Yellen tells IRS to produce $80 billion spending plan within six months

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The Internal Revenue Service building is seen in Washington

By David Lawder

WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen has directed the head of the Internal Revenue Service to produce a detailed plan for deploying $80 billion in newly enacted enforcement funding within six months, an internal Treasury memo showed on Wednesday.

Yellen wrote in the memo to IRS Commissioner Charles Rettig, reviewed by Reuters, that the operational plan “should include details on how resources will be spent over the ten-year horizon on technology, service improvement, and personnel.”

“This operational plan is key to ensuring the public and Congress are able to hold the agency accountable as it pursues needed improvements,” she wrote, adding that it must include metrics for areas of focus and targets for the agency to achieve in coming years.

The $80 billion in new resources is a key revenue-raising provision in President Joe Biden’s $430 billion tax, climate and prescription drugs law signed on Tuesday. The Congressional Budget Office has estimated that the new resources would result in collection of an additional $204 billion in tax revenues over 10 years through improved tax compliance.

An earlier version of the bill would have statutorily required a detailed IRS spending plan within six months but that provision was later stricken. Yellen’s memo administratively restored the deadline.

Yellen told Rettig that she was prepared to approve the near-term use of funds for improvements to next year’s tax filing season, but the IRS plan was a “pre-requisite” for any broader use of funds by the agency.

Yellen also repeated her directive last week that she does not want the IRS investments to result in an increased chance of audits for households earning less than $400,000 or for small businesses, compared to “historical levels.”

But it is unclear which historical audit rates Yellen is targeting. The Tax Policy Center, a Washington think tank run by the Brookings Institution and the Urban Institute, says a decade of budget cuts slashed overall audit rates in 2019 to 0.4% of individual tax returns from 1.1% in 2010 and the COVID-19 pandemic cut those rates further.

(Reporting by David Lawder; editing by Richard Pullin)

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