link to page 1
INSIGHTi
IRS-Related Funding in the Inflation
Reduction Act
August 3, 2022
Part 3 of Title I, Subtitle A of the draft Inflation Reduction Act (IRA, the Senate majority’s draft
amendment to H.R. 5376) would appropriate to the Internal Revenue Service (IRS) and related agencies a
total of $79.6 billion, to remain available through the end of FY2031, to bolster taxpayer services and
enforcement of the tax code, among other purposes. The bill intends for this new spending to supplement,
not replace, the IRS’s normal annual appropriations (see Figure 1).
Figure 1. The IRS’s Budget Authority Through FY2031 Under the Inflation Reduction Act
Source: Congressional Budget Office; Part 3 of Title I, Subtitle A of the Inflation Reduction Act.
Note: Assumes no change in base appropriations.
Congressional Research Service
https://crsreports.congress.gov
IN11977
CRS INSIGHT
Prepared for Members and
Committees of Congress
Congressional Research Service
2
IRS Appropriations
Enforcement
The IRA would give the IRS $45.6 billion for tax enforcement activities such as hiring more enforcement
agents, providing legal support, and investing in “investigative technology.” The funds could also be used
to monitor and enforce taxes on digital assets such as cryptocurrency. P.L. 117-58, the Infrastructure
Investment and Jobs Act, required cryptocurrency brokers to report more information on their clients’
trading activity to the IRS starting in 2023. (The bill would also appropriate $153 million to the United
States Tax Court.)
Supporters argue these funds will reduce the “tax gap,” or the average annual value of unpaid federal
taxes. The IRS estimates the tax gap averaged $381 billion after accounting for enforcement between
2011 and 2013, the most recent years available. Some argue the 19% decline in the IRS’s inflation-
adjusted (CPI-RS) funding between 2010 and 2019 facilitated tax evasion. Funding rose in 2020 and
2021, in large part to help the IRS administer COVID-related benefits. (For more on the tax gap, see CRS
In Focus IF11887, Federal Tax Gap: Size, Contributing Factors, and the Debate Over Reducing It.) The
Congressional Budget Office estimated that similar enforcement spending in an earlier version of H.R.
5376, then referred to as the Build Back Better Act, would have generated $207 billion in revenues
through FY2031, although such estimates are highly uncertain. That version of H.R. 5376 passed the
House on November 19, 2021.
Operations Support
The IRS would get $25.3 billion for operations support under the IRA. This funding would cover routine
costs such as rent, facilities, printing, postage, and security, as well as telecom and information
technology. These funds could also go toward research and the IRS Oversight Board, which oversees and
guides the IRS.
Taxpayer Services
The IRA would appropriate $3.2 billion for taxpayer services such as filing and account services, prefiling
assistance, and education. The IRS has struggled to provide quality service during the COVID-19
pandemic. The number of unprocessed tax returns at the end of the filing season rose from 7.4 million in
2019 to 35.8 million in 2021 and 13.3 million in 2022. Phone service also suffered. Whereas IRS
customer service representatives answered 59% of phone calls they received in 2019, they answered 19%
and 18% in 2021 and 2022, respectively.
In addition, the IRS would receive $15 million under this bill to fund a task force that would study the
cost and feasibility of creating a free direct e-file program. The agency previously committed not to create
its own tax filing software as part of an alliance called the Free File Program. In exchange, private tax
filing software companies agreed to provide free services to low- and moderate-income taxpayers.
Roughly 4% of eligible taxpayers used the Free File Program’s private providers to file their taxes in
2020. Intuit and H&R Block, who previously represented two-thirds of the program’s usage, both left the
agreement in the past three years. (For more on the Free File Program, see CRS In Focus IF11808, The
Internal Revenue Service’s Free File Program (FFP): Current Status and Policy Issues.)
Congressional Research Service
3
Business System Modernization
The IRS would also receive $4.8 billion for its Business Systems Modernization project under this bill. In
2019, the IRS released a plan to upgrade the business systems it uses to administer taxpayer services,
operations, and cybersecurity. These additional funds could be invested in customer service technology
such as automated callback systems for phone lines, but not used to operate legacy systems.
Oversight
The draft IRA would direct the Commissioner of the IRS to report the agency’s plans to spend these funds
to Congress within six months of the bill’s enactment. Starting one year later, the Commissioner is also
directed to give quarterly updates on the IRS’s use of these funds. The bill would cut the amounts it
appropriates for enforcement, taxpayer services, operations support, and business modernization by
$100,000 for each day late the Commissioner delivers these products.
The IRA would give other Treasury offices $557.5 million to oversee the administration of these new IRS
funds. Of that amount, $403 million would go to the independent Treasury Inspector General for Tax
Administration (TIGTA), $104.5 million would go to the Office of Tax Policy, and $50 million would go
to the Treasury Departmental Offices.
The IRA clarifies that its appropriations and oversight provisions are not “intended to raise taxes on any
taxpayer with a taxable income below $400,000.” None of those provisions would raise rates or otherwise
change any payer’s tax obligation. The Biden Administration has previously claimed that under its tax
compliance agenda, “audit rates will not rise relative to recent years for those with less than $400,000 in
actual income.”
Workforce
The IRA would authorize the IRS to use the funds appropriated for enforcement, operations support,
taxpayer services, and Business System Modernization to hire employees using direct hire authority.
Direct hire authority accelerates onboarding by letting the IRS bypass some steps in the screening process
for federal employees.
Additionally, the IRA would permit the IRS to hire up to 200 highly skilled workers for critical position
pay through FY2031, meaning the IRS could better compete with the private sector for these employees
during that time. Lastly, the Secretary of the Treasury would be permitted to set the base pay and
compensation for as many as 300 positions at the IRS, up to the equivalent levels set by statute for the
Vice President of the United States.
Author Information
Brendan McDermott
Analyst in Public Finance
Congressional Research Service
4
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
IN11977 · VERSION 1 · NEW