IRA Funding Reduction Will Have Minimal Near-Term Effects – IRS Official

Despite losing more than a quarter of the supplemental funding provided by the Inflation Reduction Act of 2022, the Internal Revenue Service does not expect the loss to have much of a near-term effect on the plans the agency has for the remaining funds.

A little more than $21 billion of the near $80 billion allocated to the IRS was either rescinded or will be repurposed as part of the deal cut between President Biden and Speaker of the House Kevin McCarthy (R-Calif.) to get the Fiscal Responsibility Act (H.R. 3746) passed by Congress and signed into law.

“There’s still $60 billion remaining,” IRS Deputy Commissioner of Services and Enforcement Douglas O’Donnell said June 8, 2023, at the NYU Tax Controversy Forum. “There’s still $60 billion remaining. That’s $60 billion we did not have a year ago. So, we still have the opportunity to truly transform the agency.”

O’Donnell said that agency officials are “working now to sort out what this $20 billion cut means. We are going through a number of scenarios. We don’t know exactly what it’s going to look like.”

He added that any changes will affect the latter years of the 10-year Strategic Operating Plan the agency issued that provided a framework on how the IRS planned to use the nearly $80 billion in funding.

“We think that our original plan for the first five years will hold and it’s going to be the further out years where we’re going to have more of a challenge to deal with the reduction,” O’Donnell said.

Meeting The $400,000 Pledge

O’Donnell also teased forthcoming information regarding what the IRS will be doing to honor its pledge to not increase audit rates above those the agency recorded in 2018 for those individuals and businesses making less than $400,000.

He noted that the selected year was a year “where the coverage is really low. So, the good thing is we’re not going to be spending a lot of time with those individuals.”

O’Donnell said that means employees are going to have to “shift pretty quickly to other work,” and they are examining historical practices such as how to deal with the Earned Income Tax Credit, which has in the past triggered correspondence examinations.

“We’ve got to think about how to balance the need to have compliance in that space with a pledge that was made,” he said. “And that’s going to require us to train up people to do different types of work than they may have historically done in the past. So, expect to hear more about that in the coming weeks and days.”

By Gregory Twachtman, Washington News Editor