US President Joe Biden has given an $80 billion boost to the US Internal Revenue Service budget in the expectation that enhanced tax compliance is a better way of increasing tax revenue than raising tax rates.

The $80 billion increase in the budget applies over ten years, primarily aimed at increasing compliance but also introducing new Information-gathering powers.

The President needs to pay for his trillion dollar three-pronged strategy of fiscal stimulus packages:

  • $2.3tn infrastructure proposals that are being debated on Capitol Hill
  • The $1.9tn fiscal stimulus bill, which was signed into law in March.
  • The $1.8tn American Families Plan. If approved by Congress and signed into law would expand federal funding to:
    • Child care.
    • Higher education.
    • Family and medical leave.

Along with the US Treasury news of the $80 billion IRS budget increase its figures revealed that:

  • 99% of taxes due on wages were paid each year.
  • Compliance on 'less visible' sources of income were more likely to be associated with higher earners.
    • Only half the top quartile of earners report all their income.
    • The top 1% failed to report 20% of their income.
    • This amounted to nearly $175 billion in taxes owed annually.

The US Treasury's release went on to say, "Left unaddressed, this tax gap - the difference between taxes owed to the government and taxes actually paid - will total about $7 trillion over the course of the next decade."

For the IRS it planned to:

  • Improve technology.
    • Improved information-sharing powers. Under the plan, banks and other payment providers would be required to tell the IRS how much money came into and out of individuals’ and businesses’ accounts each year, going far beyond the existing reporting of interest income.
  • Increase the hiring and training of auditors to focus on complex investigations of large corporations, partnerships and global high-wealth individuals.
  • Increase enforcement against high-income individuals.

The US Internal Revenue Service has suffered under successive federal budget cuts. In the past 25 years, it has lost 30% of its agents while the workload has increased, up 30% on annual returns and 80% on company and partnership returns.

Meanwhile, as the G7 summit begins in Cornwall, Biden's focus on international tax has already led to an agreement over a global minimum Corporation Tax rate that ensures multinationals pay tax of at least 15% in each country in which they operate.

Useful guides on this topic

When the tax inspector calls
This section looks at policy on tax strategies/avoidance and tax investigation news, including serious fraud and disclosure facilities. From time to time we comment on any other topical HMRC activity.

Information powers
How does HMRC gather information? What information do they already hold? What rules should you be aware of?

Deadlines: compliance (individuals & companies)
Every UK taxpayer has filing obligations and deadlines. There are penalties for late and inaccurate submissions. What are the deadlines? What penalties can be charged for missing the deadlines?

Time limits for tax assessments, claims and refunds
What are the time limits for claiming a tax refund? How far can HMRC go back and raise an assessment? How many years back can a taxpayer appeal? What are the time limits for correcting a tax return?

External link

US Treasury: Investing in the IRS and Improving Tax Compliance

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