New IRS funding boosted tax enforcement and improved taxpayer services during the Biden administration
- Written by Ryan Polk, Assistant Professor of Accountancy, Clemson University
The Internal Revenue Service has ramped up its efforts to recover unpaid taxes from millionaires. It collected more than US$1.1 billion from 1,600 wealthy Americans[1] with known but unpaid tax debts in the 2024 fiscal year, up from just $38 million[2] a year earlier[3].
This boost in tax revenue occurred because of the Inflation Reduction Act[4], which President Joe Biden signed into law in 2022. It originally allocated $80 billion in new funding for the IRS over 10 years. Congress later reduced that sum to $60 billion[5].
The goal of this funding was twofold: to boost enforcement efforts[6] and to improve the taxpayer experience by modernizing outdated systems and hiring additional staff. The IRS, which processes 267 million tax returns and collects $5.1 trillion in tax revenues[7] annually, had long been operating with limited resources.
This new funding was a chance to change that.
Will I be audited?
The increased enforcement efforts[8] raised concerns from members of Congress[9] that the IRS might conduct more audits of middle-class taxpayers.
However, the IRS has emphasized[10] that these efforts are aimed at people making over $400,000 per year. The reality is that, for most Americans, the likelihood of an audit remains unchanged at about 0.3% for taxpayers earning below $400,000[11].
Audits are an important tool because some people don’t pay their taxes. In 2022, for example, Americans collectively owed about $696 billion in unpaid taxes[12]. This “tax gap[13]” is a key concern for the IRS and budget experts. Reducing it could help fund government programs without raising taxes, increasing deficits or cutting services.
To address this gap between taxes owed and taxes paid, the IRS used part of its new funding to triple the audit rates on large corporations[14] and increase audits on partnerships with more than $10 million in assets.
Additionally, the funding was used to invest in advanced technologies like artificial intelligence[15] to make enforcement activities more efficient and successful.
Overall, with the additional funding, the IRS made remarkable progress in the 2024 fiscal year, securing nearly $100 billion[16] through its audits of filed tax returns. This represented an additional $25 billion[17] in revenue from audits when compared with the year prior to the agency’s budget boost.
Notably, the IRS spent only 34 cents for every $100 collected through audits.
Improving service for taxpayers
The extra funding wasn’t just for enforcement.
The additional money was also for improving service for regular taxpayers who file on time and comply with tax laws. The IRS used $3.2 billion to improve its customer services[19], offering more pre-filing assistance, expanding its education, filing and account services, and stepping up taxpayer advocacy efforts.
Another $4.8 billion went toward modernizing the IRS’ outdated computer systems[20], making way for upgrades like callback technology for customer service lines and online platforms for uploading documents and responding to notices electronically.
With these extra resources, the IRS hired 5,000 additional customer service representatives[21], dramatically increasing the success rate of phone calls[22] being answered during the tax season[23] from just 15% to 87%.
The IRS also invested in improving its online services. Taxpayers can now create online accounts[24] to make payments, view transactions and upload documents[25], while new tools like the “Where’s My Refund?[26]” tracker make it easier to follow up on refunds.
The extra money helped the IRS tackle the enormous backlog that had caused so many taxpayer delays. The IRS hired more staff to address the backlog of unprocessed returns. Taxpayer Assistance Centers[27] across the country were able to increase their staffing and extend their hours, making in-person assistance more accessible for those who need it.
To make filing taxes even easier, the IRS piloted its “Direct File[28]” system in select states, allowing some taxpayers to file federal returns directly with the IRS for free. Overall, for most Americans, these investments mean shorter wait times, easier access to information, and a more streamlined tax filing process.
What’s next?
The future of IRS funding and priorities is uncertain under President-elect Donald Trump and the Republican Party’s control of Congress. As noted by James Creech[29], an executive at a large accounting firm, “The IRS makes a great political target because it’s one of the agencies that people love to hate,” making the funding a potential target in the next administration.
Furthermore, some Republicans campaigned[30] in 2024 on reducing IRS funding. They expressed concerns that expanded audits could disproportionately impact middle-class taxpayers and small businesses[31], and voiced fears of government overreach and privacy violations. This concern is likely related to accusations made a decade ago that the IRS unfairly targeted conservative nonprofits[32]. As it turned out, the IRS subjected conservative and progressive groups alike to heightened scrutiny[33].
However, during his first term, Trump actually proposed increasing the IRS enforcement budget. In 2019, his first administration called for $362 million in additional IRS enforcement funding[34], accurately arguing that tax enforcement brings in more revenue than it costs[35].
Like other accounting scholars[36], I’ll be watching to see whether the new administration will push for increased enforcement funding again, reverse the boost the IRS got during Biden’s presidency, or take a different path. Regardless of what the second Trump administration does, the increased funding of the IRS has already had a significant impact.
Targeted enforcement efforts have increased revenue and narrowed the tax gap, while investments in taxpayer services have made it easier for people to get the help they need. Additionally, I believe that the increase in trained agents and modernized systems have improved efficiency and laid the groundwork for a more effective IRS in the years to come.
References
- ^ US$1.1 billion from 1,600 wealthy Americans (www.irs.gov)
- ^ just $38 million (apnews.com)
- ^ year earlier (www.irs.gov)
- ^ Inflation Reduction Act (www.forbes.com)
- ^ later reduced that sum to $60 billion (www.journalofaccountancy.com)
- ^ boost enforcement efforts (theconversation.com)
- ^ 267 million tax returns and collects $5.1 trillion in tax revenues (www.irs.gov)
- ^ increased enforcement efforts (www.foxbusiness.com)
- ^ from members of Congress (www.cbo.gov)
- ^ IRS has emphasized (www.irs.gov)
- ^ 0.3% for taxpayers earning below $400,000 (www.irs.gov)
- ^ $696 billion in unpaid taxes (www.irs.gov)
- ^ tax gap (www.irs.gov)
- ^ triple the audit rates on large corporations (federalnewsnetwork.com)
- ^ advanced technologies like artificial intelligence (www.nytimes.com)
- ^ securing nearly $100 billion (www.irs.gov)
- ^ additional $25 billion (www.irs.gov)
- ^ Tasos Katopodis/Getty Images for Economic Security Project (www.gettyimages.com)
- ^ $3.2 billion to improve its customer services (www.taxpayeradvocate.irs.gov)
- ^ $4.8 billion went toward modernizing the IRS’ outdated computer systems (www.taxpayeradvocate.irs.gov)
- ^ additional customer service representatives (www.kiplinger.com)
- ^ success rate of phone calls (www.irs.gov)
- ^ answered during the tax season (www.taxpayeradvocate.irs.gov)
- ^ create online accounts (www.irs.gov)
- ^ upload documents (www.irs.gov)
- ^ Where’s My Refund? (www.irs.gov)
- ^ Taxpayer Assistance Centers (www.irs.gov)
- ^ Direct File (www.irs.gov)
- ^ As noted by James Creech (www.bloomberglaw.com)
- ^ some Republicans campaigned (www.morningstar.com)
- ^ disproportionately impact middle-class taxpayers and small businesses (thehill.com)
- ^ IRS unfairly targeted conservative nonprofits (www.washingtonpost.com)
- ^ progressive groups alike to heightened scrutiny (theconversation.com)
- ^ $362 million in additional IRS enforcement funding (www.cbpp.org)
- ^ tax enforcement brings in more revenue than it costs (www.brookings.edu)
- ^ accounting scholars (scholar.google.com)
