Based on Internal Revenue Service data, tax collections under President Biden have skyrocketed compared to those under former President Donald Trump. Biden has also increased tax enforcement efforts.
According to the newly released IRS Data Book, the IRS collected $4.9 trillion in taxes for the fiscal year 2022 (Oct. 1, 2021, to Sept. 30, 2022). In the same year, the IRS issued approximately $642 billion in tax refunds, bringing the net amount of taxes collected to approximately $4.26 trillion.
In the fiscal year 2020, Trump’s final year in office, the IRS collected $3.5 trillion in aggregate tax revenue. With nearly $736 billion in refunds, the net taxes collected is approximately $2.76 trillion, or approximately 35% less than during Biden’s second year in office.
Gross tax collections for the fiscal year 2021, Biden’s first year in office, totaled $4.1 trillion. After deducting the $1.1 trillion in refunds, the net amount was $3 trillion, or 8 percent higher than in Trump’s final year in office.
Likewise, Biden has accelerated tax enforcement. Based on the number of tax returns examined as a proxy for enforcement, the number has declined steadily under Trump, culminating in a low of 500,000 in 2020. This number increased to approximately 750,000 in 2021 and remained essentially the same in 2022.
Enforcement Strategy
According to IRS Commissioner Danny Werfel, the IRS is committed to having a visible, robust tax enforcement presence. Throughout FY 2022, the IRS has continued to develop and use innovative approaches to identify and resolve potential noncompliance issues, Werfel said.
“Our comprehensive and coordinated enforcement strategy has shown success,” he added, presumably referring to the tax collection and enforcement increase. Werfel added that the Internal Revenue Service’s efforts to become a “stronger, more modern” organization continued in 2022 and is confident that this journey will yield substantial long-term benefits.
A portion of the agency’s recent $80 billion funding increase will be used to hire additional personnel, including tax enforcers. The IRS has repeatedly stated that this will not result in a rise in the rate of tax audits among lower- and middle-income Americans, but these concerns have persisted.
In its recently released strategic operating plan, the IRS identified certain transactions as posing a high risk of noncompliance and pledged to increase enforcement in certain areas.
In a recent press release that accompanied the publication of the 2022 Data Book, the IRS stated that it would target high-income and high-wealth individuals, complex partnerships, and multi-million dollar businesses.
The IRS does not plan to increase audit rates for households making less than $400k, the agency said. As the Internal Revenue Service (IRS) has increased the taxes it collects from Americans, the proportion of people who believe it is “absolutely unacceptable” to deceive on income taxes has decreased significantly.
Enforcement of Digital Transactions
The IRS stated in its proposal that it would increase enforcement for transactions involving digital assets and other categories of transactions.
According to the IRS, they monitor numerous known high-risk noncompliance issues, including digital asset transactions, listed transactions, and certain international issues. Multiple taxpayer segments experience these issues, and data analysis indicates a greater likelihood of noncompliance.
The IRS stated they would prioritize their resources to increase enforcement activities, including criminal investigations, where appropriate. The tax agency announced it would create an information infrastructure to support digital asset reporting and analytics tools to strengthen compliance.
Cryptocurrencies, stablecoins, non-fungible tokens (NFTs), and other digital value representations are considered digital assets by the Internal Revenue Service. The IRS treats digital assets as property, and taxpayers must report their gains and losses.
“Soft Notice” Rather Than Tax Audits
In spite of the IRS’s pledge to increase enforcement of certain transactions and to crack down on wealthy tax evaders, it has stated that it will reduce its enforcement efforts against ordinary filers. A new program of “tailored post-filing treatments” is being implemented by the IRS to solve issues and omissions on tax returns before an audit.
To distinguish between taxpayers who make honest errors on their tax returns and those who are trying to evade payment, the IRS will use “advanced analytics.”
The program would then notify honest but errant taxpayers in a manner that allows them to self-correct.
The IRS stated that they would address issues identified after filing that require IRS intervention promptly and in ways tailored to the taxpayer’s specific circumstances, such as issuing a soft notice to encourage self-correction instead of conducting an audit. Notification could begin with a warning letter, for instance, and progress to an audit if no action is taken or the problem is not resolved.
The IRS stated that resorting to “less-intrusive treatments” would provide compliant taxpayers with a fast and simple way to correct issues that have arisen after they have filed their tax returns, thereby preventing “unnecessary audits.”
As a consequence of the new initiative, the IRS expects to see an increase in taxpayers’ rectifying or self-correcting issues and a decrease in repeated noncompliance.
The agency also anticipates that the initiative will increase the proportion of taxpayers who pay what they owe.