Both parties appear to sense the last chance is at hand for augmented funding of IRS audits and other enforcement
U.S. lawmakers weren't in a giving mood toward the taxman as they passed a bill over the weekend to avert a government shutdown before the holidays.
Over $20 billion meant to strengthen the Internal Revenue Service's long-term enforcement efforts remains frozen and inaccessible as a result of the legislation President Joe Biden signed Saturday.
Extra money for tax compliance, with a goal of carrying out more audits of high-earning households and big businesses, has been the subject of a back-and-forth between lawmakers since 2022, when the IRS was allocated additional funding through the Inflation Reduction Act.
See: IRS says it has recovered $4.7 billion in unpaid taxes. Republicans want to cut enforcement funding.
Also: Trump's pick for IRS chief would lead an agency he once wanted to scrap. Here's how he might run it.
The new bill passed over the weekend funds the federal government at current levels through March 14. The next chance to unfreeze the extra IRS funding - allocated chiefly by Democrats via the Inflation Reduction Act of 2022 and immediately opposed, and arguably distorted, by Republicans - will occur next year, and it's going to face tough audiences with Donald Trump in the White House and Republicans holding majorities in both the House and the Senate.
From the archives (August 2022): Yes, the IRS is hiring criminal investigators empowered to use deadly force - but here's some important context
Also see (August 2022): Fact check: No, the IRS is not hiring an 87,000-strong military force with funds from the Inflation Reduction Act
Trump's transition team has pledged to end what it calls "bureaucratic overstepping" at the IRS, and congressional Republicans have been critical of the agency's multibillion-dollar windfall ever since Democrats included it in 2022 the tax, health and climate legislation, which grew out of Biden's Build Back Better legislative framework, two years ago.
The $20.2 billion currently at issue is part of a pot of money aimed at revamping the IRS under the Inflation Reduction Act, or IRA. That legislative package devoted an extra $80 billion to the IRS to toughen tax compliance and audit rates while also improving customer service and IRS technology.
The funding was reduced to approximately $60 billion as a Democratic concession to Republicans during negotiations to raise the debt ceiling in 2023. The $20.2 billion became inaccessible through quirks of budget wording and negotiations in previous bills to keep the government funded.
So far the IRS has barely touched the money allotted for tougher enforcement under the IRA. If the $20.2 billion remains out of reach for good, it would effectively wipe out the extra enforcement funding the agency was expecting to receive through the IRA.
The IRS has tried to highlight early enforcement results from the money it has been able to use, including over $1 billion in back taxes collected from delinquent millionaires.
A Treasury Department spokesperson confirmed to MarketWatch on Monday that the $20.2 billion in funding remained frozen.
Without the extra enforcement money, Deputy Treasury Secretary Wally Adeyemo said last month, there could be "a dramatic fall-off" in the agency's ability to carry out duties like collecting all the taxes owed by rich households and businesses that have failed to pay up.
He pointed to IRS estimates that there would be 8,000 fewer audits of wealthy taxpayers and businesses though 2029 without the sidelined $20.2 billion.
The ongoing freeze is "not the final word" on the money, given the budget process, said Joe Bishop-Henchman, executive vice president of the National Taxpayers Union Foundation, a right-leaning organization.
But Adeyemo "was doing a full-court press on this because he understood this was the last chance politically to get the funding back to the IRS," Bishop-Henchman said.
Amid the Capitol Hill plot twists last week, organizations pushing for tougher tax enforcement said it was a critical moment.
Democrats should have insisted on the $20 billion in the deal struck to fund the government till March, Morris Pearl, chair of a nonprofit called Patriotic Millionaires, said last week.
"The American people might just conclude that both parties agree that the wealthy should just decide for themselves how much taxes to send in, rather than being held to the same standard as ordinary Americans who actually work for a living and have taxes deducted from their paychecks every week," Pearl said last Wednesday.
There are two general views on how tough the IRS should be, Bishop-Henchman said Monday.
One view is that "it's all enforcement, all the time," he said, while the other school of thought is that "the IRS should primarily be a customer-service enterprise, that most mistakes are mistakes and the way you resolve them is through clarity and good customer-service tools."
That's a widely shared view among Republicans, and for that reason Bishop-Henchman said that, looking ahead to next year, he expected less funding for IRS enforcement.
From the archives (January 2023): IRS says customer service will improve this year. But a big test lies ahead.
The Trump transition team did not immediately respond to a request for comment.
Read on:
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The IRS audited my husband's 2021 tax return and, yes, he made some mistakes. Now it wants two years to look at his 2022 tax return. Is this normal?
The IRS reveals its 2025 tax brackets with Trump-era tax cuts set to expire
-Andrew Keshner
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