inflation reduction act of 2022

Why the Inflation Reduction Act of 2022 Should Worry You

You’ll have to journey with me a bit, before you see that this post is not quite what it seems. . .

No, Internal Revenue Service (IRS) will not be hiring 87,000 special agents. I’ve written about this in several places (beyond this blog), because I cannot stand sensationalism. It’s an abundance of emotion and an absence of sound, factual research that makes me shake my head in disappointment. I usually point to it as a failing of the US education system, but it is often information spread by “learned” people that are experts at exploiting the vulnerabilities of others (including the lack of critical thinking displayed by many) behind the outrage and fallacies being shared. I explained all about the misinformation regarding IRS hiring over on LinkedIn, but I’ll share a copy of that text below, as well.

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As written August 11:

In July, I posted on my blog that the Inflation Reduction Act, if passed, would allocate $124 billion for IRS tax enforcement. I also stated that this meant more IRS collection jobs would be announced. These jobs would be revenue agents and officers, auditors and specialists, etc.,.

Imagine my surprise when today, I saw the rumors of 87,000 SPECIAL agents being added to IRS. I laughed immediately, because I know the difference between a special agent and a revenue agent, and I also chuckled because I knew that there was NO WAY that IRS would double their workforce by hiring special agents exclusively. Special agents do not consistently collect enough money for IRS – with a current staff of 82,000 – to bring on a group SPECIAL agents than exceed the number of staff they have currently.

There is a difference between revenue agents and special agents. Revenue agents are auditors and unarmed. They do the bulk of the audits conducted by IRS. Special agents are law enforcement, just like FBI and CIA agents. FBI special agents have strikingly similar job duties. IRS’s special agents are armed, because they go to FLETC in Georgia. No official sources have confirmed this 87k hiring boom, and several sources indicate that this is a rumor at best. This rumor came from a poorly comprehended report and a desire to sensationalize a hot topic that few people actually understand.

But, I’ll play along and pretend the 87k hiring rumor is true. Assuming that IRS does hire 87k ppl, I assure you that the majority of those ppl will be tax specialists, revenue officers and revenue agents, not special agents, who really don’t generate revenue consistently enough to justify this type of hiring push.

Please continue to read, read, read, and use your power of discernment. Don’t go by what one source says (even if the source is this post!) If I’m wrong, then I’ll personally put up another post admitting it. But I’m pretty sure I’m not. I just want you all to continue to be wise, be alert, and watch out for those that monetize and exploit your outrage.

I wrote a detailed post in late July about the potential impact of the Inflation Reduction Act of 2022 (IRA 2022), and it’s most likely effects on tax law (you can read that here). Yet still, several days after IRA 2022, I see lawmakers actually spreading the same tripe as quoted by careless Twitter users that have never worked at IRS and, prior to IRA 2022, were completely unaware that IRS has special agents, which are not the same as revenue agents.

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The whole quote of 87,000 agents that IRS will be hiring? It was an estimate proposed last May, that is in no way a definite plan for this year, just a “wish list” that I, as a federal employee, can confirm is hopeful at best, and IRS would be lucky to hire and retain half of this amount. The hiring levels rarely meet the amounts that agencies project, simply because turnover still happens, other hiring takes priority, and some people will leave because of termination, resignation, or transfer to other agencies. Also, this is a projection for a 10 year hiring plan, because there isn’t enough staff or resources to possibly train 87,000 agents within the next year. The IRS has recorded a record low of auditors and agents, with numbers being the lowest they’ve been since World War II.

Cries about these auditors and agents targeting people earning less than $400,000? Accurate on the surface, but it takes a little digging to understand a critical point. The assertions about people earning less than $400,000 came from Secretary of the Treasury Janet Yellen, who stated something that many completely disregarded (or simply were unable to comprehend): she directed that, “any additional resources—including any new personnel or auditors that are hired—shall not be used to increase the share of small business or households below the $400,000 threshold that are audited relative to historical levels.” That historical levels part really tripped up the speedy (non-critical) readers, and caused all manner of histrionics. According to IRS, these agents, “cannot simply be assigned to global high wealth, partnership, or large and complex business examinations without the requisite skills, training, and experience to analyze returns that are highly complex[…]”; that means they will have to practice honing their audit skills prior to get these $400K+ returns. And, since the historical levels have been much higher than they are currently, you can reasonably expect that some individuals earning less than $400K per year will be audited because, historically, they were. I’d be worried if you follow advice from people who refuse to read for clarity, and who jump on catchy soundbites that suit certain narratives.

Again, to be clear, no one said that all individuals earning less than $400K would be audit free: EVERYONE has noted that the audits for this group shouldn’t go up disproportionately. Only time will tell whether this will happen, but on the outset, realize that Yellen never said that people earning less than $400K were exempt from audits. Many skipped over this part because it didn’t serve a narrative about IRS being the horrible bullies that mistreat every American that cross their paths.

As I stated above in my post from LinkedIn, one source is not enough, and exploitation and monetization of outrage is exactly what certain influential groups desire. I’ve read information from IRS, Government Accountability Office (GAO), and Congressional Budget Office (CBO), as well as groups that disagreed with the measures, such as The Heritage Foundation and a statement from the Republican House Budget Committee Members. I’d caution most people to read multiple sources – from a variety of perspectives – and to ask, “Qui bono?” (Who benefits?) as you read. The same people criticizing certain tax legislation often organize groups, movements, and products designed to get money from their supporters/readers. The same can absolutely be said for those that are eager to support tax legislation, without offering critical analyses of how they have reached the conclusions they so eagerly share on their platforms and social media at large. In short, hot takes are rarely supported by the amount of analysis needed to make a balanced and fair assessment. These groups KNOW that, and capitalize on it.

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Our rapt attention is currency (hence the phrase, “Pay attention”). Be mindful of how your attention has been monetized by the people whose opinions you adore: most of them are pandering to our worst fears because it is (and always has been) a lucrative gig, and it’s a far more profitable angle than giving balanced, neutral opinions that neither stir hope nor fear in our hearts. Our biggest worry about IRA 2022 should be all of the people trying to cash in on our worries: they’ve figured out how to “sell shovels” to us and many of us don’t even know it.

Tax Changes May Be Coming – The Inflation Reduction Act of 2022

Hey dear readers! I hadn’t planned to post anything else this week, but when there’s breaking news, I have to share it!

I recently learned that the Inflation Reduction Act of 2022 is gaining traction, and Senators Chuck Shumer and Charles Manchin reached an agreement on the terms of this bill. That is exciting news, considering how Manchin had originally pushed for limited terms. Manchin’s decision to back the bill – without limiting it to the areas of concern, namely, pharmaceutical prices and continued health care subsidization – was unexpected, but an exciting turn that means this bill will be moving forward sooner than expected.

For those that are curious, there are tax implications in this bill (I mean, why else would I be posting about it?). For starters, $124 billion is set aside to fund increased tax enforcement. This means that, if the bill is passed, there will be enhanced enforcement, starting with a little over $3 billion for taxpayer services, $45.6 billion for enforcement (think revenue agents and officers, auditors and specialists, attorneys, and appeals unit employees and resources to support all of the functions), $25 billion for operations support (the other employees that work behind the scenes outside of the enforcement functions), and $4.75 billion for business systems modernization, among other things. The funding is designed to cover 10 years, so the financial gravity of these provisions can be staggered over time.

For taxpayers (individuals) this means that IRS may be getting more help in the months and years to come (the bill provides for more “direct hire authority” capabilities, meaning faster hires). This also means that the previous weakened collection and enforcement function will be beefed up, so the scams and schemes that may have slipped through the cracks before may be identified and examined faster and more efficiently (in other words, wrap up your scams now, if you have some!) For tax practitioners, prepare for more clients that want to clean up their tax records before the enforcement units have the staff and resources to pursue collections on more individuals. There is also an opportunity to offer modernization services and products once various IRS contracts become available.

Now, the bill, as it’s written, indicates that the increased funding isn’t designed to target anyone that earns less than $400,000 annually. However, I think that some taxpayers that earn under the $400K amount may end up getting caught up in the random audits, especially when the more specialized agents and officers are hired and assigned to higher dollar cases, freeing up the overall caseload for less technical (but still effective) specialists and auditors. This will all take a bit of time, of course, but it’s something to look for on the horizon.

The other tax implication discussed in this bill is enforcing a minimum corporate tax of 15% for companies that have over $1 billion in profits. The actual corporate tax rate is a statutory 21%, but these highly profitable companies often pay far less than the proposed 15% amount, because they have the best attorneys and accountants that exploit all of the loopholes currently in the tax code (which is EXACTLY what good practitioners are supposed to do on behalf of their clients, and within the confines of the law). With these new proposals, corporations that qualify will have to pay no less than 15% tax on profits. According to the bill, the minimum corporate tax rate would go into effect after December 31, 2022.

This may sound like a groundbreaking move, but to be clear, the minimum corporate tax rate was a standard issued by the OECD at the last G20 summit (October 2021), and already standard tax practice in multiple other countries. The 15% minimum rate was proposed as part of the two-pillar plan to address digital economies and the tax avoidance that is prevalent in that realm. This segment of the Inflation Reduction Act of 2022 is simply mirroring the accepted standards already in place in other OECD member countries.

Also, the minimum corporate tax rate would only affect 200 companies. So the targeted parties are small in number but account for billions of dollars in the economy. For this reason, there is already criticism from some representatives, regarding the fact that this could affect jobs. Indeed, billion-dollar companies usually employ a lot of people, so there is a possibility that the workforce may be affected. Time will tell what the overall effect will be once the most profitable companies are forced to fork over a minimum amount of their earnings.

Whew, that’s it for today! I hope this got you all caught up on the latest tax happenings, and I’ll be sure to share more of my thoughts as the situation develops. Take care, and I’ll talk to you all soon!

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Articles reviewed: Yahoo, OECD, Business Insider