IRS funding to be reduced by billions in debt deal.

The recent bipartisan deal to raise America’s debt ceiling has caused quite a stir. One of the most significant changes involves cutting billions in funding set aside for the Internal Revenue Service (IRS). This includes cuts from the $80 billion allocated under the Inflation Reduction Act (IRA).

The Numbers

The debt-ceiling deal involves shaving off almost $21.4 billion from the IRS budget. Out of the roughly $21.4 billion, nearly $1.4 billion will be rescinded from the money already allocated to the IRS, the deal states (pdf). The remaining $20 billion would come from the extra $80 billion allocated to the IRS under the IRA for a 10-year period.

What Does This Mean for the IRS?

Despite the significant cuts, a White House official has stated that the IRS will still be able to spend the remaining $60 billion over the next several years. However, this could mean that in six to eight years, there would be a need to “come back and ask for more IRS funding,” similar to how there was going to be a need to ask for such funding after the 10-year period ran out.

Reduced IRS Funding

A May 30 report (pdf) from the U.S. Congressional Budget Office (CBO) states that the $1.4 billion reduction in IRS funding would result in federal revenues getting reduced. The agency calculated a net increase in deficit of $900 million over the next 10 years.

What About the IRS’s Spending Plan?

In April, the IRS had detailed a plan (pdf) on how it would spend the extra $80 billion. Some of the measures included making it easier for taxpayers to interact with the IRS through various means of communication, resolving more issues quickly for taxpayers who face complicated tax challenges, modernizing the IRS’s technology, expanding enforcement, and hiring and retaining a highly skilled workforce. Now with a part of the $80 billion said to be cut off, there are concerns as to which of the measures detailed in the IRS’s spending plan would be affected.

What’s Next?

Some may view the cuts as a signal that the IRS will need to do more with less. However, only time will tell how these cuts will impact the IRS and taxpayers alike.