Report on leaked IRS data dominates congressional hearing to fund the tax agency

June 8, 2021

The Senate Finance Committee held a hearing today about the Biden Administration’s IRS budget request, but funding questions were largely overshadowed by a ProPublica report that supposedly contains leaked data on wealthy taxpayers paying little to no income tax in recent years.  

“What this data reveals is that the country’s wealthiest – who profited immensely during the pandemic – have not been paying their fair share,” said Sen. Ron Wyden (D-Ore.), the committee’s Chairman.

The report, released today, is being investigated by the IRS for how the information became public. It states that billionaire Amazon CEO Jeff Bezos paid no federal income taxes in 2007 and in 2011. Tesla founder Elon Musk paid no federal income taxes in 2018. Other billionaires, like Michael Bloomberg, Carl Icahn and George Soros, have also paid no federal income tax in recent years.

The report also states the much of this “income” is from unrealized capital gains, which are not taxable.

“Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell,” the report states.

Still, Wyden used the report as a springboard to make his greater point, which is that scores of partnerships have skirted paying income taxes.

“The most recent data shows that out of millions of partnership returns filed in 2018, only 140 were audited. If you’re a wealthy tax cheat in a partnership, your odds of getting audited are slightly higher than your odds of getting hit by a meteorite,” Wyden said.

The sole witness at today's hearing was IRS Commissioner Charles Rettig, who was undeterred in his funding request despite the ProPublica report. He seeks an increase in staff as his agency has been “outgunned” when it comes to keeping partnerships compliant with the tax law.

“In those arenas we are outgunned… Out of the 4.2 million partnership returns we cannot touch 4.2 million. Service wide, I have 6,500 field revenue agents,” Rettig said, adding that over the next five years the agency will lose 52,000 staff if funding is not increased. Presently, there are 83,000 employees at the IRS, according to Rettig.

The Commissioner called on Congress to provide the proper funding so compliance efforts could include greater focus on wealthier taxpayers, large pass-thrus, corporate taxpayers, and employment tax issues.

Committee Republicans took a different tack with the ProPublica report, saying that the leaked data should be a wake-up call for Congress to protect personal information from being seized.

Sen. Mike Crapo (R-Utah), the committee’s Ranking Member, said the leaked information shows that Biden's proposal for banks to report financial transactions over $600 to the IRS might put personal information at greater risk.

“The information we got today [from] the ProPublica circumstance is just evidence of why Americans, I think, are going to be very concerned about giving the IRS direct access to their financial data,” he said.   

Another issue raised during the hearing was the IRS falling behind in processing mail. Rettig said that his agency is no longer behind on opening and reviewing 2019 tax returns delivered via post. He also said that work is already underway to reign-in ghost tax preparers, which was included in Biden’s budget request.  

“A word to the ghost preparer community is we know you’re there. We are focused,” Rettig said, adding that these preparers could face civil or criminal penalties. Congress has yet to pass legislation on this issue.

As the hearing drew to close, Chairman Wyden reiterated his concern over the ProPublica report and vowed to do something about it.

“My interest is making sure that this is not just another chapter in the tale of two tax codes in America. While a nurse will sure owe a penalty if her W2 doesn’t match her return, a millionaire can arrange their assets through a sophisticated complex web of partnerships and can abuse the system with no risk of detection. That is the status quo today, and that is what I want to change,” Wyden said.

The Senator said that legislation addressing the issues raised by the ProPublica report will be released soon.

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