IRS Enhancement and Tax Gap Reduction Act of 2021
Bill: H.R.1116 | Sponsor: Rep. DeFazio, Peter A. (D-OR)
Policy area: Taxation

Summary:
IRS Enhancement and Tax Gap Reduction Act of 2021
This bill appropriates additional amounts to the Internal Revenue Service (IRS) in FY2022-FY2031 for tax enforcement, improving IRS technology infrastructure, and taxpayer services.

To provide for increased audits, improved technology infrastructure, 
and increased staff for the Internal Revenue Service for the purpose of 
             reducing the tax gap, and for other purposes.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``IRS Enhancement and Tax Gap 
Reduction Act of 2021''.

SEC. 2. FINDINGS.

    Congress finds the following:
            (1) According to the Office of the Taxpayer Advocate, the 
        difference between tax liabilities owed to the Internal Revenue 
        Service and those liabilities actually collected by the IRS, 
        known as the ``tax gap'', averaged roughly $381,000,000,000 
        annually in unpaid taxes from 2011 to 2013.
            (2) Recent studies project that the tax gap will be a 
        cumulative $7,500,000,000,000 between 2020 and 2029.
            (3) Between 2010 and 2018, the share of individual income 
        tax returns it examined fell by 46 percent, and the share of 
        corporate income tax returns it examined fell by 37 percent.
            (4) Individual income taxes are the largest group of 
        uncollected taxes before audits, representing about 
        $314,000,000,000.
            (5) Estimates suggest that at least 70 percent of the tax 
        gap comes from underpayment by the top 1 percent.
            (6) In 2020, the Treasury's Inspector General for Tax 
        Administration announced that roughly 880,000 high-income 
        individuals who didn't file tax returns between 2014-2016 
        failed to pay more than $45 billion in owed liabilities. Of 
        those 880,000 cases, more than 325,000 were closed without ever 
        being entered into the Internal Revenue Service's (IRS) 
        enforcement system, more than 40,000 cases were entered but 
        were then subsequently closed without ever being worked on, and 
        the remaining 500,000 cases are ``sitting in one of the 
        collection function's inventory streams and will likely not be 
        pursued as resources decline''.
            (7) In 2011, more than 12 percent of individuals making 
        $1,000,000 or more annually were audited. In 2018, only 3.2 
        percent of such individuals were audited.
            (8) For 8 years in a row, IRS tax enforcement has declined. 
        The IRS audited 0.45 percent of personal income-tax returns in 
        fiscal year 2019, the lowest level in at least 4 decades.
            (9) Individuals are about half as likely to be audited now 
        compared to 2010.
            (10) Audit rates for those making $10,000,000 or more fell 
        from more than 14 percent in 2017 to roughly 6.5 percent in 
        2018.
            (11) Over the course of the past decade, the number of 
        income tax returns has increased by roughly 9 percent.
            (12) Audit rates for the largest corporations in 2011 were 
        more than 90 percent. Now, they are closer to 50 percent.
            (13) The corporate share of Federal tax revenue has dropped 
        by more than two-thirds in the past 65 years.
            (14) In 2010, corporate taxes accounted for 9 percent of 
        Federal revenue.
            (15) The Tax Cuts and Jobs Act has pushed business taxes to 
        record lows, and, according to the Institute on Taxation and 
        Economic Policy, 91 of the Fortune 500 companies paid $0 in 
        income tax in 2018 despite turning a profit.
            (16) According to a report from the Office of the Taxpayer 
        Advocate, the average United States household is paying an 
        annual surtax of more than $3,000 to subsidize taxpayers who 
        aren't paying all that they owe.
            (17) According to the Congressional Budget Office, the 
        IRS's budget is roughly 20 percent below its peak 2010 
        inflation-adjusted budget.
            (18) According to the IRS, the agency has lost roughly 
        30,000 full-time positions since 2010, more than 20 percent of 
        its staff.
            (19) The amount of IRS funding and staff allocated to 
        enforcement activities has declined by about 30 percent since 
        2010.
            (20) According to the IRS, roughly 30 percent of its 
        workers will retire within the next 5 years.
            (21) Despite this, the agency has also seen increased 
        workload due to the implementation of the Affordable Care Act, 
        the Tax Cuts and Jobs Act, and the COVID-19 pandemic.
            (22) Studies have shown that investing in enforcement and 
        tightening rules could generate more than $1,000,000,000,000 
        over a decade.
            (23) The Federal Government estimates that each additional 
        dollar spent on tax enforcement could yield more than $4 in 
        revenue.
            (24) IRS data demonstrates that an extra auditor-hour spent 
        auditing returns for those earning $5,000,000 or more raises 
        nearly $5,000.
            (25) In fiscal year 2018, the IRS collected nearly 
        $3,500,000,000,000 on a budget of about $11,430,000,000.
            (26) The Congressional Budget Office estimates that 
        increasing the IRS's funding for examinations and collections 
        by $20,000,000,000 over 10 years would increase revenues by 
        $61,000,000,000, and that increasing such funding by 
        $40,000,000,000 over 10 years would increase revenues by 
        $103,000,000,000.

SEC. 3. IMPROVING RESOURCES AVAILABLE TO THE INTERNAL REVENUE SERVICE 
              TO REDUCE THE TAX GAP.

    (a) Improving Audits.--
            (1) In general.--There is appropriated $5,000,000,000 for 
        an additional amount for the ``Department of the Treasury--
        Internal Revenue Service--Enforcement'' account, for each of 
        fiscal years 2022 through 2031--
                    (A) for the salaries and expenses of additional 
                staff to increase audits to not less than the minimum 
                levels described in paragraph (2); and
                    (B) for necessary expenses for tax enforcement 
                activities in order to determine and collect owed 
                taxes, to conduct criminal investigations, and to 
                enforce criminal statutes related to violations of 
                internal revenue laws and other financial crimes.
            (2) Auditing levels.--The minimum levels described in this 
        paragraph are as follows:
                    (A) Fifty percent of individuals or joint returns 
                with gross income of not less than $100,000,000.
                    (B) Thirty-five percent of individuals or joint 
                returns with gross income of not less than $10,000,000 
                and less than $100,000,000.
                    (C) Twenty percent of individuals or joint returns 
                with gross income of not less than $5,000,000 and less 
                than $10,000,000.
                    (D) Ten percent of individuals or joint returns 
                with gross income of not less than $1,000,000 and less 
                than $5,000,000.
                    (E) Ninety percent of corporations with gross 
                income of not less than $20,000,000,000.
                    (F) Fifty percent of corporations with gross income 
                of more than $1,000,000,000 and less than 
                $20,000,000,000.
    (b) Improving Technology Infrastructure.--There is appropriated for 
each of fiscal years 2022 through 2031, for efforts collecting and 
protecting taxpayer information, reducing tax-related theft and fraud, 
and modernizing the technology infrastructure of the Internal Revenue 
Service--
            (1) $3,800,000,000 for an additional amount for the 
        ``Department of the Treasury--Internal Revenue Service--
        Operations Support'' account; and
            (2) $500,000,000 for an additional amount for the 
        ``Department of the Treasury--Internal Revenue Service--
        Business Systems Modernization'' account.
    (c) Enhancing Taxpayer Services.--There is appropriated 
$2,500,000,000 for an additional amount for the ``Department of the 
Treasury--Internal Revenue Service--Taxpayer Services'' account, for 
each of fiscal years 2022 through 2031, for the salaries and expenses 
of additional staff to achieve adequate staffing levels to provide 
taxpayer services, including pre-filing assistance and education as 
well as filing and account services.
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