Inflation Reduction Act Helps Rebuild the IRS

By Semira Mohammed and Susan Harley

On Tuesday, August 16th, President Biden signed the Inflation Reduction Act (IRA) into law, delivering important reforms to energy, health care, and taxation policy. These progressive changes include policies like incentivizing Americans to make energy-efficiency or renewable energy upgrades in their homes, lowering the cost of prescription drugs for seniors, and ensuring wealthy corporations pay at least some taxes.

As President Biden and thousands of advocates from across the country gathered this week to celebrate the IRA’s passage into law, one element of the IRA that has not received as much attention but deserves commemoration is the Act’s influx of funding to the IRS– an $80 billion increase over the next 10 years. This new funding will allow for proper auditing of corporations and wealthy filers who have for decades have gotten away with evading paying their taxes in full. One study concluded that the top 1% accounted for 36% of unpaid taxes in the United States. With its new funding, the IRS will hire thousands of new employees, many of which will replace those who are retiring. These new staffers will include auditors who can investigate instances of tax evasion and ensure that the wealthy are paying their fair share. However, Treasury Secretary Janet Yellen has issued a directive to the agency to ensure that taxpayers making less than $400,000 per year will not be more likely to be audited under this new pot of funding.

The IRA’s substantial funding increase for the IRS will also allow the agency to make long-overdue improvements to enhance its software. And, it provides a special pot of money to determine a path toward implementing a government-run “Free File” option for taxpayers. Free File run through the IRS would simplify the tax filing process for millions of Americans by cutting out the middlemen of commercial tax preparation agencies that have for years promised to provide a fee option for taxpayers making less than $73,000, but have consistently failed to deliver on as very few eligible taxpayers make use of the system. Also, one prominent former Free File partner company has been accused by the government of shuttling taxpayers into paid services.

As the IRS moves forward toward charting a path to deliver an online free file option, it should know that many in Congress back that move and would push for additional improvements to make tax filing easier for Americans. In this vein, in July U.S. Sen. Elizabeth Warren (D-Mass.) and 22 of her Senate colleagues introduced the Tax Filing Simplification Act that would require the IRS to implement its own free online tax filing system. At a Senate Finance Committee hearing, Sec. Yellen said, “it’s definitely a priority. It’s definitely something we should do and when the IRS is adequately resourced, it’s something that will happen.” demonstrating support for an IRS-run free filing system.

While we celebrate the Inflation Reduction Act as a significant step towards a healthier planet and a fairer tax system, we are especially pleased that the IRS now has the resources to better ensure that everyone pays what they owe and to begin the important work of simplifying the tax filing process. We look forward to working with the agency to implement these critical reforms.