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Mr. Biden could take administrative steps to shift enforcement priorities without the involvement of Congress, connected to the I.R.S.’s technology usage and its hiring and allocation of current workers. But for substantial new investment or enforcement action, it would need Congress to agree to new funding.
It may be easier to find at least some Republican support for stronger efforts at enforcing existing tax law than for raising tax rates. Notably, the I.R.S. commissioner, Charles Rettig, a Trump appointee, has repeatedly pushed for more funds and described the need to reduce the tax gap, including for high earners.
Mr. Rossotti, the former I.R.S. commissioner, said: “The idea is to shore up the system and make it more fair to everyone. It’s unlikely you could get outright tax increases of any real size, but this is about the soundness of the tax system and raising money by enforcing the taxes that are already on the books.”
The scale of the tax gap, and its tilt toward higher-income Americans, reflects not just a falling I.R.S. enforcement budget, but also a shift in how businesses are organized. President Trump’s own tax strategies, as reported by The Times this year, offer an extreme example of the tactics that are responsible for billions in lost revenue to the Treasury.
Over the last generation, many American business have shifted from being traditional “C corporations,” which owe corporate income tax and which the I.R.S. has long experience auditing, to being “S corporations” or partnerships, entities that pass through their earnings to individuals, who in turn pay individual income tax. But I.R.S. enforcement hasn’t kept up with that shift, and partnerships and S corporations are rarely audited. Only 0.3 percent of them were in 2017.
A distinctive feature of these entities is they have a single owner or small group of partners, so there tends to be little outside oversight of their financial behavior. Key financial information isn’t reported independently to the government, making it possible for them to hide information from their tax preparer or seek one out who will look the other way.
Individuals who earn wages have those earnings reported to the I.R.S. by their employer. And at the other extreme, though the largest companies may use aggressive strategies to reduce their corporate income tax burden, they have independent boards of directors and white-shoe accounting firms with their reputations on the line standing in the way of crossing into illegality.
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