Update: Tax modifications absent from congressional spending bill, possible action later this year

Update: The Senate approved the legislation on Thursday night. The bill will travel to the White House and be signed into law.

The House of Representatives is expected to approve a spending bill on March 9^th that will fund the federal government through the fiscal year-end (September 30^th), but changes to the tax code are absent from the legislation and action on them could wait until later this year.

The spending bill was expected to include tax measures aimed at retirement and undoing some of the tax provisions in the 2017 tax reform bill, namely reversing R&D amortization and removing the limitation on the interest deduction. The legislation was also expected to resuscitate several tax provisions that have already expired.

Washingtonians closely monitoring the tax situation on Capitol Hill expect that lawmakers will produce a tax package later this year (perhaps after the election) that will address these issues.

However, the spending bill does extend the exemption for telehealth services regarding IRS code 223 - Health Savings Accounts. The modification can be found on page 1,908 in the bill, section 307.

IRS Funding:

The legislation includes $12.6 billion for the IRS, which is an increase of $675 million above last year’s level and the largest increase since President George W. Bush’s first year in office. Still, the amount allotted is less than what the House recently passed but was never enacted, $13.6 billion.

The funding will go for combating the backlog that currently plagues the tax agency, according to the summary supplied by the House Appropriation Committee:

[T]he bill provides special funding transfer authority and direct hire authority to address the backlog of returns and correspondence. Of this amount, the bill includes:

• $2.8 billion, an increase of $225 million above the FY 2021 enacted level, for Taxpayer Services. This total includes support for the Volunteer Income Tax Assistance Matching Grants Program, Low Income Taxpayer Clinic, the Taxpayer Advocate, Tax Counseling for the Elderly, and increased personnel to improve IRS customer service.
• $5.4 billion, an increase of $225 million above the FY 2021 enacted level, for Enforcement. These funds support increased enforcement efforts and additional essential personnel.
• $4.1 billion, an increase of $173 million, including the program integrity allocation adjustment, above the FY 2021 enacted level, for Operations Support.
• $275 million, an increase of $52 million above the FY 2021 enacted level, for Business Systems Modernization to modernize IRS legacy systems and improve IRS Web applications.

The bill also provides additional funding for the IRS to “finally crack down on big corporations and the wealthy who aren't paying their fair share and to provide better customer service to working families navigating the tax system,” according to the summary.

The Senate is expected to approve the legislation by March 15^th. Once both chambers approve the bill, it can be signed into law.