As legislators face a January 30 government funding deadline, the House has passed legislation that would further erode the Internal Revenue Service’s annual budget and negatively impact federal tax enforcement. The House funding bill slashes the tax agency’s budget by over $1 billion, a nine percent cut from the agency’s $12.3 billion budget for FY2025. Under the House bill, the IRS enforcement budget would be cut by eight percent, which if enacted would bring the annual enforcement budget under $5 billion for the first time since FY2021.
A separate government funding bill also passed by the House includes a $11.7 billion clawback of operations funding originally provided to the IRS in 2022 by the Inflation Reduction Act (IRA). The IRA specifically allocated $80 billion in additional funding for the IRS for a ten-year period, but those funds have been repeatedly subject to recission over the last three years. The most recent recission occurred last year when $20.2 billion was clawed back as part of a government funding deal. If this bill becomes law, as expected, the total amount of IRA funding for IRS operations that has been rescinded to date will be over $53 billion.
Notably, the Congressional Budget Office estimated that the proposed $11.7 billion clawback of IRS operations support would reduce enforcement activities and revenue collection at a cost of approximately $38 billion over 10 years.
The Senate is expected to take up consideration of these bills this week.
On the same day that the House passed the IRS budget bill, the IRS Advisory Council, which serves as an advisory board to the IRS Commissioner, issued its annual report. In its very first recommendation, the council urged the IRS to do a better job at educating Congress and the American public about the critical role the IRS plays in collecting revenue that provides funding for activities and projects that benefit all Americans. The council also observed that in FY2024, the IRS collected $5.1 trillion in revenue on an appropriated budget of $12.3 billion, a remarkable 415:1 return on investment.