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Treasury and IRS push House Democrats to expand crackdown on tax cheats

"A reporting regime that is broad-based will better assist the IRS in targeting enforcement priorities on the high-end who accrue income in opaque ways,” Treasury Secretary Janet Yellen wrote in a letter to the chair of the House Ways and Means Committee.
"A reporting regime that is broad-based will better assist the IRS in targeting enforcement priorities on the high-end who accrue income in opaque ways,” Treasury Secretary Janet Yellen wrote in a letter to the chair of the House Ways and Means Committee.Valeria Mongelli/Bloomberg

WASHINGTON — Treasury Secretary Janet Yellen and Internal Revenue Service Commissioner Charles Rettig are urging senior House Democrats to do more to help the government crack down on tax cheats, pushing back against a House committee’s exclusion of a key enforcement provision.

In letters to House Ways and Means Committee Chair Richard Neal, a Massachusetts Democrat, Yellen and Rettig stressed the importance of adopting both an increase in funding for the IRS and new bank reporting requirements designed to help the agency target wealthy Americans dodging their tax obligations. Neal’s tax proposal, released earlier this week, included an approximately $80 billion increase in funding for the IRS but left out the new reporting requirements pushed by the administration.

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The IRS’s funding and powers are a central component of the $3.5 trillion economic package that Democrats are trying to advance through Congress. House lawmakers are trying to put the finishing touches on their version of the bill, but they still must negotiate the entire package with Senate Democrats and there is ample time for changes to be made.

House Democrats have cited nonpartisan estimates suggesting that the new IRS funding could alone raise roughly $200 billion in new revenue over 10 years, but Treasury officials believe approving both measures in tandem could raise closer to $700 billion. Banking groups have opposed the measure and alleged it would saddle businesses with unnecessary compliance costs, while Republican lawmakers have said it amounts to an intrusion of the federal government into private taxpayer information.

Yellen and Rettig state that compliance rates are under 50 percent for “opaque sources of income,” whereas compliance rates are at 99 percent for the wage and salary income paid by the vast majority of Americans. The administration previously unveiled plans that would require financial institutions to provide additional information about taxpayer income to the IRS.

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Yellen’s letter is adamant that audit rates under the plan would not go up for “anyone with less than $400,000 in income.”

“A reporting regime that is broad-based will better assist the IRS in targeting enforcement priorities on the high-end who accrue income in opaque ways,” Yellen’s letter said. “Any suggestion that instead this reporting regime will be used to target enforcement efforts on ordinary Americans is wholly misguided.”

Rettig, chosen by former president Donald Trump to lead the IRS, also wrote to Neal to support additional third-party reporting requirements as useful for tax compliance. The IRS is typically regarded as an apolitical body and tax experts consider it unusual for the agency to weigh in on a political legislative debate.

“This additional information will improve our ability to effectively administer the tax code, leading to higher rates of compliance,” Rettig tells Neal in the letter, stressing that more reporting requirements could help the IRS reduce its audits of taxpayers who are in compliance with their obligations.

Their push follows a statement from White House spokesman Andrew Bates earlier this week praising Neal’s plan as consistent with the president’s goals. Neal’s plan would raise more than $2 trillion in revenues in taxes on corporations, multinational firms, and wealthy Americans — funding to pay for Democrats’ $3.5 trillion economic reconciliation package.

Republicans have condemned the tax hikes, arguing they will slow US growth and impact workers. Senate Republicans have already blasted the new reporting requirements.

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“The IRS financial institution reporting requirement forces financial institutions to turn over detailed bank account information to the IRS based on vague and ‘flexible’ criteria,” Senator Mike Crapo of Idaho, the top-ranking Republican on the finance committee, said in a statement last month. “This time-draining burden disregards banking privacy in order to squeeze more resources out of responsible Americans and entrepreneurs.”

Yellen’s letter includes a memo from Mark Mazur, acting assistant secretary for tax policy at the Treasury, analyzing the impact of both the budget increase and the new reporting requirements. “Additional information for the IRS is crucial to its ability to efficiently and effectively select enforcement actions,” Mazur said. “To truly overhaul tax administration, both components of the plan are essential.”