IRS Enhancement and Tax Gap Reduction Act of 2021

I 117TH CONGRESS 1ST SESSION H. R. 1116 To provide for increased audits, improved technology infrastructure, and in- creased staff for the Internal Revenue Service for the purpose of reducing the tax gap, and for other purposes. IN THE HOUSE OF REPRESENTATIVES FEBRUARY 18, 2021 Mr. DEFAZIO (for himself, Ms. SCHAKOWSKY, Mr. SMITH of Washington, Ms. NORTON, Ms. TLAIB, Ms. BONAMICI, Ms. OMAR, Mr. VELA, Ms. JAYAPAL, Mr. BEYER, Ms. OCASIO-CORTEZ, Mr. GARAMENDI, Mr. JOHN- SON of Georgia, Mr. DOGGETT, Mrs. NAPOLITANO, Mr. HASTINGS, Ms. SCANLON, Mr. JONES, Mr. MCGOVERN, Mr. GARCI´A of Illinois, Mr. CAR- SON, Mr. COOPER, Mr. COHEN, Mr. RASKIN, and Mr. KHANNA) intro- duced the following bill; which was referred to the Committee on Appro- priations A BILL To provide for increased audits, improved technology infra- structure, and increased staff for the Internal Revenue Service for the purpose of reducing the tax gap, and for other purposes. Be it enacted by the Senate and House of Representa- 1 tives of the United States of America in Congress assembled, 2 SECTION 1. SHORT TITLE. 3 This Act may be cited as the ‘‘IRS Enhancement and 4 Tax Gap Reduction Act of 2021’’. 5 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00001 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 2 •HR 1116 IH SEC. 2. FINDINGS. 1 Congress finds the following: 2 (1) According to the Office of the Taxpayer Ad- 3 vocate, the difference between tax liabilities owed to 4 the Internal Revenue Service and those liabilities ac- 5 tually collected by the IRS, known as the ‘‘tax gap’’, 6 averaged roughly $381,000,000,000 annually in un- 7 paid taxes from 2011 to 2013. 8 (2) Recent studies project that the tax gap will 9 be a cumulative $7,500,000,000,000 between 2020 10 and 2029. 11 (3) Between 2010 and 2018, the share of indi- 12 vidual income tax returns it examined fell by 46 per- 13 cent, and the share of corporate income tax returns 14 it examined fell by 37 percent. 15 (4) Individual income taxes are the largest 16 group of uncollected taxes before audits, rep- 17 resenting about $314,000,000,000. 18 (5) Estimates suggest that at least 70 percent 19 of the tax gap comes from underpayment by the top 20 1 percent. 21 (6) In 2020, the Treasury’s Inspector General 22 for Tax Administration announced that roughly 23 880,000 high-income individuals who didn’t file tax 24 returns between 2014–2016 failed to pay more than 25 $45 billion in owed liabilities. Of those 880,000 26 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00002 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 3 •HR 1116 IH cases, more than 325,000 were closed without ever 1 being entered into the Internal Revenue Service’s 2 (IRS) enforcement system, more than 40,000 cases 3 were entered but were then subsequently closed 4 without ever being worked on, and the remaining 5 500,000 cases are ‘‘sitting in one of the collection 6 function’s inventory streams and will likely not be 7 pursued as resources decline’’. 8 (7) In 2011, more than 12 percent of individ- 9 uals making $1,000,000 or more annually were au- 10 dited. In 2018, only 3.2 percent of such individuals 11 were audited. 12 (8) For 8 years in a row, IRS tax enforcement 13 has declined. The IRS audited 0.45 percent of per- 14 sonal income-tax returns in fiscal year 2019, the 15 lowest level in at least 4 decades. 16 (9) Individuals are about half as likely to be au- 17 dited now compared to 2010. 18 (10) Audit rates for those making $10,000,000 19 or more fell from more than 14 percent in 2017 to 20 roughly 6.5 percent in 2018. 21 (11) Over the course of the past decade, the 22 number of income tax returns has increased by 23 roughly 9 percent. 24 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00003 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 4 •HR 1116 IH (12) Audit rates for the largest corporations in 1 2011 were more than 90 percent. Now, they are 2 closer to 50 percent. 3 (13) The corporate share of Federal tax rev- 4 enue has dropped by more than two-thirds in the 5 past 65 years. 6 (14) In 2010, corporate taxes accounted for 9 7 percent of Federal revenue. 8 (15) The Tax Cuts and Jobs Act has pushed 9 business taxes to record lows, and, according to the 10 Institute on Taxation and Economic Policy, 91 of 11 the Fortune 500 companies paid $0 in income tax 12 in 2018 despite turning a profit. 13 (16) According to a report from the Office of 14 the Taxpayer Advocate, the average United States 15 household is paying an annual surtax of more than 16 $3,000 to subsidize taxpayers who aren’t paying all 17 that they owe. 18 (17) According to the Congressional Budget Of- 19 fice, the IRS’s budget is roughly 20 percent below 20 its peak 2010 inflation-adjusted budget. 21 (18) According to the IRS, the agency has lost 22 roughly 30,000 full-time positions since 2010, more 23 than 20 percent of its staff. 24 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00004 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 5 •HR 1116 IH (19) The amount of IRS funding and staff allo- 1 cated to enforcement activities has declined by about 2 30 percent since 2010. 3 (20) According to the IRS, roughly 30 percent 4 of its workers will retire within the next 5 years. 5 (21) Despite this, the agency has also seen in- 6 creased workload due to the implementation of the 7 Affordable Care Act, the Tax Cuts and Jobs Act, 8 and the COVID–19 pandemic. 9 (22) Studies have shown that investing in en- 10 forcement and tightening rules could generate more 11 than $1,000,000,000,000 over a decade. 12 (23) The Federal Government estimates that 13 each additional dollar spent on tax enforcement 14 could yield more than $4 in revenue. 15 (24) IRS data demonstrates that an extra audi- 16 tor-hour spent auditing returns for those earning 17 $5,000,000 or more raises nearly $5,000. 18 (25) In fiscal year 2018, the IRS collected 19 nearly $3,500,000,000,000 on a budget of about 20 $11,430,000,000. 21 (26) The Congressional Budget Office estimates 22 that increasing the IRS’s funding for examinations 23 and collections by $20,000,000,000 over 10 years 24 would increase revenues by $61,000,000,000, and 25 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00005 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 6 •HR 1116 IH that increasing such funding by $40,000,000,000 1 over 10 years would increase revenues by 2 $103,000,000,000. 3 SEC. 3. IMPROVING RESOURCES AVAILABLE TO THE INTER- 4 NAL REVENUE SERVICE TO REDUCE THE TAX 5 GAP. 6 (a) IMPROVING AUDITS.— 7 (1) IN GENERAL.—There is appropriated 8 $5,000,000,000 for an additional amount for the 9 ‘‘Department of the Treasury—Internal Revenue 10 Service—Enforcement’’ account, for each of fiscal 11 years 2022 through 2031— 12 (A) for the salaries and expenses of addi- 13 tional staff to increase audits to not less than 14 the minimum levels described in paragraph (2); 15 and 16 (B) for necessary expenses for tax enforce- 17 ment activities in order to determine and collect 18 owed taxes, to conduct criminal investigations, 19 and to enforce criminal statutes related to viola- 20 tions of internal revenue laws and other finan- 21 cial crimes. 22 (2) AUDITING LEVELS.—The minimum levels 23 described in this paragraph are as follows: 24 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00006 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 7 •HR 1116 IH (A) Fifty percent of individuals or joint re- 1 turns with gross income of not less than 2 $100,000,000. 3 (B) Thirty-five percent of individuals or 4 joint returns with gross income of not less than 5 $10,000,000 and less than $100,000,000. 6 (C) Twenty percent of individuals or joint 7 returns with gross income of not less than 8 $5,000,000 and less than $10,000,000. 9 (D) Ten percent of individuals or joint re- 10 turns with gross income of not less than 11 $1,000,000 and less than $5,000,000. 12 (E) Ninety percent of corporations with 13 gross income of not less than $20,000,000,000. 14 (F) Fifty percent of corporations with 15 gross income of more than $1,000,000,000 and 16 less than $20,000,000,000. 17 (b) IMPROVING TECHNOLOGY INFRASTRUCTURE.— 18 There is appropriated for each of fiscal years 2022 19 through 2031, for efforts collecting and protecting tax- 20 payer information, reducing tax-related theft and fraud, 21 and modernizing the technology infrastructure of the In- 22 ternal Revenue Service— 23 VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00007 Fmt 6652 Sfmt 6201 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS 8 •HR 1116 IH (1) $3,800,000,000 for an additional amount 1 for the ‘‘Department of the Treasury—Internal Rev- 2 enue Service—Operations Support’’ account; and 3 (2) $500,000,000 for an additional amount for 4 the ‘‘Department of the Treasury—Internal Revenue 5 Service—Business Systems Modernization’’ account. 6 (c) ENHANCING TAXPAYER SERVICES.—There is ap- 7 propriated $2,500,000,000 for an additional amount for 8 the ‘‘Department of the Treasury—Internal Revenue 9 Service—Taxpayer Services’’ account, for each of fiscal 10 years 2022 through 2031, for the salaries and expenses 11 of additional staff to achieve adequate staffing levels to 12 provide taxpayer services, including pre-filing assistance 13 and education as well as filing and account services. 14 Æ VerDate Sep 11 2014 16:06 Mar 13, 2021 Jkt 019200 PO 00000 Frm 00008 Fmt 6652 Sfmt 6301 E:\BILLS\H1116.IH H1116 khammond on DSKJM1Z7X2PROD with BILLS