In a letter addressed to Sen. Elizabeth Warren, Rettig said that investing in the IRS – including beefing up technology, data analytics and staff – will restore some of the agency's basic functions that have "declined substantially over the last decade" and help it tackle key compliance issues.
"Maintaining a flat budget will continue to deprive Americans of both the nature and quality of services they deserve, producing a continuing decline in fairness and service," Rettig, a holdover from the Trump administration, wrote. "Adding substantial multi-year mandatory funding, however, provides an opportunity to greatly improve federal tax administration for all Americans."
The agency audited just 0.45% of individual tax returns in fiscal 2019, according to a recent Treasury Department report, or roughly 1 out of every 225 individual returns. That figure is down from 0.59% in 2018 and 1.11% in 2010. The data shows that out of more than 199 million tax returns in 2019, the IRS only examined 771,095 returns. That's a decline of 44% from fiscal year 2015.
In all, the IRS collected about $57.5 billion in enforcement revenue in fiscal 2019, which ended on Sept. 30, 2019. That's below the $59.4 billion it raked in during fiscal year 2018, according to Treasury figures.
"This new information from the IRS makes clear that unless we significantly increase IRS funding, wealthy tax cheats and big corporations will be able to continue to avoid paying their fair share to the tune of billions of dollars per year while everyone else suffers," Warren said in response to Rettig's letter.
The decline in audits is largely due to dwindling funding and enforcement staff: The IRS has 20,000 fewer staff than it did in 2010, and its budget is roughly $11.4 billion – 20% less than it was in 2010, when adjusted for inflation, according to the Congressional Budget Office.
"Every measure that is important to effective tax administration has suffered tremendously," Rettig wrote.
About $1 trillion in federal taxes may be going unpaid each year because of errors, fraud and a lack of resources to adequately enforce collections, Rettig previously said.
That's up significantly from the last time the IRS formally published data on the so-called tax gap; at the time, between 2011 to 2013, the agency reported an annual loss of roughly $441 billion.
President Biden has proposed boosting funding for the agency by an extra $80 billion as part of a sweeping plan to crack down on tax evasion by rich Americans and large corporations. Rettig also pointed to one aspect in the White House's American Families Plan that seeks to reduce the tax gap by requiring banks to report on their customers’ withdrawals and deposits, rather than relying on the taxpayers' own accounts.
If those changes were implemented, Rettig estimated that IRS employment would grow to about 167,000 (compared to about 81,000 in 2020), while the agency would have the necessary resources to "invest in critical technology to improve the taxpayer experience and use additional information reporting to increase compliance in areas where we currently lack information."
"The new data will provide the IRS with a lens into otherwise opaque sources of income with historically lower levels of reporting accuracy," Rettig added.