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The Inflation Reduction Act of 2022 provided the IRS with nearly $80 billion in additional funds that were aimed at enhancing its infrastructure and building up its workforce. Of the original $80 billion in additional IRS funding, only $37.6 billion remains authorized, with roughly $19.3 billion still available to be spent. Lawmakers are now proposing to remove $11.7 billion of that funding in advance of the potential government shutdown next week. This article discusses what the original $80 billion in funding meant and why these funds are once again being targeted.
IRS Funding Under The Inflation Reduction Act Of 2022
The Inflation Reduction Act of 2022 provided a 10-year boost to the tune of $80 billion to improve the IRS’s ability to administer taxes more effectively. Among this $80 billion, $46 billion would be allocated to enforcement, $25 billion to operations support, $5 billion to business modernization, and $3 billion for taxpayer services.
While most government expenditures result in net revenue outflows to the government, this funding does not. In particular, the Tax Foundation finds that the $80 billion investment into the IRS would raise $207 billion in gross revenue. The increased revenues are a function of higher audit rates and lower rates of tax non-compliance expected from the IRS applying more scrutiny and using more advanced technology.
The IRS appears to have already been effective at using these funds. For instance, in 2024, the U.S. Department of the Treasury released a statement saying that the IRS recovered $1.3 billion from high-income individuals as a result of the increased funding from the Inflation Reduction Act of 2022. According to the statement, the funds were collected from 125,000 people who have not filed taxes since 2017. The implication is that some taxpayers are egregiously evading taxes. Until recently, the IRS lacked sufficient resources to pursue enforcement at scale. Put differently, the IRS is not trying to increase the enforcement against law-abiding citizens.
Declining IRS Funding
As reported by BloombergTax, lawmakers are aiming to cut $11.7 billion of this $80 billion in the fiscal year 2026. This cut stems from bipartisan legislation that lawmakers are seeking to pass as part of the U.S.’s ongoing budgetary constraints. In particular, it is looking to be passed by the legislators as soon as next week to avoid any delays that may result from the potential government shutdown on January 30.
Cuts to this $80 billion are not new. In a report issued by the Treasury Inspector General, the $80 billion has already been shrunken down to just $37.6 billion. In fact, the IRS has only spent about $13.8 billion of the Inflation Reduction Act funding, with $6 billion going to operations support, $2.7 billion going to business systems modernization, $2.7 billion going toward enforcement, and $2.2 billion going to taxpayer services. With the Treasury Inspector General’s latest projections of the additional funds available to the IRS to be around $19.3 billion, an additional cut of $11.7 billion has the potential to limit what the IRS can do to provide further enhancements to its agency.
While the IRS funding was a common talking point during the 2024 election, and, as reported by Forbes, there is a constant revolving door on who is in the role of IRS Commissioner, the decline in IRS funding appears to be a matter of bipartisan efforts. For instance, in 2023, it was under the Biden Administration that the IRS saw the 10-year Inflation Reduction Act funding be reduced by over $20 billion. This cut was followed by another $10 billion cut in 2024 imposed by Congress.
Beyond the cuts to this $80 billion stimulus to the IRS, the annual IRS budget continues to decline, as reported by Forbes. This has led to steep declines in the IRS workforce by as much as 25% as of October 2025, year over year. The current budget projections show a 7% budget decline for this coming year, which can take its toll on the agency’s ability to collect taxes.
All the while, tax rules appear to face weaker rules and scrutiny. Two such examples are 3M winning its case in the Federal Appeals Court regarding its multinational income shifting arrangements. The decision in 3M Company & Subsidiaries v. Commissioner has the potential to open the floodgates as it pertains to companies taking aggressive stances on their taxes when it comes to their transfer pricing arrangements.
A second example is the release of Julie and Todd Chrisley from prison. This famous reality TV show couple was found guilty of Federal tax evasion by defrauding community banks to obtain over $36 million in loans. In providing false financial documents to the IRS and reporting lower income than they had brought in, they committed tax fraud, and the couple went to prison as a result of their crimes. However, shortly into his second term, President Trump pardoned the couple. As reported by a Forbes contributor, critics argue that this act of pardoning the couple erodes confidence in the tax system and signals to the rest of the U.S. that the tolerance for evading taxes is higher than thought.
The combination of these two specific examples with the declining IRS funding casts an ominous cloud on the future of tax collections and compliance in the U.S. While the current cut would redirect funds to the Departments of Labor, Health and Human Services, and Education, the message appears clear that the once-promising $80 billion stimulus to the IRS is now an afterthought. Whether these developments materially affect compliance remains to be seen, but they signal a shift away from the IRS expansion envisioned in 2022.