IRS plan to report accounts with as little as $10,000 a year and spend $80billion on tax enforcement

is a 'deterrent' to rich Americans, Deputy Treasury Secretary says.

• The IRS's plan to enhance enforcement could bring in as much as $400 billion in unpaid taxes, Deputy US Treasury Secretary Wally Adeyemo said.

• However it's also possible that the ultra-wealthy will just hire lawyers to find more sophisticated tax loopholes to keep avoiding paying more taxes.

• A plan to monitor bank accounts with at least $600 was scrapped for a higher $10,000 threshold after bipartisan complaints that the original was too low.

• Democrats say the measures will pay for Biden's Build Back Better agenda.

• But Joe Manchin last week voiced opposition to having any IRS threshold at all.

The U.S. government aims to raise $400 billion in new revenue over a decade by making rich Americans fear the Internal Revenue Service, as part of President Joe Biden's slimmed-down, $1.75 billion social and climate spending plan.

A revived fear of audits among wealthy Americans will deter tax avoidance, Deputy U.S. Treasury Secretary Wally Adeyemo told Reuters.

Increased IRS enforcement to collect unpaid taxes makes up the largest source of revenue in the Build Back Better plan, which Congress is expected to consider this week.

The tax agency also plans to force banks to report inflows and outflows of cash of individual bank accounts worth $10,000 or more to add extra cash to pay for Biden's agenda.

Senate Finance Committee Chair Ron Wyden of Oregon promised in October that the measure would bring in 'hundreds of billions of dollars' by catching tax evaders, but declined to provide a specific estimate.

While many of Biden's original investment priorities have been shrunk or cut from the bill, plans to invest $80 billion in the IRS over a decade survived.

Approval would allow for the hiring of thousands of new enforcement staff and replacing antiquated computer systems in coming years.

Hiring agents, updating systems and pursuing sophisticated audit cases will take time, Adeyemo told Reuters in an interview, adding that he believes the stepped-up activity will make wealthy individuals think twice about hiding income to avoid taxes.

'When you are focusing on audits and people see that audits are happening - especially amongst people who are situated similar to them - you have better compliance,' Adeyemo said during a visit to Philadelphia to promote the bill's increased Child Tax Credit benefits.

'When they see more cops on the beat looking at tax returns, what people will decide is that it's better to pay than to pay the penalty in the end.'

The size of the IRS has shrunk significantly over the last 10 years.

After multiple rounds of budget cuts and underinvestment, largely under Republican-controlled Congresses, the IRS has 17,000 fewer enforcement employees than a decade ago.

The audit rate for individuals had fallen to 0.4% in fiscal 2019, half the 0.8% rate in 2015 and far below the 1.98% rate in 1977.

IRS Commissioner Charles Rettig, who was appointed by the Trump administration, told senators in April that the agency is 'outgunned' by increasingly sophisticated tax avoidance schemes that underreport business income and capital gains, leaving a 'tax gap' between owed and collected taxes as high as $1 trillion a year.

The Treasury previously had higher ambitions for using IRS enforcement to shrink the tax gap by $700 billion over a decade, about 10% of its $7 trillion estimated tax gap.

But that policy proposal relied on Congress approving new requirements for banks to report account inflows and outflows of as little as $600 per year to enable the IRS to find audit targets by matching account activity with reported income.

The $600 threshold raised bipartisan concerns about financial privacy and the provision was dropped from Biden's revised spending plan last week, and replaced with the new $10,000 threshold.

But even that plan may have hit a roadblock in the form of West Virginia Democratic Senator Joe Manchin, who along with fellow moderate Democrat Sen. Kyrsten Sinema of Arizona have chipped away at Biden's original $3.5 trillion social reform and climate spending plan.

Last week Manchin told the Economic Club of Washington, DC that the IRS reporting threshold was 'screwed up' and it 'cannot happen,' adding 'I think that one’s going to be gone.'

Adeyemo said the IRS will still be able to use more sophisticated technology, including machine learning, to better target the wealthiest individuals as it invests in new systems and hires more agents.

He conceded that measures like the bill's proposed tax surcharge of 5% on adjusted gross income above $10 million and 3% above $25 million may motivate wealthy individuals to hire more sophisticated tax lawyers.

But the official added that the IRS aims to meet this challenge.

'The question becomes how do you use the resources of the IRS to verify and validate and where that is not possible to go out and ask questions. And we'll have a bunch more people who can ask those questions,' Adeyemo said.

Adeyemo called the $400 billion revenue target for the IRS investments a 'conservative' estimate, but said the agency will need to take stronger action to fully close the tax gap.

'We're not going to be able to close the entire gap with these resources, but we do think that we're going to make a significant dent.'

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