With the Democrats' economic and health package passed in the Senate and moving to the House for a vote, the almost $80 billion in IRS funding is raising concerns about the agency's plans for audits.
In a recent letter to the Senate, IRS Commissioner Charles Rettig said the proposed increase in funding is "absolutely not about increasing audit scrutiny on small businesses or middle-income Americans."
According to the Congressional Budget Office, the investment in the IRS is estimated to generate $203.7 billion in revenue from 2022 to 2031. Critics worry that the agency's heightened enforcement could have a negative impact on average Americans.
"Our biggest worry in this is that the burden for these audits will land on Walmart shoppers," Rep. Kevin Brady, R-Texas, told CNBC's "Squawk Box" on Tuesday.
A 2021 Treasury Inspector General for Tax Administration report revealed that IRS audits generally fell by 44% between fiscal years 2015 and 2019.
For Americans making $1 million or more, audits dropped by 75%, while the percentage only dropped by 33% for low-to-moderate income tax filers who claimed the earned income tax credit (EITC), the report showed.
During a House Oversight Subcommittee hearing in May, IRS Chief Taxpayer Experience Officer Ken Corbin said returns claiming the EITC have "historically had high rates of improper payments and therefore require greater enforcement."
CNBC reports that the IRS uses software to assign each tax return a numeric score, with the likelihood of an audit increasing with a higher score. Returns may be flagged when deductions or credits compared to income fall outside established ranges.
IRS audits may also be triggered by unreported income, refundable tax credits, home office or vehicle deductions and rounded return numbers, according to CNBC.
While the legislation must still face the House before it can be signed by President Joe Biden, phasing in the funding and hiring and training new employees won't happen overnight.
According to the Treasury Department, the IRS is seeking 87,000 new agents.
Lawrence Levy, president and CEO of tax resolution firm Levy and Associates, told CNBC that new agents could go through a six-month training program and would likely be given cases worth a few hundred thousand dollars instead of tens of millions.
"You're not going to give a new trainee General Motors, for example," he said. "It just isn't going to happen."
Levy added that self-employed taxpayers may stand a greater chance of being audited, depending on their return.
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