IRS Audits Will Impact Small, Midsize Businesses, Expert Testifies

The Internal Revenue Service (IRS) Building in Washington on March 22, 2013. Susan Walsh/AP Photo

The Biden administration’s assurances that there will be no expanded tax audits on businesses and households making less than $400,000 per year applies to “total positive” income without losses, according to testimony before the Senate Finance Committee.

Chris Edwards of the CATO Institute testified before the committee on May 16 on the issue of the $80 billion in additional funds given to the Internal Revenue Service (IRS) as part of the Inflation Reduction Act.

During Edwards’ testimony, he was questioned by Sen. Charles Grassley (R-Iowa) about the promise, asking whether it was true that the $400,000 threshold assessed “total positive income.”

Edwards confirmed that the IRS plan was to assess income without accounting for losses and that the increased audits would likely impact “mainly small to midsize businesses, who actually may have [adjusted gross income] under 400,000.”

Sen. John Thune (R-S.D.) pointed out that when the IRS was given $80 billion, it was roughly equal to six times the agency’s 2022 budget, of which 46 billion is directed toward enforcement activities.

Edwards also pointed to the fact that on many occasions when audits lead to enforcement, the IRS is not correct in its assertion: “If you look at tax court cases over the last five years, the IRS gets it wrong about half the time,” he said. “The IRS only got 48 percent of the dollars that demanded.”

Grassley said that “even if an audit results in no additional taxes due, a taxpayer can still spend countless hours and incur significant costs responding to the IRS.”

Biden doubled down on his administration’s plan, telling the International Union of Operating Engineers in Maryland in mid-April: “[The] Inflation Reduction Act is going to bring down the deficit by hundreds of billions more in the decades ahead. And again, not a single Republican voted for it.

“Let me be clear again: Under my plan, no one earning less than $400,000 has seen, nor will see, as long as I’m president, a single solitary penny raised in their taxes. Not a single penny.”

In addition to the known risks and benefits of the increased funding to the IRS, Pete Sepp of the National Taxpayers Union pointed out that the amount of funding allocated to the IRS has never been accompanied by so little detail.

“The 1998 IRS Restructuring and Reform Act [was] preceded by a 200-page report [and a] 184-page long bill,” Sepp said.

“The taxpayer first act of 2019 [was] preceded by upward of four years worth of hearings, stakeholder engagement, and a 250-page implementation report. We got nine paragraphs in the Inflation Reduction Act to describe an agency transformation.”

The White House did not immediately respond to The Epoch Times’ request for comment.