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IRS Cracking Down On Tax Fraud

SCOTT SIMON, HOST:

Tax filing deadline was on Monday, a month later than usual because of the pandemic. The Treasury Department says most ordinary wage-earners pay all their taxes that they owe, but people who make money in other ways are less likely to pay, and as a result, hundreds of billions of dollars in taxes don't get collected every year. The Biden administration hopes to narrow the so-called tax gap between what people owe and what they actually pay and, in so doing, help defray the cost of the administration's ambitious agenda.

NPR's chief economics correspondent Scott Horsley joins us now. Scott, thanks very much for being with us.

SCOTT HORSLEY, BYLINE: Good morning.

SIMON: And what exactly is the administration proposing?

HORSLEY: The administration wants Congress to invest $80 billion in the IRS over the next decade. Some of that money would go to modernize computer systems that date from the 1960s. Some would also double the size of the IRS workforce, which has been seriously eroded over the last decade, and that erosion really shows. Back in 2010, people who made more than $10 million had about a 1 in 5 chance of getting audited. But by 2018, those odds had dropped to about 1 in 15. And, Scott, just as people are more likely to speed when there are no cops on the highway, that drop in IRS enforcement has made it more tempting for people to pay less than they owe in taxes.

SIMON: Tempting, tempting. Who would be affected if tax enforcement was strengthened?

HORSLEY: The administration says the additional resources would be directed at upper-income taxpayers, not ordinary wage-earners, and here's why. When I get my paycheck from NPR, the IRS knows exactly how much money I make because my employer reports it. So it would be pretty hard for me or any other wage-earner to cheat on my taxes. But let's say I own a rental property or some other investment that generates income in a less transparent way. That's where the real temptation to avoid taxes comes in because the IRS has a much more difficult time tracking that income. So in addition to hiring more auditors, the administration also wants to impose new reporting requirements on banks and other financial institutions to make it harder for people to hide their income and avoid the taxes that they owe.

SIMON: Do they project how much money this plan could generate?

HORSLEY: The Treasury Department estimated this week that with beefed up enforcement, the IRS could collect an additional $700 billion over the next decade. That would be a return of nearly $9 for every additional dollar the White House wants to spend on the IRS. IRS Commissioner Charles Rettig, who is a Trump appointee, did not exactly endorse that figure, but he did tell senators this week stepped up enforcement could put a significant dent in the tax gap.

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CHARLES RETTIG: I do know it would be a game-changer for the country in terms of what the IRS would be able to bring from amounts lawfully owed.

HORSLEY: And, of course, that extra revenue would help to pay for some of the other costly items on the administration's wish list.

SIMON: What kind of public reaction is this likely to get?

HORSLEY: The IRS is not the most popular government agency, although it may be a little more popular this year after sending out three rounds of federal relief payments. But this is likely to be a battle in Congress. You're already seeing pushback from anti-tax lobbying groups. Here's an ad from a group that calls itself the Coalition to Protect American Workers that's trying to make the IRS agent sound as scary as possible.

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UNIDENTIFIED PERSON: They're coming - IRS agents. Biden's massive tax increase plan includes a staggering 80 billion to help recruit an army of IRS agents, agents aggressively coming for every dime they can grab at your house and at our small businesses.

HORSLEY: At the same time, though, no one likes the idea they're paying taxes while someone else is getting away without paying, so the administration will paint this proposed enforcement push as an effort at tax fairness.

SIMON: NPR's Scott Horsley, thanks so much.

HORSLEY: You're welcome.

(SOUNDBITE OF J.J. JOHNSON'S "CAROLYN (IN THE MORNING)") Transcript provided by NPR, Copyright NPR.