Bill Overview
Title: Preventing Frivolous Actions by IRS Agents Act
Description: This bill requires the Internal Revenue Service (IRS) to reimburse audited taxpayers whose gross income does not exceed $400,000 in the year of their audit and who have not been convicted of any crime related to the audit for the costs of such audit, including attorney's fees and court costs for civil or criminal proceedings in which the taxpayer prevails in court.
Sponsors: Sen. Marshall, Roger [R-KS]
Target Audience
Population: Taxpayers audited by the IRS with incomes less than $400,000 who successfully contest the audit
Estimated Size: 2000000
- The bill directly affects taxpayers who undergo an audit by the IRS with a gross income of $400,000 or less in the year of the audit.
- Individuals who meet the criteria and prevail in court will be impacted as they will receive reimbursements for the audit-related costs.
- The bill may indirectly impact IRS operations and behaviors in auditing processes, potentially influencing the selection of audits to focus away from those less likely to result in a successful prosecution if they stand to incur reimbursement costs.
- The financial services sector, including accountants and legal representatives who assist taxpayers during audits, may also be impacted as their clients could see financial relief if they prevail in court.
Reasoning
- The bill is designed to support lower and middle-income taxpayers audited by the IRS and who succeed in their dispute against it. It offers financial relief, and targets a specific subset with a gross income below $400,000.
- While there are many taxpayers impacted by audits, not all will prevail in court cases, limiting direct financial benefits to a smaller group.
- Budget parameters restrict how many individuals receive reimbursements within the first year and across a decade, meaning the scope of effect is limited by who is successfully reimbursed and receives aid.
- We considered varying incomes, geographic locations, and professional backgrounds to simulate a diversified group of individuals potentially affected by this policy.
Simulated Interviews
Freelance Graphic Designer (Austin, TX)
Age: 35 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 2.0 years
Commonness: 12/20
Statement of Opinion:
- The IRS audit was really stressful and financially draining.
- If I could get reimbursed for the legal fees I incurred, it would be a huge relief.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 5 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Auto Mechanic (Detroit, MI)
Age: 47 | Gender: male
Wellbeing Before Policy: 4
Duration of Impact: 5.0 years
Commonness: 15/20
Statement of Opinion:
- I feel overburdened by the IRS's relentless pursuit.
- If this policy passes, it might ease some stress knowing my fees could be reimbursed.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 4 |
| Year 2 | 7 | 4 |
| Year 3 | 6 | 4 |
| Year 5 | 6 | 4 |
| Year 10 | 5 | 4 |
| Year 20 | 5 | 4 |
Tech Startup Founder (Portland, OR)
Age: 29 | Gender: other
Wellbeing Before Policy: 7
Duration of Impact: 1.5 years
Commonness: 3/20
Statement of Opinion:
- Running a new business is risky enough without unexpected costs.
- Knowing I could recoup these costs allows me to reinvest in my business.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Retired School Teacher (Rural Nebraska)
Age: 56 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 10/20
Statement of Opinion:
- On a fixed income, these situations are quite distressing.
- Reimbursement would make a real difference for retirees like me.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 6 | 6 |
Accountant (Chicago, IL)
Age: 40 | Gender: male
Wellbeing Before Policy: 8
Duration of Impact: 0.0 years
Commonness: 8/20
Statement of Opinion:
- Will likely lead to more cautious audits by the IRS.
- Good for my clients who often find audits unfair and costly.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 8 |
| Year 2 | 8 | 8 |
| Year 3 | 8 | 8 |
| Year 5 | 8 | 8 |
| Year 10 | 8 | 8 |
| Year 20 | 8 | 8 |
Restaurant Owner (Miami, FL)
Age: 45 | Gender: female
Wellbeing Before Policy: 3
Duration of Impact: 4.0 years
Commonness: 6/20
Statement of Opinion:
- The audit cost nearly sank us.
- Reliefs like these are needed to keep small businesses alive.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 3 |
| Year 2 | 6 | 3 |
| Year 3 | 5 | 3 |
| Year 5 | 5 | 3 |
| Year 10 | 4 | 3 |
| Year 20 | 4 | 3 |
Actor (Los Angeles, CA)
Age: 33 | Gender: male
Wellbeing Before Policy: 4
Duration of Impact: 2.0 years
Commonness: 11/20
Statement of Opinion:
- This policy could ease the unpredictability of my finances.
- Would appreciate help with surprise expenses from audits.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 4 |
| Year 2 | 5 | 4 |
| Year 3 | 5 | 4 |
| Year 5 | 4 | 4 |
| Year 10 | 4 | 4 |
| Year 20 | 4 | 4 |
University Professor (Boston, MA)
Age: 60 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 1.0 years
Commonness: 5/20
Statement of Opinion:
- Although I'm usually financially secure, audits cause stress.
- This reimbursement policy can provide peace of mind.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 7 | 7 |
| Year 5 | 7 | 7 |
| Year 10 | 7 | 7 |
| Year 20 | 7 | 7 |
Fashion Designer (New York, NY)
Age: 50 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 2/20
Statement of Opinion:
- Policies like this are necessary to counterbalance the challenges small designers face.
- The ability to reclaim costs could make a big difference.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 6 | 6 |
| Year 10 | 6 | 6 |
| Year 20 | 5 | 6 |
Freelance Software Developer (Sacramento, CA)
Age: 32 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 4.0 years
Commonness: 9/20
Statement of Opinion:
- I see this policy as a safety net against unexpected audit costs.
- Hopeful it leads to more strategic audit practices by the IRS.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 5 | 5 |
| Year 10 | 5 | 5 |
| Year 20 | 5 | 5 |
Cost Estimates
Year 1: $80000000 (Low: $50000000, High: $150000000)
Year 2: $82000000 (Low: $51000000, High: $153000000)
Year 3: $84000000 (Low: $52000000, High: $156000000)
Year 5: $88000000 (Low: $54000000, High: $160000000)
Year 10: $96000000 (Low: $59000000, High: $170000000)
Year 100: $192000000 (Low: $118000000, High: $340000000)
Key Considerations
- Estimating the practical effect on IRS audit behavior is challenging, as internal adjustments to avoid reimbursement costs may vary significantly.
- Impact on taxpayers who undergo audits depends largely on their success rates in court, which historically have been lower than taxpayer claims suggesting a conservative cost impact.