Status of IRS Funding After The $20 Billion IRS Funding Claw Back in FY 2024

On January 29, 2024 we posted "$20 Billion in IRS Funding Cuts Now Clawed Back in FY 2024" where we discussed that under the latest agreement from the hill, the fiscal 2025 $10 billion would be accelerated, meaning all $20 billion would be clawed back in 2024. 

With government agency appropriations having settled through the remainder of the 2024 fiscal year, the IRS' original funding authorization of $80 billion over 10 years under the Inflation Reduction Act (PL 117-169) is now less than $60 billion, but President Biden hopes to recoup rescinded amounts.

On Saturday, March 23, 2024 President Biden signed into law a $1.2 trillion spending package to avert a government shutdown for the remaining six months of the fiscal year after a series of short-term Continuing Resolutions going back to October as congressional lawmakers grappled over the federal budget.

Of the $80 billion in mandatory funding through 2031, $45.6 was marked for enforcement and $25.3 billion for operations support. The remaining buckets went towards taxpayer services and business systems modernization.

Many Republican lawmakers have proposed clawing back either the entire $80 billion, or all or a portion of the enforcement and operational buckets. However, the IRS' annual funding levels were unchanged from the prior fiscal year at $12.3 billion ($2.8 billion for taxpayer services, $5.4 billion for enforcement, and $4.1 billion for operational support).

Despite just signing the recission into law, Biden's fiscal 2025 budget, also released in late March, calls for the full restoration of the $80 billion provided by the Inflation Reduction Act. Further, Biden is seeking "new funding over the long-term to maintain progress on service enhancements and deficit-reducing tax compliance initiatives." The proposal cites the need to close the tax gap, that is, the difference between taxes owed and taxes paid.

In February, Treasury projected a $20 billion recission would reduce revenues by more than $100 billion. Although the IRS will continue to pursue ramped-up enforcement on large corporations, complex partnerships, and wealthy individuals via targeted campaigns, the remaining $58.4 billion is expected to dry up in 2029, two years earlier than intended. "Extending and maintaining IRS investments" would, according to Treasury, result in collections of $851 billion over the period 2024-2034.

Publishing their own estimates, the Congressional Budget Office in February forecasted a $20 billion rescission would "reduce outlays in 2030 and 2031 and lower revenues from 2030 to 2034 by a total of $43.6 billion, adding a total of $23.6 billion to deficits over the 2024-2034 projection period."

"In addition, the indirect effect of reduced enforcement activities in 2030 and 2031 would result in revenue collections from audited taxpayers that were less than they would otherwise be," the CBO continued.

Tax leaders at Grant Thornton observed that the 2024 elections may determine the fate of any potential future changes to IRS funding, though the agency "will remain a target for future cuts."

Read more at: Tax Times blog