Omnibus Bill Includes Additional Funding for Incompetent, Corrupt IRS

The Democrats’ omnibus bill includes $12.594 billion in additional funding for the IRS, a 5.7 percent increase. In reality, the IRS needs reform, not new funding. Any additional funding would fuel an already incompetent and corrupt agency, would lead to the targeting of middle-class taxpayers and small businesses, and would be a down payment on Democrats’ larger plan to supersize the agency and give it more power.   

Specifically, the omnibus spending bill, or the Consolidated Appropriations Act of 2022, includes $12.594 billion in funding for the IRS, with about $5.43 billion of this funding going towards enforcement activities like audits and investigations explicitly.

Additional Funding Would Fuel IRS Incompetence and Corruption 

The IRS has been notorious for using its power to harass and abuse taxpayers. 

The last time the Democrats were in power, the IRS wrongly used its authority to target and harass taxpayers, especially conservative non-profits. Most notably, the Obama IRS was caught unfairly denying conservative groups non-profit status ahead of the 2012 election. Lois Lerner’s political beliefs led to tea party and conservative groups receiving disparate and unfair treatment when applying for non-profit status, according to a detailed report compiled by the Senate Finance Committee. Because of Lerner’s bias, only one conservative organization was granted tax exempt status over a period of more than three years. 

Additionally, Treasury Inspector General for Tax Administration (TIGTA) has repeatedly documented the IRS violating taxpayer rights. In one 2017 example, the IRS Criminal Investigation Division (IRS-CI) regularly violated taxpayers’ rights and skirted or ignored due process requirements when investigating taxpayers for allegedly violating the existing $10,000 currency transaction reporting requirements. In these reporting requirement cases, almost none found actual fraud, the IRS seized financial assets before ever having talked or consulted with the investigated taxpayers, the IRS didn’t attempt to verify reasonable explanations investigated taxpayers offered, taxpayers were not informed of important information nor the purpose of the interview, and IRS-CI agents most often didn’t properly identify themselves.  

Further, the IRS cannot be trusted to protect taxpayer data. Last year, thousands of Americans’ private taxpayer files were stolen, and several tax documents were published by the progressive news outlet ProPublica to push their own political agenda. More than six months later, the IRS has not provided any substantive response to this scandal.    

While this is concerning, it is not the only case where the IRS has failed to protect taxpayer data. For instance, a 2016 TIGTA report found that the IRS had lost track of 1,000 laptops containing sensitive taxpayer data that contract employees used. Similarly, in 2015, hackers stole the personal data of 330,000 taxpayers. Reports indicated that the hackers didn’t use suspected tactics but instead managed to steal data by going through the website and pretending to be regular people filing their taxes.    

More IRS Funding Will Lead to More Audits of the Middle-Class and Small Businesses 

Addition funding will be used for invasive and time-consuming audits of middle-class Americans and small businesses. The IRS previously announced a goal to increase small business audits by 50 percent. 

As previously reported by CNBC, experts say a fattened-up IRS would go after small businesses that necessarily depend on cash transactions: 

Certain small businesses may face an audit under the plan. “I think the industries that should be concerned are those in cash,” said Luis Strohmeier, a Miami-based CFP and partner at Octavia Wealth Advisors. 

[He expects the agency to scrutinize cash-only small businesses like restaurants, retail, salons and other service-based companies.] 

The wealthy and large corporations already have armies of lawyers and accountants that ensure they legally take advantage of the plethora of credits and deductions offered by the tax code. 

Further, the IRS already audits the largest corporations at high rates. It doesn’t matter how much more the agency receives in funding – they will not find violations in the law that do not exist.  

Instead, the agency will go after easier targets to find this money instead: businesses and individuals without legal teams and accountants.

New Funding Would be a Down Payment on the Left’s Goal to Supersize the IRS 

Democrats’ long-term goal is to give the IRS $80 billion in new funding to hire 87,000 new agents that will audit and harass American taxpayers.  

The Left also has goals to give the IRS new powers. President Biden and Congressional Democrats sought to create a “comprehensive financial account information reporting regime” to track the withdrawals and deposits of bank accounts, investment accounts, and Venmo, PayPal, and CashApp accounts of American individuals and businesses. This proposal would clearly harm Americans making less than $400,000 per year, despite assurances by the left. It would hit 87 to 134 million Americans earning less than $400,000 per year, according to an analysis by the Joint Committee on Taxation (JCT).  

Additionally, Democrats have pushed for a government tax preparation system, the collection of taxpayers’ biometric data, and a retroactive repeal of section 6751(b) of the tax code, a provision that protects taxpayers by requiring IRS agents to receive supervisory approval before imposing penalties on taxpayers.  

While Democrats claim that the IRS’s struggles are a simple result of a lack of funding, this argument does not hold up. Regardless of funding levels, the IRS has pleaded poverty for 40 years to justify its incompetence, as one ATR piece outlines.  

The IRS needs reform, not new funding. The agency has a long history of incompetence and corruption, and new funding would lead to more harassment of working families and small businesses and would set the stage for a supersized IRS.