The IRS misses billions in uncollected tax each year. Here's why
The IRS is woefully understaffed and will miss about $600 billion in uncollected taxes this year as it grapples with technology built before humans landed on the moon, according to Deputy Treasury Department Secretary Wally Adeyemo.
The understaffing has also led to frustrations for some Americans who called the IRS for tax help this past year, with only 11% getting another human to answer the phone.
Adeyemo acknowledged those frustrations in an interview with All Things Considered and said the bureau needed more support from Congress to enforce existing tax law and make the filing experience better for everyone.
"It's important to remember that the IRS is trying to serve every American," Adeyemo said. "And last year, the IRS received 230 million phone calls and only had 15,000 people to answer those calls, which meant that each person had to answer 16,000 calls. And while the American people feel that every day, what Congress has actually done is starve the IRS of the resources it needs to enforce taxes against the wealthiest Americans, who are the least likely to pay their taxes."
Adeyemo also spoke about how taxes don't affect all Americans the same, why wealthier people can often avoid taxes, and how additional funding from Congress would help the bureau's operation.
This interview has been edited for length and clarity.
Interview Highlights
On the tax gap between most Americans and the wealthy
It is coming from the wealthy. And it's coming from people who earn incomes from stocks and other hard-to-value assets. If you're a teacher, if you're a fireman, if you're a police officer, you get a W-2, so the IRS knows how much money you earn. But if you're a billionaire or a millionaire, you're far more likely to be able to avoid taxes. And that's what all the data shows us. And that's why the president has called for increasing the resources for the IRS so they can enforce taxes against those who are least likely to be paying their taxes today.
On why the wealthy are able to avoid taxes
They have armies of lawyers who can help them avoid taxes, and because Congress has underfunded the IRS. Today, the IRS has as many employees as they had in 1970, and the technological system that they're using to drive tax processing was built in the 1960s before we went to the moon. So wealthy individuals have all of the capacity to be able to try and avoid their taxes, and the IRS has few resources to be able to go after them.
On what it will take to tackle these complex tax-avoidance schemes people are employing
The most important thing that we need to do is to improve the technology of the IRS and also increase the number of people at the IRS who are able to go after these complex tax-avoidance schemes. But the benefit isn't only going to be in increasing revenues. We have a tax gap that's about $600 billion. It's also going to improve services so that next year when you're filing your taxes, if the president's proposal goes through, services will be improved. There will be more people that pick up the phone, more people to answer people's questions, more people to deal with the backlog and inventory that the IRS has going forward so that people's services are improved while we're also better able to enforce taxes against those who are least likely to pay.
On what the additional funding requested from Congress would be used for
It's both money to go after those who are cheating taxes – and what we found is those are the wealthiest Americans – but it's also money to make it easier for those of us who are just trying to file our taxes and get our refunds to do that as well because we know that ultimately, the beauty of our system is that it's a voluntary one, where most Americans are doing their duty and trying to pay their taxes. And the president wants to make that easy as well going forward.
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Transcript
DANIEL ESTRIN, HOST:
So have you filed your taxes? Today is the deadline for most Americans to submit their 2021 tax returns. More than 100 million people filed before the deadline, and the vast majority of those returns have already been processed. But an estimated $600 billion in taxes will go uncollected this year because the IRS doesn't have the people and technology it needs to enforce the existing tax law.
Here to talk about this with us is Deputy Treasury Department Secretary Wally Adeyemo. Welcome.
WALLY ADEYEMO: Thank you for having me, Daniel.
ESTRIN: Let's start with a frustrating fact. This past year, when people called the IRS for tax help, only 11% got someone to answer the phone. Why has the federal government let the IRS become so understaffed?
ADEYEMO: Daniel, you're right. It's important to remember that the IRS is trying to serve every American. And last year, the IRS received 230 million phone calls and only had 15,000 people to answer those calls, which meant that each person had to answer 16,000 calls. And while the American people feel that every day, what Congress has actually done is starve the IRS of the resources it needs to enforce taxes against the wealthiest Americans, who are the least likely to pay their taxes.
ESTRIN: Well, so let's talk about those wealthiest Americans. I mean, most wage earners don't have much choice about paying their taxes. Their money is deducted upfront in their paychecks. Is that tax gap coming from the wealthy, and how are they avoiding?
ADEYEMO: You're right. It is coming from the wealthy. And it's coming from people who earn incomes from stocks and other hard-to-value assets. You're right. If you're a teacher, if you're a fireman, if you're a police officer, you get a W-2, so the IRS knows how much money you earn. But if you're a billionaire or a millionaire, you're far more likely to be able to avoid taxes. And that's what all the data shows us. And that's why the president has called for increasing the resources for the IRS so they can enforce taxes against those who are least likely to be paying their taxes today.
ESTRIN: Why are the wealthy able to avoid taxes?
ADEYEMO: Because they have armies of lawyers who can help them avoid taxes, and because Congress has underfunded the IRS. Today, the IRS has as many employees as they had in 1970, and the technological system that they're using to drive tax processing was built in the 1960s, before we went to the moon. So wealthy individuals have all of the capacity to be able to try and avoid their taxes, and the IRS has few resources to be able to go after them.
ESTRIN: So what is it going to take to tackle these complex tax-avoidance schemes people are employing?
ADEYEMO: The most important thing that we need to do is to improve the technology of the IRS and also increase the number of people at the IRS who are able to go after these complex tax-avoidance schemes. But the benefit isn't only going to be in increasing revenues. As you stated, we have a tax gap that's about $600 billion. It's also going to improve services so that next year, when you're filing your taxes, if the president's proposal goes through, services will be improved. There'll be more people that pick up the phone, more people to answer people's questions, more people to deal with the backlog and inventory that the IRS has going forward so that people's services are improved while we're also better able to enforce taxes against those who are least likely to pay.
ESTRIN: So briefly, let me ask you. This money you're asking from Congress to fund the IRS - that's going to help collect taxes from tax cheats. This is not money designed to change the system fundamentally, to make it easier for the rest of us to file their tax returns.
ADEYEMO: It's both. It's both money to go after those who are cheating taxes - and what we found is those are the wealthiest Americans - but it's also money to make it easier for those of us who are just trying to file our taxes and get our refunds to do that as well because we know that ultimately, the beauty of our system is that it's a voluntary one, where most Americans are doing their duty and trying to pay their taxes. And the president wants to make that easy as well going forward.
ESTRIN: We'll leave it there. Deputy Treasury Department Secretary Wally Adeyemo, thank you.
ADEYEMO: Thanks for having me. Transcript provided by NPR, Copyright NPR.
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