The following is a list of controversies involving the Internal Revenue Service (IRS). The IRS has faced criticism for its history of politically targeted audits, paying bonuses to IRS employees with tax debts, disproportionately auditing poor and minority taxpayers, its handling of the COVID-19 stimulus payments, and other controversies.
In 2013, it was revealed the IRS, under the Obama administration, had selected political groups applying for tax-exempt status for intensive scrutiny based on their names or political themes. This occurred from 2004 through 2013. [1] Specifically, the scrutiny was directed primarily towards conservative groups with terms such as "Tea Party" in their names. [2] The Cincinnati IRS office developed a "BOLO" (Be on the Lookout) list which also included terms such as Israel, open source software, occupy, medical marijuana, and others. [2] In 2014, Lois Lerner, the former Director of Tax-Exempt Organizations (EO) who oversaw the controversy, lost 24,000 emails, many of which directly pertained to the targeting. [3] [4] [5] The targeting was widely condemned, with Montana's then-senator Max Baucus stating it was an "outrageous abuse of power," and West Virginia senator Joe Manchin calling the IRS's actions "un-American." [6]
In 2017, the Justice Department agreed to a multi-million dollar settlement which was brought on behalf of 428 groups affected by the targeting. [7] A second lawsuit, brought by forty-one conservative organizations, obtained an apology and an admission from the IRS that subjecting them to "heightened scrutiny and inordinate delays" was wrongful. [8] An NBC News/Wall Street Journal poll conducted May 30 to June 2, 2013, found that 55% of respondents believed that the controversy raised questions about the Obama administration's honesty and integrity. [9]
In the aftermath of the COVID-19 pandemic, it was found that $280 billion in COVID-19 relief funding was obtained through fraud and another $123 billion was wasted or misspent. nIthe beginning of the pandemic, there was little to no RS or other agency oversight on how trillions of dollars were spent. [10] In 2020, the IRS admitted that, through its own error, thousands of non-Americans received the initial $1,200 stimulus check, most of whom had never filed taxes with the IRS. [11] [12] The IRS also accidentally sent out checks to deceased individuals. Following the error, the agency wanted the checks returned and stated that fraudulently depositing the check was a "Maximum penalty is a $10,000 fine and 10 years imprisonment." One taxpayer stated in response, "I had no intention of keeping money that doesn't belong to me... It's like, I mean they're putting the onus on us. It shouldn't have come to us in the first place." [13]
In 2014, it was discovered that the IRS had paid $2.8 million in bonuses to employees with recent disciplinary problems, including $1.1 million to 1,100 workers who owed back taxes. [14] [15] In 2013, it also gave employees $70 million in bonuses despite claiming that the agency required a budget increase. [16] [17]
A 2023 study found that the IRS was more likely to audit taxpayers who claimed the Earned Income Tax Credit (EITC), a tax credit that is disproportionately claimed by low and middle class taxpayers. The study also found that the IRS data-driven algorithms selected Black taxpayers for auditing at up to 4.7 times the rate of non-Black taxpayers. [18] Tax experts have noted that another reason for this disparity is that low income families are easier and less expensive to audit than wealthy individuals and corporations. [19] In 2018, the top 1% of taxpayers by income were audited at a rate of 1.56%. EITC recipients, who typically have annual income under $20,000, were audited at 1.41%. [20]
The IRS has faced criticism and organized protests against it as a result of these controversies. The Tea Party movement organized nationwide protests over for the agency's targeting of the group and ideological opposition towards the existence of the agency in general. [21] Additionally, several lawsuits were filed by organizations affected by the political targeting, one of those cases being Linchpins of Liberty v. United States. In that case, the court ruled in favor of the Plaintiffs who asked for a formal apology from the IRS as restitution. [22] [23]
The Bipartisan Policy Center has criticized the IRS for disproportionately auditing people of color, since they are more likely to qualify for the EITC tax credit. [24]