Yellen outlines planned changes to the IRS in a $80 billion overhaul

Chancellor of the Exchequer Janet Yellen On Thursday, he detailed some of the Biden administration’s plans for the Internal Revenue Service as part of an $80 billion funding push, including expanding in-person services.

Speaking at the IRS facility in New Carrollton, Maryland, Yellen said the funding will help improve the IRS in the form of better technology, taxpayer services, and a stronger application focused on wealthy Americans and corporations.

“The Inflation Cuts Act finally provides the funding to turn the IRS into a 21st century agency,” Yellen said. “While not all improvements will be made overnight, taxpayers can expect to feel real differences during the upcoming filing season.”

The funding was included in the Democrats’ healthcare spending and climate change bill — dubbed the Inflation Cuts Act — that Biden signed into law last month.

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Janet Yellen

Janet Yellen, pictured here, gives a press conference in the US Treasury Cash Room in Washington, US on July 28, 2022. (Reuters/ Jonathan Ernst/Reuters Photo)

Yellen said the money will go towards increasing services in Tax help centers of the IRS It predicted these centers will have the capacity to help about 2.7 million Americans in the upcoming filing season, compared to about 900,000 now.

Additionally, she said, the IRS will employ about 5,000 customer service representatives in order to improve the IRS’s answering service. (Currently, the IRS has only been able to answer 2 of 10 phone calls.)

Providing the IRS with an influx of funding was a top priority for Democrats and emerged as one of the top funders of the $739 billion bill. But it sparked a fierce backlash from Republicans, who said strengthening the IRS could ultimately harm low-income Americans.

Department of Internal Revenue

Internal Revenue Service (IRS) headquarters in Washington, DC, US, Friday, February 25, 2022. (Photo: Al Drago / Bloomberg via Getty Images / Getty Images)

That’s because the IRS disproportionately targets low-income Americans when it conducts tax audits each year. In fact, families earning less than $25,000 a year are five times more likely to come under agency scrutiny than anyone else, according to another tax data analysis from fiscal year 2021 by the Records Access Transactions Clearinghouse (TRAC) at Syracuse University.

The reason for this is the rise of what are known as “mailing audits,” which means that the IRS conducts reviews of tax returns via letter or phone calls rather than the more complex face-to-face audits. Only a fraction – 100,000 of 659,000 audits in 2021 – were conducted in person.

According to the Syracuse study, more than half of the correspondence audits initiated by the IRS last year — 54% — involved low-income workers with gross earnings of less than $25,000, who claimed the Earned Income Tax Credit, an anti-poverty measure.

This disparity is primarily because high-income taxpayers have complex investments that can easily mask the gaps between taxes owed and taxes paid versus reported and paid taxes.

President Biden

President Joe Biden after signing HR 5376, the Inflation Reduction Act of 2022, in the White House dining room on August 16, 2022. (Photo by Demetrius Freeman/Washington Post via Getty Images)/Getty Images)

Yellen disputed that fear, confirming Thursday that she had directed the IRS not to increase audits on families with incomes less than $400,000 a year.


“Most importantly, I have directed not to use enforcement resources to raise audit rates for households earning less than $400,000 per year compared to historical levels,” she said. “In fact, we expect audit rates to drop for honest taxpayers, once the IRS has the right technology infrastructure in place. That means a simpler tax filing season for taxpayers who do everything right.”

Revenue collected through policies will go towards initiatives designed to combating climate change curbing drug prices, as well as efforts to reduce the country’s $30 trillion debt. It includes about $433 billion in new spending, while nearly $300 billion of new revenue collected will go to pay off the country’s deficit.

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