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2/6/2024

U.S. Department of the Treasury, IRS Release New Analysis Showing the High Return on Investment from Inflation Red…

U.S. Department of the Treasury, IRS Release New Analysis
Showing the High Return on Investment from Inflation
Reduction Act Resources
February 6, 2024

More comprehensive estimates show transformative investments, if sustained, will result in
$851 billion in additional revenue through 2034
WASHINGTON – Today the U.S. Department of the Treasury and Internal Revenue Service (IRS)
released a new analysis

showing the high return on the Inflation Reduction Act (IRA)

investment in rebuilding and modernizing the IRS. Taking a more comprehensive approach to
evaluating the transformational initiatives enabled by the IRA, the IRS estimates in a new
paper “Return on Investment: Re-Examining Revenue Estimates for IRS Funding” that the IRA
as enacted would increase revenue by as much as $561 billion over 2024-2034, substantially
more than earlier estimates. If IRA funding is renewed when it runs out, as the Administration
has proposed, estimated revenues would be as much as $851 billion.
Previous IRS estimates of IRA revenues were limited to revenues generated by direct
enforcement activities resulting from higher enforcement sta ing. This narrow focus does not
capture the full range of ways that the technology, data, and service improvements made
possible by the IRA will increase revenues. A full accounting of the revenue raised by this
transformation requires a more comprehensive examination of the potential revenue impacts
of higher funding.
“The IRSʼs previous estimates of revenue generated by IRA funding were limited to
revenues directly resulting from increased enforcement sta ing. Consequently, the
estimates did not present a complete picture of the revenue benefits of the innovative
investments we are making under the IRA SOP [Strategic Operating Plan,]” the new
paper concludes. “The approach ignored many activities that will influence revenue,
including enhanc ing services to improve voluntary compliance, modernizing
technology, and adopting analytic advances that can dramatically improve
productivity. It also ignored the deterrence e ect of compliance activities on
taxpayersʼ behavior. To account for the potential revenue impact of the full array of
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2/6/2024

U.S. Department of the Treasury, IRS Release New Analysis Showing the High Return on Investment from Inflation Red…

investments contemplated in the IRA SOP, we need to look at the e ects on revenue
collection in a more comprehensive way.”
“IT modernization o ers a wide array of potential revenue benefits. [E]xpanded data
intake capacity and productivity will help increase compliance; improved audit
selection and collection planning can increase the productivity of enforcement
activities,” the paper finds. “A decade ago, the State of California undertook to
modernize its tax administration infrastructure. Many of the changes implemented are
similar to those we are undertaking now […] The California experience demonstrates
that these improvements can substantially increase revenue.”
The new estimates released today are a first step in developing more comprehensive revenue
estimates for IRS funding. They incorporate the benefits of improved technology, data
analytics, and service, as well as the impact of deterrence on wealthy taxpayers who are
audited. The estimates represent an important step forward and highlight the need for
additional research: Treasury and the IRS will continue to study these issues and encourage
outside research on these important topics as well.
The new findings also show whatʼs at stake in proposals to repeal or reduce this historic
investment in the IRS. A $20 billion rescission would reduce revenues by over $100 billion.
While the IRS would still be able to ramp up enforcement against big corporations and wealthy
taxpayers who do not pay what they owe in the next several years, the rescissions would
cause IRA enforcement funding to run out in 2029— about two years earlier than it would
have under the IRA as enacted—reducing the revenue raised in 2029 and subsequent years.
The Administration has proposed extending and maintaining IRS investments a er the IRA
funds are exhausted, which would enable the IRS to collect $851 billion over 2024-2034.
Conversely, additional rescissions of IRA resources or cuts to IRS base funding would further
reduce revenue collections and could reverse taxpayer service improvements that have
already been made and even endanger near-term enforcement e orts.
The IRA investments in the IRS were necessary because a decade of deep funding cuts
resulted in unacceptable service levels, prevented technological upgrades, and undermined
enforcement, particularly e orts focused on wealthy people and big corporations that do not
pay what they owe. Driven by these funding cuts, the audit rate on millionaires fell by more
than 70% from 2010 to 2019, and the audit rate on large corporations fell by more than 50%
over the same period. The tax gap—the di erence between taxes owed and taxes paid—has
grown to more than $600 billion annually.
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U.S. Department of the Treasury, IRS Release New Analysis Showing the High Return on Investment from Inflation Red…

The IRA is enabling the IRS to reverse this trend and make wealthy taxpayers and big
corporations pay the taxes they owe. Already, the IRS has announced a suite of enforcement
e orts targeted at wealthy taxpayers and big corporations, including expanded audits of the
biggest corporations and complex partnerships; a focus on foreign-owned corporations that
underpay their U.S. taxes; and a campaign to collect tax debt from 1,600 millionaires with at
least $250,000 in back taxes that has recovered more than $500 million to date. At the same
time, the IRS is implementing the IRA consistent with Secretary of the Treasury Janet L.
Yellenʼs commitment that audit rates for small businesses and taxpayers earning less than
$400,000 will not increase relative to historic levels.
Furthermore, all taxpayers will benefit from the far-reaching initiatives outlined in the IRA
Strategic Operating Plan (SOP). The SOP details how the IRS will use IRA resources to provide
taxpayers with world-class customer service, clearer guidance on how to correctly file taxes,
increased options for filing electronically, and robust online accounts so that individuals and
businesses can file quickly and independently. Taxpayers will have the tools, information and
assistance needed to get their tax filings right the first time—both in paying what they owe
and claiming the tax benefits for which they are eligible.

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