IRS Accused Of “Witch Hunt” After Major Proposal

The Biden administration handed the Internal Revenue Service $80 billion in extra funding over the next 10 years, and many people in Congress are accusing the tax agency of not doing proper things with it.

This week, Republican Senator Joni Ernst said the IRS is starting a “witch hunt” against U.S. small businesses with the money. As he wrote in a Tuesday letter to Daniel Werferl, the commissioner of the IRS:

“Now is simply not the time to place unnecessary burdens on our small businesses as they continue to grapple with recent economic challenges. Instead of commencing on a witch hunt on small businesses by enhancing audit rates without justification, we should focus on tax solutions that promote small business growth and economic competitiveness.”

Tuesday was a pertinent day for the IRS, as it was Tax Day, which is the day that Americans must file their annual taxes by. Based on the letter that Ernst wrote, the IRS could create a huge headache for small businesses across the country when the next tax filing deadline comes around in 2024.

In her letter, Ernst specifically pointed out that there’s a provision from the IRS that suggests that any business that earns in excess of $400,000 annually could end up being subject to more “enforcement activities” from the IRS. The senator said that threshold is much lower than other industry standards that are used to determine what a “large business” is.

Ernst also demanded that the IRS commission provide to Congress extra clarity on how the recent proposal that the IRS made for how to use the money would actually go into effect. She asked whether the $400,000 threshold pointed out would reference the revenue or net income of the business, for instance.

Further, the senator asked whether the IRS has put any guardrails in place that would protect these small businesses “from potential data breaches by criminals and foreign adversaries.”

As she wrote in her letter:

“It is not clear by which precedent the IRS determined that a large business is any entity earning more than $400,000 in revenues. Under this approach, enhanced tax enforcement efforts would sweepingly apply to small businesses across the country.”

To further back up this point, Ernst referenced the U.S. Census Bureau, which says that a typical small business that has roughly five employees would average in excess of $424,000 in revenue.

The $80 billion in extra funding the IRS is receiving came from the Democrat-led Inflation Reduction Act, which was forced through the Senate using budget reconciliation. The funding is meant to be used, in part, to allow the tax agency to hire new agents in the thousands over the next 10 years.

President Joe Biden as well as Treasury Secretary Janet Yellen have both said repeatedly that the extra funding won’t go toward increasing the number of audits for low- and middle-income Americans, meaning anyone who earned less than $400,000 per year.