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IRS Gets $275 Million Funding Cut From Fiscal 2022 Levels (1)

Dec. 20, 2022, 4:20 PMUpdated: Dec. 20, 2022, 7:36 PM

The massive bipartisan bill to fund the government trims IRS funding by $275 million over last year’s annual appropriations level, in a win for Republicans who sought cuts after Democrats gave the agency $80 billion in multiyear funding earlier this year.

The draft legislation includes $12.3 billion for the agency, lower than last fiscal year’s total of roughly $12.6 billion. Democrats wanted to boost the agency’s annual budget arguing the funds in the tax-and-climate law were supplemental, but that was a difficult pill for Republicans to swallow.

The bill contains no money for business systems modernization. Funding for such improvements will be pulled from “unobligated balances in the American Rescue Plan,” a summary from Senate Democratic appropriators that accompanied the 4,155-page omnibus spending bill said.

But other core services remain at stable funding. Like last year, the bill provides $2.8 billion for taxpayer services, which includes funds for Low-Income Taxpayer Clinics, the Office of the Taxpayer Advocate, and increased hiring; $5.4 billion for enforcement; and $4.1 billion for operations support, according to a House Democrats’ summary.

President Joe Biden had requested $14.1 billion for the IRS in his fiscal 2023 budget, while a July draft from Senate Democrats sought to give the agency $13.6 billion.

Despite the fact that the IRS’s annual apppropriation declined, supporters of robust IRS funding were measured in their disappointment given the modest size of the decrease.

Chuck Marr, vice president for federal tax policy at the Center on Budget and Policy Priorities, said that while it’s “unfortunate” that the bill falls short of Biden’s budget request, “it’s not a significant cut from last year.”

Marr said that going forward, Congress “can’t allow inflation to erode the base funding.”

The National Treasury Employees Union, which represents many IRS employees, urged Congress to quickly pass the spending bill and praised the fact that funding was kept constant for taxpayer services, enforcement, and operations.

“At the IRS, funding for taxpayer services, enforcement and operations would remain at current levels, which is essential as the agency prepares for the start of the filing season and continues to tackle backlogs,” NTEU National President Tony Reardon said in a statement. “The IRS already has $4.7 billion for business systems modernization in the Inflation Reduction Act of 2022 and the agency continues to have access to modernization funds provided by the American Rescue Act, which compensates for the bill’s slight reduction in that area.”

The IRS funding has decreased by about 15% in real terms since fiscal year 2010 and staffing levels have declined and now are close to levels in 1974, the Senate Appropriations Committee Democrats’ bill summary said.

The agency also faced a number of new pandemic-related challenges, including a backlog of tax returns from the previous filing season and customer service issues.

Treasury Secretary Janet Yellen has vowed the agency will use the $80 billion for major overhauls in technology, taxpayer services, and enforcement aimed at wealthy Americans and businesses. She has promised an action plan early next year.

On Monday, Sen. Chuck Grassley (R-Iowa) took to the Senate floor, blasting the agency for slow implementation of watchdog recommendations and poor customer service. Grassley and Minority Whip John Thune (R-S.D.) proposed legislation last month that would impose new transparency and reporting requirements on IRS use of the $80 billion.

“The IRS has significant and persistent issues that need to be addressed,” he said. “Congress must exercise robust and aggressive oversight.”

Despite pressure from Grassley and Thune, their legislation was not included in the omnibus spending package.

—With assistance by Naomi Jagoda.

(Adds comments in the sixth through tenth paragraphs.)

To contact the reporter on this story: Chris Cioffi at ccioffi@bloombergindustry.com

To contact the editors responsible for this story: Meg Shreve at mshreve@bloombergindustry.com; Kim Dixon at kdixon@bloombergindustry.com