Internal Revenue Service Appropriations, FY2025

Internal Revenue Service Appropriations, FY2025

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April 29, 2024
Internal Revenue Service Appropriations, FY2025
Overview of the IRS Budget
Inflation Reduction Act
The Internal Revenue Service (IRS) is responsible for (1)
The IRA provided the IRS with $78.9 billion in mandatory
collecting most of the revenue to fund federal government
funding that is available for obligation from FY2022 to
agencies and programs, and (2) enforcing taxpayer
FY2031. This marked the first time Congress provided the
compliance with federal tax laws through activities like
IRS with multiyear funding. The act specified that $45.6
taxpayer assistance and audits. In FY2023, the agency
billion of this amount will go to enforcement, $25.3 billion
processed nearly 272 million tax returns and related forms,
to operations support, $4.8 billion to BSM, and $3.2 billion
collected $4.7 trillion in gross revenue, and issued $659
to taxpayer services. Funds designated for one purpose
billion in refunds.
(e.g., taxpayer services) cannot be used for a different
purpose (e.g., enforcement).
The IRS’s operating budget is a mix of annual
appropriations and other resources. In FY2024,
By the end of calendar-year 2023, the IRS had expended
appropriations accounted for 58% ($12.3 billion) of the
$4.4 billion in IRA funds; of that amount, $1.1 billion was
$21.0 billion IRS budget. The remaining 42% ($8.6 billion)
for taxpayer services, nearly $0.5 billion for enforcement,
came from unobligated balances from previous years,
$1.8 billion for operations support, and $1.0 billion for
reimbursable items, user fees, and $7.3 billion of the $79
BSM. Nearly $2.0 billion of expended IRA funds were used
billion in mandatory funding provided by P.L. 117-169
to pay for FY2023 operating costs and inflation adjustments
(also referred to as the Inflation Reduction Act, or IRA; see
not covered by enacted appropriations.
below for more details on the IRA’s impact on IRS
funding). The IRS has considerable leeway in how it uses
Congress rescinded $1.4 billion in unobligated IRA
these other resources.
enforcement funding in the Fiscal Responsibility Act of
2023 (P.L. 118-5). Another $20.2 billion in IRA money was
IRS appropriations are distributed among four accounts:
rescinded in the law (P.L. 118-47) providing FY2024 IRS
taxpayer services, enforcement, operations support, and
appropriations. The two rescissions have reduced the
business systems modernization (BSM). As Table 1 shows,
amount of IRA funds available to the IRS in FY2024 to
enforcement is the largest of the four in FY2024,
about $57 billion, including funds already expended.
accounting for 44% of enacted appropriations.
In April 2023, the IRS released a 10-year “strategic
Table 1. Enacted FY2023 and FY2024 and Requested
operating plan (SOP)” intended to guide the use of IRA
FY2025 IRS Appropriations
funds to reach the following goals: (1) improve taxpayer
(bil ions of dol ars)
services to help taxpayers meet their tax obligations and
receive the tax benefits for which they are eligible; (2)
FY2023
FY2024
FY2025
quickly resolve taxpayer issues; (3) reduce the federal tax
Account
Enacted Enacted Request
gap by boosting examinations of tax compliance by high-
income persons and partnerships with complex returns; (4)
Taxpayer
$2.78
$2.78
$2.78
deliver “cutting-edge technology” for the IRS’s taxpayer
Services
services and enforcement initiatives; and (5) build and
retain a highly skilled and diverse workforce.
Enforcement
$5.44
$5.44
$5.44
Operations
FY2025 Budget Request
$4.10
$4.10
$4.10
Support
The Biden Administration is requesting the same amount of
IRS appropriations in FY2025 that were enacted for
Business
FY2023 and FY2024: $12.32 billion. Its request for each of
Systems
$0.00
$0.00
$0.00
the four appropriations accounts is also identical. But the
Modernization
proposed FY2025 IRS budget ($22.8 billion) would be
Totals
$12.32
$12.32
$12.32
nearly $2 billion larger, owing to an anticipated drawdown
of $9.3 billion in IRA funds, which would be $2 billion
Sources: IRS’s FY2025 Budget Justification; and Further
more than the expected drawdown of $7.2 billion in
Consolidated Appropriations Act, 2024 (P.L. 118-47).
FY2024.
Note:
Taxpayer Services
a. These amounts do not include any of the $79 bil ion in IRA
This account pays for prefiling assistance and education,
funding or the $21.6 bil ion in rescissions of those funds since
filing and account services, taxpayer advocacy services, and
IRA was enacted.
associated support costs.
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Internal Revenue Service Appropriations, FY2025
The FY2025 budget request provides $2.8 billion in
have paid for the operation and maintenance of
appropriations for taxpayer services. Of this amount, $100
implemented projects.
million is available through the end of FY2026. In addition,
not less than $11 million is for the Tax Counseling for the
The FY2025 budget request provides no appropriations for
Elderly program, not less than $26 million for Low-Income
the BSM account. If the BSM request is enacted, FY2025
Taxpayer Clinic grants capped at $200,000 per clinic, and
would mark the third year in a row that the account has
not less than $55 million (available until September 30,
received no discretionary funds. The IRS requested $310
2026) for matching grants for the Community Volunteer
million for BSM in FY2023 and $290 million in FY2024,
Income Tax Assistance program. The budget request also
but Congress denied any discretionary funding. A lack of
provides $236 million to the Taxpayer Advocate Service
such funding may result in the IRS drawing upon IRA
(TAS), $7 million of which is to be used for cases involving
funds to cover BSM expenses normally paid for out of
identity theft and refund fraud.
annual appropriations.
Enforcement
Administrative Provisions
This account covers the costs associated with collecting
Appropriations laws typically include provisions (also
taxes owed, legal and litigation support, criminal
known as riders) directing a federal agency to engage in or
investigations, and enforcement of tax laws.
eschew specified actions. The IRS FY2025 budget request
includes two riders not applicable to FY2024 discretionary
The budget request provides $5.4 billion in appropriations
funding. One new rider would extend the IRS’s Direct Hire
for enforcement in FY2025. Of this amount, $250 million is
authority through FY2027 to fill positions with a “critical
available for obligation until the end of FY2026; $60.3
hiring need” and for which there is a “severe shortage of
million is set aside for the Interagency Crime and Drug
qualified candidates.” The other new rider would extend
Enforcement program; and $35 million is for the acquisition
through FY2031 the IRS’s authority to offer higher base
of “investigative technology” by the IRS Criminal
salaries to recruit and retain up to 200 employees with skills
Investigation Division.
deemed critical to the achievement of the SOP goals.
Operations Support
Policy Issues
This account funds the operation and maintenance of key
The FY2025 budget request raises several policy issues.
elements of the IRS’s infrastructure, including research and
One issue is the purchasing power of requested IRS
statistics of income, headquarters maintenance, information
appropriations. Enactment of the request would mean that
systems and operation, and telecommunications.
discretionary FY2025 IRS funding would be less in 2023
dollars than enacted FY2023 discretionary funding. This
The FY2025 budget request provides $4.1 billion in
loss of purchasing power would have to be addressed
appropriations for operations support. Of that amount, $275
through a cutback in IRS operating expenses or a diversion
million is available for obligation until the end of FY2026;
of IRA funds from achieving the transformative objectives
$10 million is available until spent for equipment purchases
of the SOP to maintaining FY2023 operating levels. Such a
and the “construction, repair, and renovation of facilities”;
diversion has already happened: the IRS used $2.0 billion
and $1 million (available through FY2026) is for research.
of IRA funds to supplement its FY2023 appropriations and
may draw on another $818 million to maintain FY2023
The budget request asks Congress to rename this
appropriations account “Technology and Operations
operating levels in FY2024.
Support.” The IRS’s rationale for the name change is two-
Another issue is the revenue effects of cuts in IRA
fold. First, most of the funding for Operations Support
mandatory funding. Two rescissions of this funding totaling
already is used to maintain and operate the IRS’s
$21.6 billion have already been enacted, and some
information systems. Second, with the denial of BSM
Members would like to rescind the remaining $57.3 billion.
appropriations since FY2023, SOP technology
The rescinded funds might be taken out of IRA’s
modernization projects may be funded through the
enforcement funds. They are mainly intended to shrink the
Operations Support budget after the $4.8 billion in IRA
federal net tax gap, which averaged $625 billion in 2020
BSM funds are used up.
and 2021, according to the most recent IRS estimate. A
recent Congressional Budget Office analysis estimated that
Under the budget request, the IRS is to submit quarterly
a $20 billion rescission in IRA enforcement spending
reports to the House and Senate appropriations committees
implemented in FY2030 and FY2031 could result in a $44
and the U.S. Comptroller General that summarize the status
of the IRS’s information technology (IT) investments,
billion drop in federal revenues from FY2024 to FY2034.
focusing on plans and costs for the remainder of the fiscal
To address these concerns, the IRS proposes in its FY2025
year. The budget request also directs the IRS to include in
budget request to extend mandatory funding through
its FY2026 budget documents a summary of expected costs
FY2034 with another $104 billion between FY2024 and
and results for its major IT systems during that year.
FY2034, making total IRS mandatory funding (including
rescissions) from FY2022 to FY2034 equal to $162 billion.
Business Systems Modernization
This account pays for BSM program expenses, such as the
Gary Guenther, Analyst in Public Finance
acquisition of IT systems and related services. BSM funds
are used only for the development, modernization, and
IF12647
enhancement of the agency’s information systems.
Historically, funds from the operations support account
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Internal Revenue Service Appropriations, FY2025

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