Yellen directs IRS not to use new funding to increase chances of audits of Americans making less than $400,000
Treasury Secretary Janet Yellen on Wednesday directed the Internal Revenue Service not to use any of the new funding allocated in the Democrats' new health care and climate bill to increase the number of audits of Americans making less than $400,000 a year, according to a copy of the letter obtained exclusively by CNN.
The letter to IRS Commissioner Charles Rettig comes amid attacks from Republicans that the $80 billion the Inflation Reduction Act would give to the IRS over the next 10 years would result in more middle-class Americans and small businesses getting audited. The Biden administration has repeatedly said the IRS would focus on increased enforcement activity on high-wealth taxpayers and large corporations and not target households who earn less than $400,000 a year.
"Specifically, I direct that any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels," Yellen wrote in the letter to Rettig. "This means that, contrary to the misinformation from opponents of this legislation, small business or households earning $400,000 per year or less will not see an increase in the chances that they are audited."
Enforcement resources, Yellen said, will instead "focus on high-end noncompliance."
The new IRS funding is projected to raise $124 billion in additional tax revenue over the next 10 years, which is a key way Democrats plan to offset the cost of their plan to lower prescription drug costs and combat climate change.
The Democrat-controlled House of Representatives still needs to approve the legislation, which passed the Senate on Sunday after months of painstaking negotiations. Because of their narrow 50-seat majority in the Senate, Democrats used a special, filibuster-proof process to approve the $750 billion health care, tax and climate bill without Republican votes.
Rettig, who was appointed by former President Donald Trump to lead the IRS, told lawmakers last week that low- and middle-income taxpayers would not be the focus of increased enforcement action. He said better technology and customer service would also make it less likely that compliant taxpayers would be audited.
The bill itself says the new funding is not "intended to increase taxes on any taxpayer or small business with a taxable income below $400,000."
But Republicans continue to fiercely oppose the new IRS funding and make claims about increased audits on middle-class Americans.
The Republican National Committee and several Republican lawmakers, including House Minority Leader Kevin McCarthy and Sen. Ted Cruz of Texas, claim the new funding will create 87,000 new IRS agents. But that number is misleading. Treasury did estimate in 2021 that a nearly $80 billion investment in the IRS could allow the agency to hire 86,852 full-time employees over the course of a decade. But that figure accounts for all workers, not solely enforcement agents. Rettig also told lawmakers that the IRS would need to hire 52,000 people over the next six years just to maintain current staffing level to replace those who retire or otherwise leave.