IRS budget increase slashed in latest spending bill

An omnibus spending bill released by congressional appropriators would reduce a budget increase for the Internal Revenue Service previously passed by the House by over half.

The IRS was set to receive a 14% budget increase for tax enforcement, technology upgrades, hiring and more, but instead will receive only a 6% increase in the spending bill, mainly to improve taxpayer service. The spending bill, according to Tax Notes, leaves out a number of items that had been in a version approved by the House last summer, including a set of tax-related provisions for encouraging more retirement savings, along with a rollback of requirements for amortizing research and development costs under the Tax Cuts and Jobs Act. Accounting firms like RSM US and KPMG had hoped to convince Congress to repeal those provisions, which would affect the ability to deduct R&D costs directly without amortizing them (see story).

The House is expected to approve the new omnibus spending bill on Wednesday with the goal of speeding military and humanitarian aid to Ukraine as it comes under attack from Russia. Congress has been passing a number of short-term spending extensions since last year, but kept IRS spending at the same levels.

IRS headquarters in Washington, D.C.

Al Drago/Bloomberg

Much of the increased funding will go to improving taxpayer service as the IRS has been under pressure from Democrats and Republicans alike to deal with the backlog of millions of unprocessed tax returns left over from last year, as well as the load of new returns arriving this tax season. The bill provides up to $75 million to address the IRS’s paper inventory of amended returns, correspondence and adjustments to return filings.

Overall taxpayer service would get an additional $225 million (9%) budget increase, including $21 million for investigative technology at the IRS’s Criminal Investigation division, while enforcement would also receive an extra $225 million, but that would translate to a 4% increase, according to Tax Notes. The Treasury Inspector General for Taxpayer Administration would see a 2% budget increase to $174 million, but that’s down from the 3% increase it was set to receive under the bill approved by the House last summer.

“Overall, the omnibus would provide $12.6 billion to the IRS, up from fiscal 2021’s $11.9 billion, but far short of the $13.6 billion in the House bill,” said Tax Notes.

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