Yellen said those statistics were appalling, and underscored her concern about the estimated tax gap, which she said was mostly due to wealthier taxpayers, who had opaque sources of income. “The resources of the IRS have been cut to the point where they’ve largely cut back on the complicated audits, the ones that are harder, of high income taxpayers,” Yellen told the committee.
Yellen said the agency was dealing with massive problems, including a “huge backlog” in working through tax returns, and lacked the personnel needed to carry out complicated audits of higher-earning taxpayers. Senator Robert Casey, a Democrat, said the IRS had all but stopped auditing tax returns of wealthy private business owners, who were eligible for a 20% tax write-off on their personal taxes, while lower-earning recipients of the Earned Income Tax Credit (EITC) were five times more likely to be audited.
“The fact that such a large share goes to audit the EITC is very unfair.” Approving Treasury’s budget request for $80 billion over 10 years, Yellen said, would allow the IRS “to be able to … make sure that people are paying the taxes that are due. “It’s very unfair to workers in lower income households the way things work now,” she said.