The Inflation Reduction Act (IRA) of 2022 was a landmark piece of legislation that aimed to address climate change, lower healthcare costs, and reduce the national deficit. A significant component of this act involved providing substantial funding to the Internal Revenue Service (IRS). However, the initial funding amount has seen some adjustments and controversy since its enactment.
Let's dive into the specifics of how much funding was provided to the IRS under the Inflation Reduction Act, what it's intended for, and the current status of that funding.
The IRS and the Inflation Reduction Act: A Deep Dive into Funding
Hey there! Ever wondered how the IRS plans to tackle its long-standing issues with outdated technology and limited taxpayer services? The Inflation Reduction Act of 2022 was supposed to be a game-changer. But what exactly did it entail for the nation's tax agency, and where do things stand now? Let's break it down, step by step!
Step 1: Understanding the Initial Promise – The $80 Billion Commitment
When the Inflation Reduction Act was signed into law in August 2022, it initially allocated a substantial amount of supplemental funding to the IRS. The headline number that circulated widely was approximately $80 billion over a 10-year period (through September 30, 2031).
This was touted as a historic investment, designed to revitalize an agency that had seen its budget shrink significantly over the past decade, leading to degraded taxpayer services, outdated technology, and a widening "tax gap" – the difference between taxes owed and taxes collected.
Step 2: Unpacking the Original Allocation – Where the Billions Were Supposed to Go
Tip: Bookmark this post to revisit later.
The initial $80 billion was not a lump sum for general use. Instead, it was strategically divided across four key IRS budget activities, along with a smaller allocation for other related entities. This breakdown aimed to address the most critical areas needing improvement:
- Enforcement: This was by far the largest portion, originally slated for $46 billion. The goal here was to increase compliance activities, including audits and investigations, particularly focusing on high-income individuals, large corporations, and complex partnerships to close the tax gap.
- Operations Support: Approximately $25 billion was designated for general IRS operations and administrative needs, including rent, facilities, printing, postage, physical security, research, and telecommunications.
- Business Systems Modernization (BSM): Around $5 billion was allocated to upgrade the IRS's notoriously outdated technology infrastructure, replacing legacy systems with modern solutions to improve efficiency and data management.
- Taxpayer Services: Roughly $3 billion was set aside to significantly improve customer service functions, such as call center support, pre-filing assistance, taxpayer advocacy, and assistance programs. This aimed to reduce phone wait times and provide more efficient support to taxpayers.
- Other Offices: A smaller portion, around $0.7 billion, was provided to the Treasury Inspector General for Tax Administration (TIGTA), other offices within the Treasury, and the U.S. Tax Court for oversight and related functions.
The idea was to build a stronger, more efficient, and fairer tax administration system.
Step 3: The Reality Check – Funding Rescissions and Freezes
While the initial $80 billion was a grand promise, the reality has been a bit more complex. Since the IRA's enactment, subsequent legislative actions have rescinded a significant portion of this funding.
- Initial Rescissions: The Fiscal Responsibility Act of 2023 rescinded approximately $1.4 billion.
- Further Cuts: The Further Consolidated Appropriations Act, 2024, resulted in a rescission of $20.2 billion.
- Temporary Freeze: The American Relief Act of 2025 (and a recently enacted continuing resolution) has temporarily frozen another $20.2 billion in IRS enforcement funding, limiting access to those funds through the rest of Fiscal Year (FY) 2025.
As a result of these actions, the total available IRA funding for the IRS has been significantly reduced from the initial $79.4 billion. As of March 2025, reports indicate that Congress has reduced IRA funding to approximately $37.6 billion or around $57.8 billion in remaining additional funding if we consider the temporarily frozen amount.
This means the actual funding available for the IRS's ambitious modernization and enforcement plans is considerably less than what was originally envisioned.
QuickTip: Don’t rush through examples.
Step 4: Tracking the Spending – What Has Been Expended So Far?
Despite the initial promise and subsequent reductions, the IRS has begun to utilize the remaining IRA funds. As of September 30, 2024, the IRS had spent approximately $9 billion (about 15.6% of the remaining $57.8 billion) of its IRA funding.
Here's a snapshot of the spending by category up to September 30, 2024 (note: these figures are part of the original allocations, and the remaining available funds for each category are lower due to the rescissions):
 |
- Enforcement: Approximately $1.6 billion spent. The original allocation was $46 billion, but this has been significantly reduced due to rescissions and freezes, now standing at roughly $24 billion in remaining funding for enforcement.
- Operations Support: Approximately $4 billion spent. Remaining funding is about $25.3 billion.
- Business Systems Modernization: Approximately $2 billion spent. Remaining funding is about $4.8 billion.
- Taxpayer Services: Approximately $1.3 billion spent. Remaining funding is about $3.2 billion.
It's important to note that a portion of the reported spending has also covered routine operational expenses due to shortfalls in annual appropriations, meaning not all of the $9 billion was solely for supplemental funding purposes.
Step 5: The Impact and Ongoing Challenges
The IRA funding, even with the reductions, has already shown some tangible impacts on IRS operations:
QuickTip: Pay attention to first and last sentences.
- Improved Taxpayer Services: The IRS has reported significant improvements in phone service levels (reaching over 88% in the 2024 filing season, a dramatic increase from 15% in 2022), reduced wait times, and increased in-person assistance at Taxpayer Assistance Centers.
- Modernization Efforts: The agency has made strides in its Paperless Processing Initiative, scanning significantly more forms and enabling taxpayers to respond to more notices and file certain forms online. They are working towards a goal of paperless processing by filing season 2025.
- Increased Enforcement on High-Income Filers: The IRS has ramped up efforts to pursue high-income, high-wealth individuals, large corporations, and complex partnerships that have historically evaded taxes, collecting over $1 billion from millionaire tax debt cases so far.
However, challenges remain:
- Pace of Spending: The Treasury Inspector General for Tax Administration (TIGTA) has highlighted concerns about the slow pace at which the IRS has spent the supplemental funding.
- Misappropriation of Modernization Funds: A TIGTA report indicated that some funds earmarked for business systems modernization were inappropriately diverted to the operations and maintenance of legacy IT systems, potentially hindering the full modernization efforts.
- Sustainability of Service Improvements: There are concerns that funding for taxpayer services might be depleted quickly without additional appropriations, making it difficult to sustain the improvements seen in recent filing seasons.
 |
| How Much Funding Was Provided To The Irs Under The Inflation Reduction Act |
10 Related FAQ Questions
Here are 10 related FAQ questions, all starting with "How to," with quick answers:
How to access the new digital tools implemented by the IRS?
- The IRS is expanding its online portals and digital services. You can often access these through your existing IRS online account or by visiting the IRS website and looking for options like "respond to notices online" or "file information returns electronically."
How to know if the IRS is focusing enforcement efforts on my income bracket?
- The IRS has stated its focus for expanded enforcement is on high-income, high-wealth individuals, large corporations, and complex partnerships. They have pledged no plans to increase audit rates for households earning less than $400,000 annually.
How to find out about job opportunities at the IRS stemming from the IRA funding?
- The IRS is actively hiring. You can find information about job openings and recruitment events directly on the official IRS website under their "Careers" or "Jobs" section. They are specifically looking for skilled accountants and tax professionals.
How to get assistance from the IRS more quickly with the improved taxpayer services?
QuickTip: Read section by section for better flow.
- The IRS has expanded customer callback options and significantly improved phone service levels. You can try calling the main IRS helpline, and you might find shorter wait times or the option for a callback. In-person assistance at Taxpayer Assistance Centers has also increased.
How to understand the "tax gap" and its relevance to IRS funding?
- The "tax gap" is the estimated difference between the amount of tax owed and the amount voluntarily paid on time. The IRA funding aims to reduce this gap by improving enforcement and compliance, thereby increasing collected revenue.
How to verify if a communication from the IRS is legitimate?
- The IRS generally communicates by mail first. If you receive a suspicious email, text, or phone call claiming to be from the IRS, do not respond. You can verify the legitimacy of a communication by calling the official IRS phone number or checking their website.
How to provide feedback on IRS services or processes?
- The IRS often has mechanisms for taxpayer feedback on its website. Additionally, you can contact the Taxpayer Advocate Service if you have specific issues or concerns with IRS processes.
How to stay updated on the progress of IRS modernization efforts?
- The IRS regularly publishes news releases and reports on its website regarding the implementation of the Inflation Reduction Act and its modernization initiatives. The Treasury Inspector General for Tax Administration (TIGTA) also releases oversight reports.
How to ensure I'm complying with tax laws to avoid enforcement actions?
- The best way to avoid enforcement actions is to accurately report all your income and claim only eligible deductions and credits. Consider consulting with a qualified tax professional for complex tax situations.
How to learn more about the specific clean energy tax credits and incentives available under the Inflation Reduction Act?
- The IRS website has a dedicated section on the Inflation Reduction Act of 2022, which includes detailed information and FAQs on various clean energy and vehicle credits, as well as prevailing wage and apprenticeship requirements for businesses.
 |
