By Samantha Flom
With Tax Day looming just days away, two Republicans on the House Ways and Means Committee are warning that neither the IRS nor the American people are prepared to shoulder the burdens imposed by new reporting requirements.
Voicing their concerns in an April 4 letter (pdf) to Government Accountability Office (GAO) Comptroller General Gene Dodaro, Ways and Means Committee Chairman Jason Smith (R-Mo.) and Oversight Subcommittee Chairman David Schweikert (R-Ariz.) asserted that the amount of paperwork and tax preparation required to comply with new rules and regulations will be unmanageable for all involved.
“In Fiscal Year 2021, the Internal Revenue Service (IRS) received over 4.7 billion information returns—reports provided to the IRS to track business or trade payments and transactions—filed by third parties, most of which were filed electronically,” the lawmakers noted. “In addition, recent legislation drastically lowered the threshold to $600 for reporting certain types of payments, such as those made using a third-party platform like PayPal or Venmo. New regulations related to information reporting for transactions occurring across these digital assets could lead to the filing of billions more information returns.”
The new $600 reporting threshold was implemented through the American Rescue Plan Act of 2021, which passed along party lines in both Democrat-controlled chambers of Congress.
Under previous law, platforms like PayPal and Venmo were only required to report a user’s transactions to the IRS if, over the course of a year, the individual completed more than 200 commercial transactions and made more than $20,000 in payments.
Although the new requirement was initially set to impact 2022 filings, the IRS announced in December that it would delay implementation of the rule for one year to “help smooth the transition”—a move the congressmen characterized as a “tacit acknowledgement” of the burden the rule imposes on taxpayers and IRS employees alike.
“Processing this large amount of information is already a significant undertaking at the IRS—an agency that has struggled to modernize or adequately exercise its customer service responsibilities,” the Republicans noted. “As such, the extent to which the IRS uses, or can even process, third-party information to identify and prevent fraud and noncompliance through its matching and other compliance programs is of particular interest.”
Since 2020, the IRS has been working to reduce a backlog of paper returns and taxpayer correspondence, which the agency has attributed to the COVID-19 stimulus payments and staff shortages. That backlog resulted in the agency’s March 2021 decision to destroy roughly 30 million paper-filed information return documents.
“While information reporting can help the IRS ensure accurate tax reporting and incentivize voluntary compliance with tax laws, those goals must be balanced against the burden that this reporting places on taxpayers, third-party providers, and the IRS,” the lawmakers contended in their April 4 letter.
“Many Americans who will likely be subject to these new requirements—particularly given the low reporting threshold of $600—are also likely to struggle to afford the level of accounting and tax preparation services that might be needed,” they added, requesting that the GAO assess the IRS’ current level of effectiveness in processing information returns, the burdens imposed on the agency and taxpayers in complying with new rules, and the agency’s plans for implementing recently enacted or proposed rules.
News of the congressmen’s requests comes amid the IRS’ recent release of its new “Strategic Operating Plan” outlining major changes to agency operations, including a shift in focus for auditors to those with “complex tax filings and high-dollar noncompliance.”
However, noticeably absent from the report was a detailed plan for how the IRS will implement the $80 billion in new funding it is set to receive through the Inflation Reduction Act—a point of concern for many Republicans.
“More than eight months after Democrats enacted the so-called Inflation Reduction Act, the IRS’s latest document offers no specifics for the agency over the next decade,” Smith noted in a statement following the report’s release. “If this is a ‘plan,’ why does it omit how many employees the agency seeks to hire over 10 years, fail to identify target audit rates for taxpayers, and lack specific details about how the money will be spent beyond the next two years?
“The $80 billion raise is just the start,” he added. “The Biden Administration had the nerve to ask Congress to give the IRS another $43 billion in its annual budget request while withholding details on how it will spend the new money. This is a punt, not a ‘plan,’ and it raises more questions than answers about how Americans’ tax dollars will be spent to go after working families and small businesses.”
Jack Phillips contributed to this report.