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What Can The IRS Do To Enforce Tax Laws?

SCOTT SIMON, HOST:

* If indeed there's a bipartisan agreement on new infrastructure spending, one thing that won't help pay for all of it is collecting money the taxpayers already owe. Negotiators have agreed not to include a provision that would've boosted the ability of the IRS to enforce tax laws. Chye-Ching Huang is the executive director of the Tax Law Center at the NYU School of Law and joins us now. Thanks very much for being with us.

CHYE-CHING HUANG: Great to be here.

SIMON: Why was a provision that would've meant more money that's owed to the federal government in the federal budget dropped?

HUANG: Well, that's a great question because it really, on a policy basis, would've been a win-win-win. It would've been - the federal government, as you say, would've also been good for honest taxpayers because it would've made them less likely to be audited. And it would've been good for the idea that laws should be followed.

So my understanding is that it dropped out due to concerns about the impact on businesses and also the privacy concerns that were raised. But in my view, both of those concerns are really sort of misleading in the sense that it would not have caused more compliance costs for small businesses. And the privacy concerns that have been raised really have nothing to do with the proposals that are on the table.

SIMON: Do we have any idea of how much money we're talking about?

HUANG: The idea would've been that the proposed $40 billion that would've been added back to the IRS budget would have raised something like six times the amount in increased compliance, particularly from high-income filers and large corporations. So we're talking about significant sums of money that are currently owed by people on the books but are just not being collected. And those would've been collected.

Even though that's a large amount of money, it is somewhat conservative in the sense that it's less than a tenth of the amount of taxes that are owed each year but don't go collected.

SIMON: And why aren't they collected? I know there's no one answer for that.

HUANG: Well, I mean, a big reason is that the IRS since 2010, because of cuts to its budget, have lost more than a third of its staff that are expert enough to audit the complex returns of high-income filers and large corporations. And audit rates among both those groups have plummeted by more than half. So that creates a real problem and a real disincentive for compliance for people that may be wanting to sort of push the boundaries or even overstep the boundaries because there's just far fewer eyes on the people that are most likely to be noncompliant.

SIMON: Your inference is that these are people who know the tax laws or employ professionals who know the tax laws for them and count on the reduced numbers of auditors to be able to - I don't know how to say this nicely - get away with something.

HUANG: Yeah. I mean, the bulk of the dollars that we're talking about here that don't get paid come from the highest-income filers that are overwhelmingly represented by tax professionals. And to the extent that they have returns that do get audited, they tend to be among the most complex returns, and they can afford representation in that audit process and even to sort of fight through court paying what they're asked to pay through that process.

This is not - we're not talking about the sort of the - the people who are calling up the IRS directly because they want to pay what they owe and they need some help figuring out what the forms are. That's another big problem that restored funding would help with because the IRS at the moment can't answer more than about a fifth of the calls that it gets just simply because it doesn't have enough staff.

SIMON: Ms. Huang, is this an argument for simpler and less complicated tax laws? People have argued for years that there's so many loopholes, so many different complicated levels of tax information that need to be filled out that it opens the invitation for people to be overly creative, and the government suffers.

HUANG: Absolutely. And I think some of the complexity exists because some of these private interests have actually asked for that complexity. They've asked Congress to include provisions that are really difficult to understand for the normal filer. But for people that can't afford the representation to figure out how to get - you know, to squeeze every dollar out of different provisions in the tax code can be really lucrative. They also are able to weigh in heavily on tax regulations and tax cases, even more complicated forms of decisions about how federal tax law actually gets applied in practice and able to try to shape those to their advantage. Some of that complexity really does exist for no other reason than for the benefit of people that have asked for that complexity.

SIMON: Chye-Ching Huang, who is the head of NYU's Tax Law Center, thanks so much for being with us.

HUANG: Thank you.

(SOUNDBITE OF BILL LASWELL'S "PHASE DRAFT") Transcript provided by NPR, Copyright NPR.

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