IRS chief says increase in enforcement budget would boost tax collection

FILE PHOTO: Internal Revenue Service Commissioner Charles Rettig testifies on his agency's budget before a House Appropriations Subcommittee hearing on Capitol Hill in Washington, U.S., April 9, 2019. REUTERS/Aaron P. Bernstein

WASHINGTON (Reuters) - The Internal Revenue Service could return about $5 to $7 of increased tax collection for every additional dollar that its enforcement budget is increased, IRS Commissioner Charles Rettig told a congressional panel on Thursday.

Rettig told a House Ways and Means Committee oversight hearing that a $1 billion increase in the agency’s budget would allow it to add about 4,500 revenue officers and agents. The agency has lost about 15,000 enforcement staff over the past decade as its budgets were cut.

“The number that you’ll typically see published is around a 5 to 7 to 1 return on investment” for enforcement, Rettig said.

His comments support an effort under way in the Biden administration to focus on closing the “tax gap,” the difference between taxes legally owed and those actually collected.

The Treasury on Tuesday hired Wharton School economist Natasha Sarin, who has argued for stronger tax enforcement and whose research with Harvard economist and former Treasury Secretary Larry Summers estimates the tax gap could be $7.5 trillion over the 2020-2029 period. [L1N2LE1KU]

The IRS budget fell to about $11.95 billion in 2020 from an inflation-adjusted $14.6 billion in 2010, largely as a result of Republican-driven budget cuts that Democrats want to reverse.

“We’ve got to put more money into the IRS, to get you more officers, to do audits, to get you more service agents, more people to answer the telephone, to fix up the technology,” Democratic Representative Tom Suozzi told Rettig. “You need more money, and you’ll bring more money into the federal government.”

Rettig said the IRS would be issuing a report on Monday showing that its enforcement efforts needed more than a “body-count” increase but also more specialized agents to go after sophisticated high-income tax filers and offshore accounts.

He agreed on Wednesday to extend this year’s tax filing deadline by about a month to May 17 due to the coronavirus pandemic.

Reporting by David Lawder; Editing by Peter Cooney