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May 6, 2022
Internal Revenue Service Appropriations, FY2023
Overview of the IRS Budget
and strengthen taxpayer rights and to make the IRS more
The Internal Revenue Service (IRS) has two primary
taxpayer-friendly by bolstering its cybersecurity, adopting
responsibilities: (1) collecting most of the revenue to fund
more advanced technologies, and developing a
federal government agencies and programs, and (2)
comprehensive taxpayer service strategy. Funding for this
enforcing taxpayer compliance with federal tax laws
purpose would come from three accounts: TS ($119.0
through taxpayer services and activities like audits. In
million), ENF ($54.3 million), and OS ($146.8 million).
FY2021, the agency processed 269 million tax returns and
Another $10.2 million would go to a Mississippi Delta
collected $4.1 trillion in gross revenue and $75 billion in
region hiring initiative, as part of a strategy to reach out to
enforcement revenue.
underserved communities.
The IRS’s operating budget is a blend of annual
Table 1. IRS’s FY2022 and FY2023 Appropriations,
appropriations and miscellaneous resources. In FY2021,
Excluding Nonappropriated Funds
90.5% ($11.92 billion) of its operating budget came from
(bil ions of dol ars)
appropriations. The remaining 9.5% ($1.25 billion)
consisted of (1) reimbursements from other government
FY2023
agencies for IRS-provided services, (2) offsetting
FY2022
FY2023
Requesta
collections, (3) user fees, and (4) carryovers of unobligated
Account
Enacted
Request
(Adjusted)
balances from previous fiscal years. Congress gives the IRS
considerable leeway in how it uses nonappropriated funds.
TS
$2.781
$3.386
$3.685
Historically, IRS appropriations have been distributed
ENF
$5.438
$5.862
$6.272
among four accounts: taxpayer services (TS), enforcement
OS
$4.101
$4.543
$3.834
(ENF), operations support (OS), and business systems
modernization (BSM). As Table 1 shows, enforcement has
BSM
$0.275
$0.310
$0.310
been the largest of the four in recent years, accounting for
Total
$12.595b
$14.100
$14.100
43.2% of FY2022 enacted appropriations. OS was the
second-largest account at 32.6%, followed by TS at 21.1%
Sources: IRS’s FY2023 Budget Justification and Consolidated
and BSM at 2.2%.
Appropriations Act, 2022, (P.L. 117-103).
Overview of the IRS’s FY2023 Budget
Request
Notes:
a.
The Biden Administration is requesting $14.10 billion in
Transfers $709 mil ion from OS to TS and ENF to account for
support costs associated with employing someone in the latter
IRS appropriations for FY2023, nearly 11.0% more than the
two activities.
FY2022 enacted amount. Requested funding for each of the
four appropriations accounts is also larger. Relative to
b. This figure does not include any of the funds the IRS received
FY2022, TS funding is 21.8% greater, ENF funding 7.8%
from Congress to implement pandemic-related tax benefits,
greater, OS funding 10.8% greater, and BSM funding
which totaled $3.14 bil ion when they were enacted. The
12.7% greater. Including an estimated $1.11 billion in
supplemental funds came from P.L. 116-136, P.L. 116-260, and
miscellaneous resources, the IRS’s FY2023 operating
P.L. 117-2.
budget would total $15.21 billion.
Individual Appropriations Accounts
In a departure from standard practice, the budget request
adjusts the requested amounts for TS and ENF for
Taxpayer Services (TS)
“employee support costs.” The adjustment would reduce
This account funds prefiling assistance and education, filing
requested OS FY2023 funding by $709 million and transfer
and account services, taxpayer advocacy services,
that amount to TS ($298.9 million) and ENF ($410.7
associated support costs, and other services authorized by 5
million) to better reflect the actual employment cost for TS
U.S.C. §3109.
and ENF employees. This cost encompasses an employee’s
compensation, hiring and training costs, and the
The Administration requests $3.69 billion in adjusted
information technology and physical space to make an
appropriations for TS in FY2023. Of that amount, $100
employee productive. The budget request calls for an
million would remain available until the end of FY2024.
“internal reimbursable agreement process” to implement the
The request also specifies that $11 million would be
proposed adjustments in FY2023.
available for the Tax Counseling for the Elderly program;
The budget request also designates $320.2 million for
$26 million for low-income taxpayer clinic grants (which
implementing the Taxpayer First Act (P.L. 116-250)
would be limited to $200,000 for a single clinic); $30
provisions. In general, the provisions are intended to codify
million for volunteer income tax assistance program
https://crsreports.congress.gov
Internal Revenue Service Appropriations, FY2023
matching grants (which would be available through the end
funds are needed to reduce tax return and taxpayer
of FY2024); and $235 million for the Taxpayer Advocate
correspondence backlogs in FY2023. This authority would
Service, $5.5 million of which would be reserved for cases
supplement the IRS’s current authority to transfer up to 4%
involving identity theft and refund fraud.
of ENF appropriations to the OS or BSM accounts and up
to 5% of total appropriations to any account, with the prior
Enforcement (ENF)
approval of the appropriations committees.
This account funds the following activities: determining
and collecting taxes owed, legal and litigation support,
Section 111 would allow the IRS to repurpose up to $10
criminal investigations and enforcement of tax laws,
million in appropriations without the prior consent of those
purchasing passenger cars for the agency, and other
committees.
activities authorized by 5 U.S.C. §3109.
Policy Issues
The Administration requests $6.27 billion in adjusted
The Administration’s FY2023 IRS budget request raises the
enforcement appropriations in FY2023. Of this amount,
question of whether it would enable the IRS to efficiently
$250 million would be available through the end of
and effectively carry out its responsibilities while
FY2024; $60.3 million would go to the Interagency Crime
respecting taxpayer rights and reducing tax evasion.
and Drug Enforcement program; and $21 million would be
set aside for the acquisition of “investigative technology”
Declines in IRS audit rates for high-income taxpayers,
by the Criminal Investigation Division (in addition to funds
corporations, and some small business owners since 2010
for the division included in the OS account).
have fueled concerns that such a trend will worsen the
federal tax gap, which is the difference between taxes owed
Operations Support (OS)
and taxes paid on time. The current annual gross gap is
This account funds the operation of the IRS’s infrastructure,
thought to be around $600 billion. Recent cuts in IRS’s
including headquarters maintenance, agency information
enforcement budget have contributed to audit rate declines.
systems, and operating expenses for the Internal Revenue
Service Oversight Board.
For many, a more pressing issue right now is IRS’s
taxpayer service. Exceptionally large backlogs of
The Administration requests $3.83 billion in adjusted
unprocessed (mostly paper) tax returns and taxpayer
appropriations for OS in FY2023. Of this amount, $275
correspondence from 2020 and 2021, together with an
million would be available until the end of FY2024; $10
exceptionally low level of IRS toll-free telephone service in
million would be available until spent for equipment
FY2021, have caused months-long delays for millions of
purchases and the construction, renovation, and repair of
taxpayers expecting refunds from the 2020 tax year. As
facilities; and $1 million would be available for IRS
paper returns are processed manually and in the order they
research through FY2025.
are received, many taxpayers filing paper returns for the
2021 tax year may experience similar delays in 2022.
Business Systems Modernization (BSM)
This account pays for expenses related to the BSM
According to some, these backlogs stem from inadequate
program, such as the acquisition of information technology
TS resources, operating constraints caused by the COVID-
systems and related managerial and contractual services.
19 pandemic, added pandemic-related work for the IRS
(e.g., disbursement of economic impact payments), and the
The Administration requests $310 million for the BSM
IRS’s slow adoption of scanners for paper return
program in FY2023. The request would require the IRS to
processing.
submit quarterly reports (under both the OS and BSM
accounts) to both appropriations committees and the U.S.
Some policymakers say that the IRS will improve its
Comptroller General on the status, cost, and results of
performance only when it has enough resources. In their
“major information technology investments” under the
view, this requires reversing the declines in funding and
agency’s Integrated Business Modernization Plan.
staffing since FY2010 and ensuring the agency has the
expertise and information systems to meet current and
Administrative Provisions
future demands on its capabilities.
The FY2023 budget request has 11 administrative
provisions (also known as policy riders). For years, IRS
Not every policymaker agrees that more funding is the
appropriations acts have included such riders, which
solution to IRS’s performance issues. Some argue that the
provide congressional guidance on activities the IRS should
IRS could greatly improve its taxpayer assistance if it were
or should not undertake.
to make certain changes recommended by the National
Taxpayer Advocate and others. These include expanding e-
Nine of the 11 riders in the budget request were included in
filing of tax forms, improving the capabilities of taxpayer
recent appropriations laws. They address such matters as
online accounts, and allowing taxpayers to communicate
protecting the confidentiality of tax information and the
with the IRS via secure email.
First Amendment rights of taxpayers.
The two other proposed riders would set new precedents.
Section 101 would allow the IRS to transfer up to 6% of the
Gary Guenther, Analyst in Public Finance
funds in the ENF account to the TS account if additional
IF12098
https://crsreports.congress.gov
Internal Revenue Service Appropriations, FY2023
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