Internal Revenue Service Appropriations, FY2021

Internal Revenue Service Appropriations, FY2021

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Updated February 1, 2021
Internal Revenue Service Appropriations, FY2021
Overview of Budget Request
net revenue gain of $64 billion in that period. This estimate
The Internal Revenue Service (IRS) has two primary
did not consider the potential revenue gain from the
responsibilities: (1) to collect most of the revenue to fund
deterrent effect from increased enforcement.
federal government agencies and programs, and (2) to
enforce taxpayer compliance with federal tax laws .
The FY2021 budget proposal included $106.4 million to
According to the IRS Data Book, in FY2019, the agency
implement changes in IRS operations mandated by the
processed over 253 million tax returns and 3.5 billion
Taxpayer First Act (P.L. 116-25). Among the changes are
information returns, collected over $3.5 trillion in gross
creating an internet platform for filing Form 1099s, moving
revenue, and issued $452 billion in refunds.
to 100% e-filing by tax-exempt entities, and developing
uniform standards for electronic signatures.
Appropriations provide most of IRS’s operating budget. In
FY2019, 93% ($11,302 million) of its operating budget
The 116th Congress approved the Consolidated
came from appropriations. The remaining 7% ($817
Appropriations Act, 2021 (H.R. 133, P.L. 116-260), which
million) consisted of (1) reimbursements from other
provides $11,919 million in appropriations for the IRS. This
government agencies for services rendered by the IRS, (2)
amount is 3.5% larger than the enacted amount for FY2020
offsetting collections, (3) user fees, and (4) carryovers of
and 1.0% less than the budget request.
unobligated balances from previous years. Current law
gives the IRS unrestricted control over how
Table 1. IRS’s FY2020 and FY2021 Appropriations,
nonappropriated funds are used.
Excluding Nonappropriated Funds
(millions of dollars)
Historically, IRS appropriations have been distributed
among four accounts: taxpayer services (TS), enforcement
FY2020
FY2021
FY2021
(ENF), operations support (OS), and business systems
Account
Enacted
Request
Enacted
modernization (BSM). As Table 1 shows, enforcement
accounted for 43.5% of the $11,511 million in enacted
Taxpayer
$2,512
$2,563
$2,556
appropriations for FY2020, followed by OS (33.0%), TS
Services
(22%), and BSM (1%).
Enforcement
5,010
5,071
5,213
The Trump Administration requested $12,039 million in
Operations
3,809
4,105
3,928
IRS appropriations for FY2021, or $528 million (4.6%)
Support
more than the enacted amount for FY2020. Relative to
Business
180
300
223
FY2020, funding for OS would have risen by $196 million
Systems
(7.8%), for BSM by $120 million (66.7%), for ENF by $61
Modernization
million (1.2%), and for taxpayer services by $51 million
(2.0%).
Total
$11,511
$12,039a
$11,919
Sources: IRS’s FY2021 Budget Justification and Consolidated
The Administration also proposed to supplement funding
Appropriations Act, 2021 (P.L. 116-260).
for reducing the federal tax gap by asking Congress to
exempt $400 million of the proposed budget ($280 million
a.
Excludes $400 mil ion in Program Integrity Initiatives under the
for ENF and $120 million for OS) from the FY2021 caps
ENF and OS accounts.
on nondefense discretionary spending under the Budget
Control Act of 2011 (BCA; P.L. 112-25, as amended).
Specific Appropriations Accounts
The requested exemption is known as a program integrity
Taxpayer Services (TS)
cap adjustment. It allows Congress and the Administration
This account covers the cost of printing forms and
to increase congressional allocations of annual
publications, processing returns, filing and account
appropriations for particular purposes. These purposes
include activities to maintain “program integrity,” such as
services, and taxpayer assistance from the Taxpayer
Advocate Service (TAS).
boosting a program’s effectiveness by enforcing
compliance with its regulations.
The Administration asked for $2,563 million in FY2021 for
TS, or $51 million more than the enacted amount for
According to budget documents, the proposed $400 million
FY2020. Of this amount, $11 million was set aside for the
cap adjustment in FY2021, together with proposed annual
Tax Counseling for the Elderly Program, $12 million for
cap adjustments through FY2030, would have resulted in a
low-income taxpayer clinic grants, $25 million (available
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Internal Revenue Service Appropriations, FY2021
through the end of FY2022) for matching grants in the
The budget request included $120 million in new budget
Community Volunteer Income Tax Assistance Program,
authority for investments linked to enforcement actions
and $209 million for the TAS.
intended to lower the federal tax gap.
The budget request also called for a reduction in full-time
Under P.L. 116-260, the IRS is receiving $3,928 million for
staffing within TS of 1,081 employees, which represented
OS in FY2021, or $119 million more than the enacted
91.4% of the net reduction in full-time IRS staffing (1,183
amount for FY2020. Of that amount, $10 million is
employees) sought by the budget request.
reserved for developing an automated system for
monitoring the tax compliance of federal contractors.
Under P.L. 116-260, the IRS is receiving $2,556 million for
TS in FY2021, or $44 million more than the enacted
Business Systems Modernization (BSM)
amount for FY2020. Of this amount, $11.0 million is set
This account pays for costs related to upgrading various
aside for the Tax Counseling for the Elderly Program, $13.0
IRS information technology systems.
million for low-income taxpayer clinic grants, $30 million
for matching grants for the Community Volunteer Taxpayer
Under the IRS’s budget request, the BSM program was to
Assistance Program, and $211.0 million for TAS.
receive $300 million for FY2021, or $120 million more
than the enacted amount for FY2020. The requested funds
The joint explanatory statement accompanying the act
would have been available for acquiring new information
directs the IRS to do more to ensure that taxpayers in rural
technology systems through the end of FY2023.
areas and Alaska and Hawaii have adequate access to
P.L. 116-260 provides $223 million for BSM in FY2021, or
taxpayer assistance centers.
$43 million more than the enacted amount for FY2020. The
Enforcement (ENF)
act directs the IRS to target the funds at the development of
This account pays for expenses related to assessing and
the Customer Account Data Engine 2 (CADE2), the
collecting taxes owed, providing legal support, and
Enterprise Case Management System (ECMS), web
conducting criminal investigations.
applications, cybersecurity, data protection, and online
taxpayer assistance.
The Administration requested $5,071 million in
appropriations (without a $280 million cap adjustment) for
Administrative Provisions
IRS enforcement activities in FY2021, or $61 million more
The FY2021 IRS budget request included 12 administrative
than the enacted amount for FY2020.
provisions (or policy riders) intended to create new
operational priorities or reaffirm existing ones. Ten of the
The funding request included $280 million in new budget
12 provisions reiterated priorities from previous
authority under the BCA to address the federal tax gap.
appropriations acts. P.L. 116-260 included the 10
According to the IRS’s latest estimate, the annual net tax
provisions from previous years.
gap averaged $381 billion from FY2011 to FY2013.
Policy Issues
P.L. 116-260 provides $5,213 million for enforcement
IRS’s enacted FY2021 appropriations raise the question of
activities in FY2021, or $203 million more than the enacted
whether it provides the agency with the resources it needs
amount for FY2020. Of that amount, $5.0 million is set
to achieve a variety of critical goals. These include
aside for the acquisition of new “investigative technology”
improving taxpayer compliance; assisting taxpayers with
for the IRS’s Criminal Investigation Division.
their questions and concerns in a timely manner; and
accelerating the upgrading of IRS’s IT systems.
The joint explanatory statement accompanying the act urges
the IRS to hire more special agents for its Criminal
Whether the IRS has sufficient resources for these purposes
Investigations unit to expand the unit’s investigations into
is a matter of debate. Some argue that the IRS should be
money laundering, violations of the Bank Secrecy Act, and
funded at higher amounts through a multiyear funding
criminal violations of the tax code.
stream, with most of the added funds used for enforcement
and IT upgrades. The IRS Advisory Council, for instance,
Operations Support (OS)
recommended in its 2020 report to the IRS Commissioner
This account covers expenses associated with facility
that the agency should be funded annually at not less than
services (including rent), postage, telecommunications,
$14.3 billion. Proponents of increased funding for
security at IRS facilities, research, and the maintenance,
enforcement say it would bolster taxpayer confidence in the
security, and upgrade of agency information systems.
fairness of the federal income tax and reduce the tax gap.
The Administration requested $4,105 million in
Not everyone agrees with this position. Some contend that
appropriations (without a $120 million cap adjustment) for
the IRS should be kept on a tight budget to prevent it from
OS in FY2021, or $296 million more than the enacted
continuing to undertake projects that have historically been
amount for FY2020. Of the requested amount, $250 million
marked by repeated cost overruns and delays in delivering
would have been available for obligation through the end of
final products and services, such as the BSM program.
FY2022; $10 million would have been available until spent
for the construction and repair of facilities; and $1 million

would have been available through FY2023 for research.
Gary Guenther, Analyst in Public Finance
IF11607
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Internal Revenue Service Appropriations, FY2021

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https://crsreports.congress.gov | IF11607 · VERSION 6 · UPDATED