated similar to them—you have better compliance,” Adeyemo told the news outlet. “When they see more cops on the beat looking at tax returns, what people will decide is that it’s better to pay than to pay the penalty in the end.”

In April, IRS Commissioner Chuck Rettig said that about $1 trillion in taxes go uncollected each year and called on Congress members to provide more funding to pursue tax fraud cases.

“If you add those in, I think it would not be outlandish, that the actual tax gap could approach, and possibly exceed $1 trillion” on a year-by-year basis, he told Congress at the time.

Previously, the Treasury Department sought a policy that would require banks to report account inflows and outflows of as little as $600 per year to allow the IRS to find audit targets, which drew significant concern among lawmakers about a potential invasion of Americans’ privacy. It was ultimately dropped from the $1.75 trillion package last week.

Top House Democrats, including Speaker Nancy Pelosi (D-Calif.), had largely supported the plan. Banks and many Republicans, however, strongly criticized the move and relayed concerns from their clients and constituents to Congress in recent weeks.

But in the interview, Adeyemo suggested that the IRS would pursue different avenues, including machine learning and advancements in technology.

“The question becomes how do you use the resources of the IRS to verify and validate and where that is not possible to go out and ask questions. And we'll have a bunch more people who can ask those questions,” Adeyemo said, adding, “We’re not going to be able to close the entire gap with these resources, but we do think that we’re going to make a significant dent.”