Insights

Debt Ceiling Agreement Includes Reduction in IRS Funding

The recent Fiscal Responsibility Act of 2023 allowing for a two-year suspension of the debt ceiling in exchange for certain spending cuts includes significant cuts to the IRS budget.  As part of the deal, there was an unwritten but agreed-upon compromise that allows appropriators to repurpose $10 billion a year in 2024 and 2025 from the IRS’s $80 billion in increased funding allocated under the Inflation Reduction Act.  The agency has been facing a number of challenges in recent years, including budget cuts and a growing workload.

The cuts to the IRS budget will make it more difficult for the agency to conduct audits and enforcement actions.  In addition to the impact on audits and enforcement actions, the cuts to the IRS budget will also have a number of other negative impacts on the agency. These impacts include:

• Reduced taxpayer service: The IRS will be forced to reduce the number of taxpayer assistance representatives available to answer questions and help taxpayers with their tax returns.
• Delays in processing tax returns: The IRS will be forced to delay the processing of tax returns, which could lead to late refunds and penalties for taxpayers.
• Reduced ability to detect and prevent tax fraud: The IRS will be forced to reduce its ability to detect and prevent tax fraud, which could lead to billions of dollars in lost revenue.

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The information presented here should not be construed as legal, tax, accounting, or valuation advice. No one should act on such information without appropriate professional advice and after a thorough examination of the particular situation.