EDITORIAL: IRS growing “tax gap” is troubling
In his final message as Internal Revenue Service commissioner, which he delivered on Nov. 10, 2022, Charles P. Rettig predicted “an exciting new era for the IRS, one that is desperately needed to transform the agency to improve taxpayer service and ensure fairness in tax compliance.”
However, about a week earlier, Rettig provided what only can be described as a pessimistic assessment of the United States’ overall tax picture. The tax agency reported that when all the “numbers-crunching” for the years 2017 to 2019 has been completed, that information will confirm the existence of a tax gap of $540 billion per year, up from the annual figure of $496 billion that was recorded for tax years 2014 through 2016.
For the benefit of people unfamiliar with the term – or otherwise lacking full understanding of it – “tax gap” refers to the income tax money owed to the federal government but not paid to the IRS. When that pessimistic assessment was made public, Rettig said “those who do not pay their fair share ultimately shift the tax burden to those people who do, which fuels the tax gap.”
From the seemingly ever-growing tax gap, attention in recent weeks has been shifting to what the IRS plans to do specifically with the $80 billion it was allocated by Congress last year under the Inflation Reduction Act – money to be spent through fiscal year 2031.
Most of the money reportedly is earmarked for enforcement, but taxpayers are interested in obtaining a clearer picture of what “enforcement” is intended to mean under the strategic plan for revamping of the tax agency that the IRS unveiled on April 6.
In its report about the strategic plan announcement, The Wall Street Journal described the plan as promising to shift more taxpayer interactions onto digital platforms and adding thousands of new enforcement staffers to audit wealthy people and corporations. According to the Journal, the plan outlines a renewed IRS emphasis “on enabling smoother taxpayer engagement with the agency, eventually including real-time alerts of problems with returns and clearer information about the status of refunds or audits.”
Danny Werfel, the agency’s new commissioner, who was confirmed by the Senate on March 9 and sworn in on April 4, has vowed to end long wait-lines on the phones, provide more in-person help and improve refund tracking, digital scanning and online messages that would make letters from the IRS “a thing of the past.”
Beyond such purported improvements, though, there is an issue today affecting many taxpayers nationwide that needs bumped-up attention: amended returns – and the tax refunds tied to many of them – that remain unresolved more than a year after the returns were submitted to the tax agency.
In a display of fairness to all taxpayers, attention needs to focus on clearing up the amended-return backlog expeditiously, rather than allowing those returns to languish unresolved indefinitely while other returns and agency business are given priority.
Whether the IRS can carry out its $80 billion plan rests in part with Congress, assuming that the tax agency will get steady annual appropriations to cover existing operations so that the new money can be used for expanding and changing the agency, as people like Rettig and Werfel envision.
Still, the tax gap will remain an enemy that won’t be defeated easily.
Really, that is the only certainty at this time, despite the agency’s revamp plan’s existence.