IRS loses $20.2 billion in funding

 

The IRS annual budget will remain flat at $12.3 billion for fiscal 2024, but the agency will officially lose $20.2 billion more of the $80 billion special allocation enacted as part of the Inflation Reduction Act (IRA).

 

President Joe Biden signed legislation over the weekend to fund the government through Sept. 30, enacting into law a “minibus” that combines the last six spending bills. The legislation leaves annual IRS funding unchanged from the prior fiscal year but rescinds $20.2 billion in special IRA funding and reallocates those funds to other agencies. The rescission represents the fulfillment of a handshake agreement reached as part of a deal last June to address the debt limit.

 

Republicans have made IRS funding a popular political talking point and have successfully chipped away at the $80 billion allocation since the IRA was enacted:

  • Republicans initially secured a $275 million 2% cut in annual funding for fiscal year 2023 (which is now repeated in flat fiscal 2024 funding).
  • The debt limit deal last June rescinded $1.4 billion in IRA funding immediately with a handshake agreement to claw back $10 billion in each of fiscal 2024 and 2025.
  • Republicans later secured an agreement to claw back the entire $20 billion in fiscal 2024, which is now fulfilled by the $20.2 rescission in the current minibus.
Grant Thornton insight:

The remaining IRA allocation of $58.4 billion and the future of IRS funding may be determined by the elections this fall. Whatever the outcome, the IRS will remain a target for future cuts. The Biden administration has clearly indicated it is willing to sacrifice IRS funding for other priorities, though the administration hasn’t backed away from it as a political issue. President Biden’s recent budget proposal asks for another special allocation of more than $100 billion in IRS funding, which it estimates will raise $341 billion in additional revenue, though securing that level of funding is unlikely, even if Biden’s re-elected and Democrats control both houses of Congress. It’s also important to note that the $58.4 billion in remaining special funding still represents a transformational opportunity for the IRS, even if there are additional modest cuts in the future. Taxpayers should expect significant new enforcement activity and can consider proactively assessing substantiation and support for important tax positions.

 

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