IRS $80 Billion Roadmap Tees Up Congressional Funding Fight

The IRS plan for spending its $80 billion contains a warning: The windfall won’t be nearly as effective if Congress doesn’t also provide the agency with adequate annual funding.

It will “need an ongoing investment on top of the allocated IRA funding” to deliver the needed transformation, the agency said in its plan, released Thursday. That supplemental money isn’t a substitute for annual appropriations, the IRS said, and some of its improved services will start being impacted if lawmakers don’t maintain funding levels adjusted for inflation.

The statements amount to a retort to Republicans who now control the House, some of whom want to see the $80 billion effectively negated by not honoring the Biden administration’s agency budget request of $14.1 billion. The comments also amount to a plea to Democrats to have the agency’s back in getting it the funding it says it needs.

The Inflation Reduction Act, which provided the funding, was passed by Democrats last year on a party-line vote, and the partisan divide was reflected in reaction to the plan.

Senate Finance Chairman Ron Wyden (D-Ore.) said the plan “shows a clear focus on the priorities Democrats have laid out for this funding from the beginning.”

House Ways and Means ranking member Richard Neal (D-Mass.) pointed out that the money, which the IRS has begun spending, is already reaping benefits. Treasury has reported a big boost in its response rate to customer calls, for example.

“More customer service staff are in place and this filing season has ushered in levels of customer service that haven’t been seen in recent memory,” he said.

Finance ranking member Mike Crapo (R-Idaho) and Ways and Means Chairman Jason Smith (R-Mo.) blasted the IRS for already starting to cut checks before putting out the 10-year roadmap, which they called thin on long-term planning.

“For nearly eight months, the IRS has relied on a ‘spend first, plan later’ approach that is not transparent or responsible, and a surefire recipe for error, waste and mismanagement,” Crapo said.

Crapo, who said his office was still reviewing the plan, said he would hold IRS Commissioner Danny Werfel to his word that he would put out regular progress updates, and his first opportunity to question Werfel may come sooner rather than later. Senate Finance is expected to hear testimony from Werfel this month during a hearing on the filing season.

The IRS projects that new funds will support 19,545 full-time equivalent employees in fiscal 2024, a figure previously disclosed, but it doesn’t project the total number of employees the new funds would support through fiscal 2031. Werfel in a Thursday call promised estimates for 2025 soon, but emphasized the difficulty in projecting staffing levels far in advance.

Smith seized on that aspect in a statement.

“If this is a ‘plan,’ why does it omit how many employees the agency seeks to hire over ten years, fail to identify target audit rates for taxpayers, and lack specific details about how the money will be spent beyond the next two years?” Smith said. He went on to question whether the agency deserves its annual budget request, saying the plan raises more questions than answers.

The White House request for the IRS in fiscal 2024 was $14.1 billion, a 15% bump from current funding levels.

Appropriate Appropriations

While a fiscal 2024 omnibus appropriations bill won’t get a vote for a while, appropriators in both House and Senate have already begun to mull funding levels after hearing from Treasury Secretary Janet Yellen on the president’s fiscal 2024 budget.

Appropriators provided the IRS with $12.3 billion for fiscal 2023—a $275 million haircut from fiscal 2022—by cutting money for business systems modernization. That level will require the agency to supplement current needs with monies from the tax-and-climate bill, the report said.

“This would be to the detriment of the service, technology, and compliance initiatives envisioned to transform the IRS,” Werfel wrote in a memorandum to Yellen included in the report. “Diverting IRA funding to cover base discretionary enforcement needs would lead to more noncompliance, leading to decreased revenue collection and increased deficits.”

For instance, the IRS would exhaust all of the Inflation Reduction Act taxpayer services funds to provide adequate walk-in and phone assistance in less than four years if the fiscal 2023 appropriation levels are maintained and the administration doesn’t get the increase it seeks, the report said.

The report also criticizes the zeroed-out money for business systems modernization, which congressional appropriators justified by saying the funding for such improvements would be pulled from unobligated pandemic aid funding.

“We will not be able to meet the IT modernization projects described in the Plan without restoration of that funding as requested in the FY 2024 President’s Budget,” the report said.

Sen. Chris Van Hollen (D-Md.), chairman of the Senate Appropriations subcommittee that oversees the IRS, said last month that he’s aware Congress has put a lot on the plate of Treasury and IRS, running the gamut from sanctions enforcement to anti-money laundering efforts.

“We’re going to want to make sure that they have the funds necessary to do their job,” he said. “We’re right now at the stage where we had one hearing; we’ll dig into the requests even further.”

Sen. Bill Hagerty (R-Tenn.), the subcommittee’s ranking member, said it was up to the agency to demonstrate competence before it earns an increase in funding.

“I would only support an increase if I can see a demonstrable positive return on that investment,” he said. “So far, I have yet to see it.”