WILFORD: What Happens When The IRS Ignores Federal Regulations?

Andrew Wilford Contributor
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When Congress passed the Inflation Reduction Act last August, prominent Democrats assured taxpayers that the $80 billion forked over to the IRS would not go towards increased enforcement efforts on taxpayers making less than $400,000 a year. But even if this was a promise that these lawmakers intended to keep (in itself a dubious prospect), it’s not clear that anyone has enough control over the IRS to make it so.

On February 17, the IRS was supposed to deliver to Treasury Secretary Janet Yellen a report describing exactly how it intends to use the $80 billion windfall it just received. Instead, that day came and went, with the agency saying that it “expects to deliver the plan to the secretary in coming weeks.” 

If a taxpayer missed the April 15 deadline to file their tax return and tried to tell the IRS that they could “expect it in the coming weeks,” that taxpayer could in turn expect to receive a demand to pay a late payment fee in response. But when it comes to letting taxpayers know exactly how $80 billion of their tax dollars will be used, promptness is apparently optional.

The IRS’s blasé attitude towards this deadline is particularly ironic given a recent example of the IRS getting slapped down in the highest court in the land. In 2015, Boechler P.C., a firm based out of North Dakota, received a request for paperwork it had already sent. Ignoring the seemingly irrelevant notice, Boechler then received a second notice from the IRS — this time citing the firm for “intentional disregard” and assessing a $19,250 penalty, with a notice that it would seize the firm’s assets itself.

Boechler appealed the penalty, but submitted the appeal a single day after the 30-day deadline to file. The IRS tried to say that, because the appeal was filed a day late, Boechler had to pay the $19,250 penalty — even though this whole process was started because the IRS was too disorganized to realize the information it demanded had already been sent.

When the case made its way to the Supreme Court, the IRS lost by a unanimous 9-0 decision. The fact that not a single justice sided with the IRS is notable because of how much deference the judicial system usually shows the government, particularly on revenue issues.

What’s more, it hadn’t even been a year since the previous time the IRS lost 9-0 in front of the Supreme Court. That time, the IRS had simply ignored the requirement under federal law to offer a period of notice-and-comment before enforcing a new regulation. Unfortunately, it’s just one instance the IRS was rebuked in a worrying pattern of ignoring laws it finds inconvenient.

Too often though, Democrats appear content to respond to this pattern by handing the IRS even more resources. Last year, some of the same Democrats who later backed the $80 billion funding increase were surprised to find that the IRS was using its resources to double the audit rate for low-income taxpayers. Surely more money will discourage the IRS from doing that!

And again, the idea that Democrats even want the IRS to avoid stepping up tax enforcement on low-income individuals is highly suspect. Democrats last year aggressively pushed a proposed law that would have allowed the IRS to receive data on all bank accounts that transacted in more than $600 in a year. It’s hard to square actions like that with statements about the focus being on the wealthiest taxpayers.

FInally, even setting all questions of intent aside, there’s little evidence that the IRS is capable of complying with the strict guardrails lawmakers claim to want to impose. The IRS continues to struggle with its most basic responsibilities to respond to taxpayer inquiries, process paperwork and returns, and avoid sending taxpayers inaccurate information. Not only does this cast doubt on its ability to handle more complicated directives, but it also makes the IRS a poor candidate for being rewarded.

Any funding increases should have been made contingent upon measurable improvements in the IRS’s functioning, adherence to the federal laws and regulations that apply to it, and a new emphasis on taxpayer services. Instead, the no-strings-attached check the IRS got will leave Secretary Yellen happy to find out how the IRS will spend $80 billion only a month or so after she was supposed to.

Andrew Wilford is a senior policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax and fiscal policy research and education at all levels of government.

The views and opinions expressed in this commentary are those of the author and do not reflect the official position of the Daily Caller.