Will the IRS Audit You Soon? Dems Already Paved the Way

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Uncle Sam panhandling
Jim Barber / Shutterstock.com

What happens when you combine lazy journalists and disingenuous politicians — both Democrats and Republicans?

You get hot messes like the current national “debate” over whether IRS auditors would use billions of dollars in extra funding to squeeze more middle-class taxpayers and small businesses.

That debate ended on Sunday — when Senate Democrats unanimously voted against an amendment that would have added language to their Inflation Reduction Act to help protect taxpayers making less than $400,000. It’s just that the media apparently overlooked this fact.

The only good news here is that, contrary to apparent spin from some Republicans, the Inflation Reduction Act will not hike your tax rate. At least not directly or immediately.

You don’t have to take my word for it, though. I’ll give you the facts — including others the media have yet to report — and the sources that back them up.

The main source is the Inflation Reduction Act itself, which passed the Senate on Sunday and is headed to the House for final approval. The bill is available at Congress.gov if you want to see it for yourself.

Just make sure you select the Senate engrossed version, meaning the version that the Senate passed. Then, head to Section 10301, titled “Enhancement of Internal Revenue Service Resources.”

How the audit debate started

The Inflation Reduction Act allocates tens of billions of dollars to beef up the IRS over the next nine years.

This funding is meant to improve everything from customer service to taxpayer education, but the largest chunk — about $45.6 billion — is reserved for “enforcement activities.”

Specifically, the bill states, that money is for:

For necessary expenses for tax enforcement activities of the Internal Revenue Service to determine and collect owed taxes, to provide legal and litigation support, to conduct criminal investigations (including investigative technology), to provide digital asset monitoring and compliance activities, to enforce criminal statutes related to violations of internal revenue laws and other financial crimes, to purchase and hire passenger motor vehicles …”

Couple that with the unknown net financial effect of the spending bill, and some folks worry that the middle class or small businesses would become easy targets for IRS auditors armed with a wealth of new resources.

What no one’s telling you about the IRS funding

You’ve probably heard the media regurgitate key political figures’ statements about the extra $45.6 billion in IRS funding for tax enforcement, such as:

  • “These resources are absolutely not about increasing audit scrutiny on small businesses or middle-income Americans.” — IRS Commissioner Charles Rettig Aug. 4 letter to the Senate
  • “The law includes a stipulation ensuring that additional tax enforcement should not be targeted at individuals earning $400,000 or less.” — Senate Majority Leader Charles Schumer (D-N.Y.) Aug. 8 press release
  • “Specifically, I direct that any additional resources—including any new personnel or auditors that are hired — shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.” — Treasury Secretary Janet Yellen Aug. 10 letter to the IRS

Now, here’s what no one is telling you about the likelihood of IRS auditors targeting folks making less than $400,000.

1. Democrats killed Amendment 5404

On Sunday, before voting to pass the Inflation Reduction Act, all 50 Senate Democrats voted against Amendment 5404, which promised to “prevent the use of additional Internal Revenue Service Funds from being used for audits of taxpayers with taxable incomes below $400,000.”

2. Schumer’s taxpayer protection is AWOL

I couldn’t find that aforementioned “stipulation” cited in Schumer’s Aug. 8 press release, so I asked his Washington, D.C., office to point me to it. I did not receive a response.

Don’t take my word for it, though: Check the Senate-passed bill yourself. Please email me if you find “a stipulation ensuring that additional tax enforcement should not be targeted at individuals earning $400,000 or less” so I can issue a correction to this article.

But what about your taxes? Will the Inflation Reduction Act hike them?

The answer to this question is something both Republicans and Democrats have misrepresented. Here’s what you should know.

1. The bill does not increase individual tax rates

After issuing a couple of press releases that suggested otherwise, Sen. Mike Crapo (R-Idaho), ranking member of the Senate Finance Committee, clarified this: “Technically, it’s not raising their tax rates,” he said of the Inflation Reduction Act at an Aug. 3 press conference.

This is not necessarily to say, however, that the bill won’t lead to your taxes rising in the future. That will depend on whether the Inflation Reduction Act ends up costing the federal government more money than it brings in.

You’ve probably heard about estimates of the bill’s net cost or net gain from entities like Congress’ Joint Committee on Taxation and the Congressional Budget Office, but most of those estimates were based on only select portions of the bill or based on older versions of the bill.

More importantly, it’s impossible to accurately predict the net effect of a 700-page spending bill.

2. Taxpayer protections were cut from the bill

A prior version of the Inflation Reduction Act contained language echoing a promise that many Democrats have made many times over in recent weeks.

Specifically, this language was in the version of the bill attached to a July 27 statement from Schumer posted on the Senate Democrats’ website, a PDF labeled “ERN22410.” It read:

Nothing in this section is intended to increase taxes on any taxpayer or small business with a taxable income below $400,000. Further, nothing in this section is intended to increase taxes on any taxpayer not in the top 1 percent.”

You won’t find this protective language in the version of the bill that Senate Democrats unanimously voted to pass, though. It disappeared sometime before the vote.

I asked Schumer’s office why the “No Tax Increases on Certain Taxpayers” section was removed, but no one responded Wednesday.

What’s more, that prior version of the bill (i.e., ERN22410) disappeared from Schumer’s July 27 statement hours after I reached out to him. The PDF file has been replaced with the Senate-passed version.

Don’t take my word for this, though. An archive of Schumer’s July 27 statement and an Aug. 6 letter from the Congressional Budget Office to Schumer corroborate the fact that ERN22410 was posted to the Senate Democrats site.

Additionally, Politico posted the prior version of the bill to its website, and journalists from several other publications, including The Washington Post and NPR, uploaded it to DocumentCloud.

I guess all those journalists just couldn’t be bothered to scrutinize the version of the bill that the Senate actually voted on — the bill without the promise of “No Tax Increases on Certain Taxpayers.”

Screenshot of a prior version of the Inflation Reduction Act
Screenshot from democrats.senate.gov (8/10/2022) / Money Talks News

In the interest of full disclosure

By now you might be wondering if I’m just another whiny Republican still bitter over the 2020 elections.

Sorry to disappoint: I’m a lifelong registered Independent who believes the two-party system is tearing the nation in two. I’ve voted for candidates of various political affiliations — Democrats, Republicans and other parties — across all levels of government.

I just detest a national news media that omits key facts when reporting on matters that stand to affect every American’s wallet — regardless of whether the omissions are out of ignorance (read: lazy reporting) or bias.

It’s bad enough when politicians mislead the public. The media’s job is to hold public officers accountable regardless of their political affiliations, but neither a lazy journalist nor a biased journalist can accomplish that job.

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.