What the Schumer-Manchin Tax Bill Means for Taxpayers

This weekend, the US Congress had before it the Schumer-Manchin tax bill. But what does that mean for the United States taxpayer? The $80 billion tax bill will fund the IRS to hopefully gain 200 billion in additional tax revenue, six times its current budget. The money is supposed to be handed out over nine years.

Democrats want the IRS to enforce and litigate criminal investigations to bring in the necessary money. This means more audits, civil suits, and criminal referrals by the U.S. Criminal Investigation Division in the Treasury. The targets are going to be middle and upper-middle-class taxpayers. It would come from under-reported income from those making less than $200,000 a year and between 4-9% from those making more than $500,000 a year.

This is what I like to call the IRS going after the lowest hanging fruit. Wealthy individuals and businesses can afford to hire tax lawyers and accountants who make the IRS cases too costly for most. Small taxpayers will be forced to settle even if the IRS may be wrong just to avoid the cost.

The IRS auditors are known to require a return on investment. Basically, that means the time they spend in costs is far less than what they bring in from the audit and court cases. There is rampant fraud in earned income tax credit — the IRS estimates that there are over 18 billion dollars in improper payments every year.

New audit targets, as I’ve said before, are going to be small businesses. Now, they are going to target subchapter S businesses. The IRS has always had on their sites cash-heavy businesses, mostly sole proprietors such as those dealing in the food industry. A few examples would include food trucks, convenience stores, and some service industries where good recordkeeping is not present.

The taxpayer advocate service has always stated that the Internal Revenue Service needs more funding for taxpayer assistance calling centers. This is not likely to happen in this current bill. There are still over 20 million unprocessed paper returns with people waiting to receive refunds some as far back as 2020. During this time of rising costs, these proposed audits will hit taxpayers even harder. As I tell my clients — the Internal Revenue Service is the government’s income stream and that is its sole purpose.

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