On April 16, 2019, the Large Business and International (LB&I) Division of the Internal Revenue…
Is the IRS Finally Receiving Increased Funding?
After months of back and forth, it appears that additional funding is on its way to the Internal Revenue Service (IRS) with the Inflation Reduction Act of 2022 (Act).
The Act would spend nearly $80 billion on the IRS and would give the IRS authority to hire 87,000 additional IRS agents to ramp up audits on small businesses and taxpayers. The IRS would perform an additional 1.2 million annual audits under the plan and the increased spending on enforcement would net $124 billion.
A summary of the Inflation Reduction Act of 2022 (Act) budgets for new IRS Tax Enforcement revenue collections of $124 billion (based on the Congressional Budget Office Estimate). With respect to taxes, the summary states that the Act will “[m]ake the biggest corporations and ultra-wealthy pay their fair share” and “[t]here are no new taxes on families making $400,000 or less and no new taxes on small business – we are closing tax loopholes and enforcing the tax code.”
The Act, entitled “Enhancement of Internal Revenue Service Resources,” provides the following new IRS funding:
Taxpayer Services: $3,181,500,000
Provide taxpayer services, including pre-filing assistance and education; filing and account services; taxpayer advocacy services; and other services relating to employment of experts and consultants.
Conduct tax enforcement activities to determine and collect owed taxes; provide legal and litigation support; conduct criminal investigations; provide digital asset monitoring and compliance activities; enforce criminal statutes related to violations of internal revenue laws and other financial crimes; purchase and hire passenger motor vehicles; and provide other services.
Operations Support: $25,326,400,000
Support taxpayer services and enforcement programs, including rent payments; facilities services; printing; postage; physical security; headquarters and other IRS-wide administrative activities; research and statistics of income; telecommunications; information technology development, enhancement, operations, maintenance and security; hire of passenger motor vehicles, operations of the IRS Oversight Board; and other services.
Business Systems Modernization: $4,750,700,000
Improve the business systems modernization program, including development of callback technology and other technology to provide a more personalized customer service experience but do not include the operation and maintenance of legacy systems.
Report on IRS-Run Free “Direct Efile” Tax Return System: $15,000,000
Deliver to US Congress (within nine months) a report on the cost of developing and running a free direct efile tax return system; taxpayer opinions, expectations and level of trust—based on surveys—for such a system; and opinions of an independent third party on the overall feasibility, approach, schedule, cost, organizational design and the IRS’s capacity to deliver such a system
Treasury Inspector General for Tax Administration (TIGTA): $403,000,000
For necessary expenses of the TIGTA in carrying out the Inspector General Act of 1978, including purchase and hire of passenger motor vehicles
Office of Tax Policy: $104,533,803
To carry out functions related to promulgating Treasury Regulations
US Tax Court: $153,000,000
For necessary expenses, including contract reporting and other services as authorized by 3109
Treasury Departmental Office: $50,000,000
For necessary expenses to provide oversight and implementation support for IRS actions to implement the Act
The IRS is also required (within six months after enactment) to provide Congress with a plan that details how the funds appropriated for Taxpayer Services, Enforcement, Operations Support and Business Systems Modernization will be spent over the 10-year period ending with FY2031. The IRS must provide quarterly updates to Congress regarding any updates to the plan, progress made in implementing the plan and any changes in circumstances or challenges in implementing the plan.
Summary: It appears that the IRS is close to finally getting the additional funding it has been seeking for years to increase customer service enforcement efforts, update technology and explore ways to improve the tax return filing process. As tax professionals, we have seen an increase in audit activity by the IRS in the last few years. With the IRS likely receiving much needed additional resources, we expect this trend to continue into the near future.
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