At a Senate Appropriations subcommittee hearing held in Washington, D.C. on May 19, 2021, Erin Collins, the national taxpayer advocate at the Taxpayer Advocate Service, addressed Congress. As the IRS finds itself under examination by a Congress led by Republicans, its internal watchdog is urging legislators to safeguard funding dedicated to taxpayer services and technological advancements.
In its annual report released Wednesday, the National Taxpayer Advocate criticized the “extreme imbalance in funding priorities,” especially when examining the substantial allocation of funds under the Inflation Reduction Act. Collins noted that while the hefty sums directed towards enforcement have sparked controversy, there remains strong bipartisan backing for enhancing taxpayer services and updating technology.
Reflecting on Personal Finance developments, changes in tax brackets might lead to a slight increase in your paycheck by 2025. Additionally, 401(k) plans now include cryptocurrency options, and student loan payments might once again provide tax deductions for many.
The Inflation Reduction Act originally allocated $78.9 billion, designating 58% for enforcement and 32% for operational support. In comparison, only 4% was set aside for taxpayer services and 6% for technological updates. Adequate funding for these areas should lead to a more equitable and efficient taxpayer experience, boosting compliance and potentially cutting down on expensive enforcement measures, Collins explained.
In the fiscal year 2024, the IRS reported that enforcement efforts collected $98.7 billion, making up less than 2% of the total revenue, as detailed in its financial report for the year. The remaining 98% came from taxpayers who fulfilled their obligations through timely tax filings and payments. Should Congress decide to slash enforcement funding, it is crucial to avoid reducing resources for taxpayer services and technology, as such reductions could be counterproductive, Collins emphasized.
The IRS has faced additional expenses to recover from the pandemic, while dealing with stagnant annual appropriations despite rising costs. This situation has compelled the agency to utilize some of its multi-year funding just to sustain present operations, Collins added.
In 2023, Congress reversed $20 billion of the IRS’s funding as part of a budget agreement, with Republicans committing to further cuts. Additionally, another $20 billion was retracted when legislators extended the 2023 deal to prevent a government shutdown last December.
Looking ahead to 2025, there remains the possibility of further IRS funding reductions if Republicans maintain control over both Congress and the White House.
