Dec 19, 2024
When the IRS starts asking for money, many Americans get nervous. This time, though, the Internal Revenue Service isn’t trying to collect additional funds from taxpayers. Instead, Treasury Officials are asking Congress to provide access to $20 billion in funding that was lost due to an error in legislative language.
The Inflation Reduction Act of 2022 included $79.4 billion in funding for the IRS — $1.4 billion of which was rescinded to raise the debt ceiling last year. These cuts reduced the budget of the enforcement division by $20 billion. Unfortunately, the legislative language was duplicated in error in a September funding bill, putting the agency at risk of losing another $20 billion.
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The consequences could be dire, as Treasury Deputy Secretary Wally Adeyemo warned reporters, “the IRS is going to potentially have to make dramatic decisions about stopping hiring and starting to budget for a world in which they don’t have $20 billion which will stop a lot of their progress. If they don’t get that $20 billion that is at risk they would run out of enforcement money at the current pace sometime in fiscal year 2025.”
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So, what exactly would happen, and can the problem be fixed? Here’s what you need to know.
What happens if the IRS doesn’t get its $20 billion
Although you may not be too sympathetic to the plight of the IRS, the reality is that the loss of these funds is likely to have a real-world impact on what the agency can do. Adeyemo explained some of the things that would happen if the money is not restored:
- Around 6,000 fewer wealthy individuals will be audited
- Around 2,000 fewer large corporations will be audited
- The IRS may have to freeze hiring
These losses will happen despite the fact that IRS leadership only recently announced that it had recovered $4.7 billion in back taxes after receiving the additional funding from the Inflation Reduction Act. If the agency can’t effectively collect unpaid taxes, that’s less revenue to go around, which is a problem with the country in debt to the tune of $36 trillion.
“Given the fiscal situation we deeply hope there is no backsliding in the coming months and years with rescinding, diverting, repealing any of the revenue that is going effectively into the IRS to help with tax collection,” Maya MacGuineas, president of Committee for a Responsible Federal Budget, told AP.
Treasury officials are hoping that the $20 billion will be released to them as part of budget negotiations during the “lame-duck” session. That’s the period during which Congress will be in session before Trump takes office in January, with the term lame duck describing a situation where an outgoing politician is still serving but being replaced by someone from the opposing party.
The stakes are high, though, because once Trump does come into office, it’s very unlikely the IRS is going to get its $20 billion back as the agency is already bracing for further cuts expected from the incoming administration.
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Why does IRS funding matter to the average American?
If you don’t work for the IRS, you may be wondering why this matters — or may even think it's a good thing for the IRS to get its budget cut since the agency isn’t exactly the favorite of most Americans.
The reality, though, is that when the IRS doesn’t have the funding to hire enough staff, everyone suffers. If you need help with a tax question, for example, you may not be able to get through to a customer service representative. Or, if you need to file an amended return, it may take a long time for it to be processed.
Plus, it’s also a simple reality that taxes fund government programs. If the IRS doesn’t collect enough because people aren’t audited, and the ultra rich don’t fear being audited due to low staffing levels, the government will either have to cut programs people rely on or print more money, which can cause inflation.
Ultimately, it’s in everyone’s best interest for the IRS to be able to serve its function — collecting taxes to keep the system running effectively and efficiently and to ensure that everyone pays their fair share.
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Christy Bieber has 15 years of experience as a personal finance and legal writer. She has written for many publications including Forbes, Kilplinger, CNN, WSJ, Credit Karma, Insurify and more.
