Despite claims from Biden administration officials that new funding for the Internal Revenue Service (IRS) will not increase the auditing burden on individuals and small businesses, a Friday letter from the Congressional Budget Office (CBO) reveals new auditing activity targeting taxpayers who report less than $400,000 per year will be expected to contribute to about $4 billion in revenue.
Treasury Secretary Janet Yellen on Aug. 10 directed the IRS to not use the $79 billion funding increase granted to the organization in the Inflation Reduction Act to increase the “share of small business or households below the $400,000 threshold that are audited relative to historical levels.” White House Press Secretary Karine Jean-Pierre told reporters “No. Very Clear. No.” when asked if there would be new audits on “anyone” making less than $400,000 per year, and Yellen herself said that “small business[es] or households making less than $400,000 per year will not see an increase in the chances that they are audited,” in the directive’s announcement.
However, the CBO now expects that new auditing efforts targeting individuals making less than $400,000 per year will partially account for $4 billion of $180 billion in revenue over the next 10 years, alongside reduced administrative costs, according to a letter containing updated revenue projections written by CBO Director Phillip Swagel. This expectation accounts for Yellen’s directive, with the CBO estimating that if the Inflation Reduction Act had included language prohibiting new audits on those reporting less than $400,000, the IRS would expect about $4 billion less in revenue than if it only followed Yellen’s directive.
