The Department of the Treasury and the Internal Revenue Service have released new analysis that shows the additional funding provided to the IRS under the Inflation Reduction Act can increase revenues by“as much as” $561 billion.

“This analysis provides a more comprehensive assessment of the revenue effects of the transformational enforcement and modernization efforts enabled by the IRA Greg Leiserson, Treasury deputy assistant secretary for tax analysis, said February 6, 2024, during a press teleconference.“The IRS estimates that the IRA, as enacted, would increase revenue by as much as $561billion through fiscal year 2034, substantially more than earlier estimates. If IRA funding is renewed with it runs out, as the administration has proposed, estimated revenue would be as much as $851 billion.”

A previous estimate had the IRA generating an additional $390 billion over the next 10 years based primarily on enforcement hires as the key revenue driver and assuming a diminished return over time.

Leiserson noted that previous estimates“were limited to revenues generated by direct enforcement activities resulting from higher enforcement staffing. This narrow focus does not consider the significant impact of the technology, data, and service improvements made possible by the IRA or any deterrent effect the greater enforcement capabilities and activities would have in order to better assess the revenue raised by this transformation.”

The new analysis is broken down into five categories:

  • Direct Revenue: payments received related to enforcement actions
  • Revenue Protected: stopping illegitimate refund claims before the refund is issued
  • Impact of Service on Compliance: making it easier for taxpayers to pay what they owe
  • Compliance Assurance: increasing transparency and tax certainty for complex tax situations
  • Efficiency Gains: including from IT investments and improvements to data analytics

The IRS has traditionally made estimates in the first two categories listed.

IRS Chief Data and Analytics Officer Melanie Krause during the call highlighted that in addition to the heightened compliance and enforcement efforts going on against the wealthy individuals that may not be paying taxes they legitimately owe, the improvements to things such as customer service and to improving access to Taxpayer Assistance Centers also helps.

“For example, whether we have the resources to serve taxpayers by being available to answer the phone” when they have question is important for voluntary compliance, she said, adding that the same is true for when people use TACs.

She noted that the analysis being published“is a pioneering step forward for developing a more exhaustive and accurate estimates of the return on investment for IRS funding, which will enrich our understanding of how these investments yield tangible outcomes,”she said.

Taking into consideration everything and not just enforcement gains “illustrate the bottom-line importance of investing in our nation’s tax system really can’t be overstated,” Krause said.“And the resulting changes will ripple out and create benefits for taxpayers and the nation in many ways.”

By Gregory Twachtman, Washington News Editor