How will the IRS Spend its $80 Billion Windfall?

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Among the provisions of the Inflation Reduction Act of 2022 was an appropriation of $80 billion for the Internal Revenue Service. To date, the IRS has not provided a specific operational plan despite instruction from Secretary of the Treasury Janet Yellen last August to do so.

However, based on the appropriations budget, we have a broad idea of how the funds will be spent. In this post, we’ll have a look at the four designated spending categories.


The IRS has been underfunded for years. Since 2010, its budget has been cut by 20% (adjusted for inflation) and its staff by 38%. Already understaffed, the IRS was pushed to its limits during 2020 when pandemic lockdowns further decreased the number of employees available to process returns and the service was simultaneously asked to administer several COVID-related programs, such as stimulus checks and emergency rental assistance.

The result was long telephone wait times, drastically reduced options for in-person help, and a backlog of several million returns.

The Inflation Reduction Act allocates $80 billion to the IRS over the next ten years with the goal of improving tax compliance, which is expected to bring in $203 billion more in revenue. By enabling the service to increase staff and update its technology, the funds should also result in better services for taxpayers.

Taxpayer Services: $3.2

During the pandemic, 25% of the Taxpayer Assistance Centers (TACs), where taxpayers could go for in-person help with their taxes, were closed permanently and half are still understaffed. Call wait times during the 2022 tax season averaged 29 minutes. And as of February 18, 2023, IRS had 2 million unprocessed individual returns, including returns from 2022, returns from 2021 that still need review or correction, and returns that were filed late in prior years. (That’s a lot, but it’s down from its peak of 35.8 million in 2021.)

Clearly, taxpayer services could use an upgrade. $3.2 billion has been earmarked for taxpayer services, including prefiling assistance, education, and filing and account services. It is hoped that better assistance for taxpayers will mean fewer errors and fewer delayed returns.

Enforcement: $45.6 billion

Thanks to decreased funding and fewer staff, audit rates declined by over 70% from 2010 to 2019, decreasing more for higher-income taxpayers. It’s estimated that this has resulted in an average $600 billion annual “tax gap” between the money that is owed and the money that is actually paid.

More than half the IRS’s new budget, $45.6 billion, has been earmarked for enforcement, with the intention of closing—or at least, narrowing—the gap. These funds can be used to hire more enforcement agents, provide legal support, and invest in technology as well as for monitoring and enforcing taxes on digital assets such as cryptocurrencies.

Operations Support: $25.3 billion

Even the IRS has to pay rent, which, along with the costs of facilities, storage, printing, postage, security, and other administrative costs, will come out of its $25.3 billion operations budget. These funds can also go toward research.

Business Systems Modernization: $4.8 billion

The IRS also received $4.8 billion for its Business Systems Modernization project from this law to be invested in taxpayer services, operations, and cybersecurity (but not used to operate legacy systems). It is anticipated that technology upgrades will include customer service technology, such as automated callback systems for phone lines, and may also include online secure portals, secure email correspondence, and possibly videoconferencing.

Importantly, this part of the budget also covers telecom and information technology. The IRS’s technology is notoriously outdated, some of it still runs on programming languages, such as COBOL, from the 1960s, and over 60 case management systems that don’t communicate with each other.

Because so few people are familiar with the systems, the IRS has had to invest heavily in training technical staff to use them. In addition to personnel and repair costs, antiquated technology has also slowed down the processing of returns; over 21 million paper returns have had to be entered into the computer system by hand, contributing to the record backlog.

…And Don’t Forget Administrative Costs

The Inflation Reduction Act included an additional $557.5 million for other Treasury offices to oversee administration of the new funding:

  • $403 million to Treasury Inspector General for Tax Administration (TIGTA), an independent IRS watchdog
  • $104.5 million to the Office of Tax Policy
  • $50 million to the Treasure Departmental Offices

More Details to Come

Despite an initial deadline of February 18, 2023, IRS has yet to publish a complete operational plan, so details on exactly how these funds will be spent are still up in the air. Even once the details are finalized, it will take several years for many of these improvements to be put in place.

In the meantime, taxpayers who want to ensure that their returns and refunds are processed in a timely manner can check out our post on getting a jump start on the tax season. We also encourage you to contact Tonneson and let one of our qualified CPAs help you file.

Contact us at Tonneson + Co today to learn how we can help.

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