ANALYSIS: IRS Under Biden Taxing Americans More Than Trump

The IRS building is seen in Washington on Sept. 28, 2020. Erin Scott/Reuters

The amount of taxes collected from Americans under President Joe Biden has soared compared to former President Donald Trump’s tenure, while tax enforcement has also risen, an analysis of Internal Revenue Service (IRS) data shows.

The IRS collected a total of $4.9 trillion in taxes for fiscal year 2022 (Oct. 1, 2021 to Sept. 30, 2022), according to the IRS' newly released Data Book. At the same time, the IRS issued nearly $642 billion in refunds last year, putting the net amount of taxes collected at around $4.26 trillion.

By comparison, in fiscal year 2020, Trump’s final year in office, the IRS' gross tax collections were $3.5 trillion. With nearly $736 billion in refunds, that puts the net total taxes collected at around $2.76 trillion, or around 35 percent less than during Biden’s second year in office.

For fiscal year 2021, Biden’s first year in office, the IRS' gross tax collections amounted to $4.1 trillion. When subtracting the $1.1 trillion in refunds, that put the net total at $3 trillion, or 8 percent higher than during Trump’s final year in the White House.

Tax enforcement, too, has accelerated under Biden. Using the number of tax returns examined as a proxy for enforcement, there was a steady decline under Trump, with a recent low of around half a million in 2020. That figure jumped to around 750,000 in 2021 and, in 2022, it remained at roughly the same level.

The number of tax returns examined by the IRS for the fiscal years 2013-2022. IRS

IRS Commissioner Danny Werfel said in an introduction to the 2022 Data Book that the agency’s commitment to maintaining a “visible, robust tax enforcement presence” is “strong.”

“During FY 2022, we continued to develop and utilize innovative approaches to better understand, detect, and resolve potential noncompliance,” Werfel said, adding that this includes “leveraging new technology and data analytics.”

“Our comprehensive and coordinated enforcement strategy has shown success,” he added, presumably referring to the rise in the amount of tax collection and the boost in enforcement.

Werfel added that the IRS' work to transform itself into a “stronger, more modern” organization continued in 2022 and that he’s “confident this journey will pay significant dividends over time.”

The agency recently received an $80 billion funding boost, with part of the funds going to hiring more staff, including in areas of tax enforcement. This has fueled concerns about an increase in tax audit rates among lower and middle income Americans, which the IRS has said repeatedly would not be the case.

The IRS recently released its strategic operating plan (pdf), in which it identified certain transactions as being at high risk of noncompliance and vowed to ramp up enforcement in some areas.

In a press release accompanying the release of the 2022 Data Book, the IRS said it would target its enforcement efforts at high-income and high-wealth individuals, complex partnerships, and big corporations.

“The IRS has no plans to increase the audit rate for households making less than $400,000,” the agency stated.

As the IRS has increased the amount of taxes it collects from Americans, however, the share of people saying that it’s “not at all acceptable” to cheat on income taxes has fallen sharply.

From 2021 to 2022, the share of Americans saying that it’s “not at all acceptable” to cheat on taxes fell from 88 percent to 84 percent, the lowest reading in six years.

Enforcement Crackdown

The IRS said in the plan that it would increase enforcement regarding digital asset transactions and certain other types of transactions.

“The IRS tracks many known, high-risk issues in noncompliance, such as digital asset transactions, listed transactions, and certain international issues. These issues arise in multiple taxpayer segments, and data analysis show a higher potential for noncompliance,” the IRS wrote.

“We will prioritize resources to increase enforcement activities, including criminal investigation as appropriate.”

The tax agency stated that it will develop an information platform to support digital asset reporting and analytics tools with the aim of bolstering digital asset compliance.

Digital assets include convertible virtual currency, cryptocurrency, stablecoins, non-fungible tokens (NFTs), and other digital representations of value, according to the IRS.

Digital assets are considered property by the IRS, which requires taxpayers to report taxable gains or losses from transactions involving such assets.

‘Soft Notice’ Instead of Tax Audits

Although the IRS vowed to ramp up enforcement of certain transactions and said it’s planning to get tough on wealthier tax dodgers, it stated that it would soften its enforcement efforts for ordinary filers.

The agency stated that it’s rolling out a new program of “tailored post-filing treatments” to resolve issues and omissions on tax returns to provide an opportunity to remedy them before proceeding to a tax audit.

The IRS will use “advanced analytics” to distinguish taxpayers who make good-faith mistakes on their tax returns from those trying to avoid paying what they owe.

The program would then notify the honest-but-errant taxpayers in a way that gives them an opportunity to self-correct.

“We will address issues identified after filing that require IRS intervention promptly and in ways tailored to the specific circumstances of the taxpayer, such as a soft notice to encourage self-correction instead of an audit,” the agency stated.

“Notification could start with a soft notice, for example, and move to an audit if no action is taken or the issue remains unresolved.”

The IRS stated that resorting to “less-intrusive treatments” would give taxpayers who want to be compliant a quick and easy way to correct issues that have emerged after they’ve filed their tax returns while helping to prevent “unnecessary audits.”

The IRS stated that it hopes, as a result of the new initiative, to see a higher incidence of taxpayers correcting or self-correcting issues and a reduction in repeat noncompliance.

The agency also expects the initiative to boost the incidence of taxpayers paying what they owe.

$1.5 Billion in Unclaimed Refunds

In recent tax season developments, the IRS said last week that over a million Americans have unclaimed tax refunds for the tax year 2019 and face a looming deadline to claim a total of $1.5 billion before it becomes government property.

The agency said in a press release that nearly 1.5 million people across the United States have unclaimed refunds because they haven’t filed their tax returns for the 2019 tax year.

Normally, the deadline for filing older tax returns falls around the April tax deadline. But for 2019 returns, that window has been extended to July 17 owing to the COVID-19 pandemic.

There’s a three-year window for taxpayers to file returns and claim refunds. If they don’t file within three years, any money they could have received becomes the property of the U.S. Treasury.

The average unclaimed amount for the 2019 tax year is $893 per filer.

Some Taxpayers Can Get Bigger Refunds

Taxpayers who reported certain state payments related to general welfare and disaster relief as taxable income on their tax returns in many cases did so unnecessarily, the IRS said in a recent press release.

Earlier this year, the IRS determined that taxpayers in nearly two dozen states didn’t need to report these special payments in tax year 2022.

Taxpayers in the following states don’t need to report any state payments related to general welfare and disaster relief: California, Colorado, Connecticut, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, New York, Oregon, Pennsylvania, and Rhode Island.

Alaska is also in this group, although the payments covered by the IRS notice apply only to special supplemental Energy Relief Payments.

In addition, four states are special cases in terms of relief payment taxability because they issued such payments in the form of refunds of state taxes paid: Georgia, Massachusetts, South Carolina, and Virginia.

“For these individuals, state payments will not be included for federal tax purposes if the payment is a refund of state taxes paid and the recipient either claimed the standard deduction for tax year 2022 or itemized their tax year 2022 deductions but did not receive a tax benefit,” the IRS said.

Taxpayers who meet the above criteria and needlessly paid tax on special state payments can file an amended return either electronically or in paper form.

Electronic filers can opt for a direct deposit, while paper filers can expect a paper check for any resulting refunds.