Treasury, IRS Detail Spending Plan for IRA Funds

The Treasury Department and IRS on April 6th released the long-awaited plan for how the tax agency will spend the $80 billion bequeathed to it by the Inflation Reduction Act.

The 150-page report is here.

In large part, the funding will be used for tax enforcement on wealthy individuals, partnerships, and large corporations.

Of the $80 billion that the IRS will receive, $45.6 billion will be used for tax enforcement. The money is projected to be spent over a ten-year period.

The IRS has already started hiring enforcement staff, but the tax agency won’t start pursuing corporate and wealthy taxpayers until fiscal year 2025. However, getting the tax agency up to speed on catching tax cheats could take even longer.  

The Treasury Department also stated that none of the funds will be used to raise audit rates on “small businesses and households making less than $400,000 a year, relative to historical levels.”

Enforcement receives the lion’s share of the funding. The rest goes to:

• $3.18 billion for taxpayer services
• $25.3 billion for operational support
• $4.75 billion for modernizing technology

National Taxpayer Advocate Erin Collins recently stated that the IRS should reallocate the funds to help families and small business file their taxes. Her blog states:

Last August, Congress tried to solve these problems by giving the IRS nearly $80 billion over the next ten years through the Inflation Reduction Act of 2022 (IRA) as a supplement to the funding it receives through the annual appropriations process. That’s good news.

But there is also some bad news: The IRA allocated the funds in a manner that does not address the needs of U.S. taxpayers, including individuals, families, and businesses.

IRS Commissioner Daniel Werfel told reporters today that "it makes sense" for the agency's intial efforts to be used pursuing wealthy individuals, complex partnerships and large corporations.

Congressional lawmakers are out of session until April 17^th. When they return, Republicans are expected to hold hearings on the IRS funding to ensure that it is not being misused.