After months of back and forth, it appears that additional funding is on its way to the Internal Revenue Service (IRS). Senate Majority Leader Chuck Schumer (D-NY) released a statement yesterday on his agreement with Senator Joe Manchin (D-WV) on the FY2022 Budget Reconciliation legislation and plans to hold a vote in the US Senate next week. A summary of the Inflation Reduction Act of 2022 (Act) provides the following topline estimates:
| Total Revenue Raised | $739 billion |
|---|---|
| 15% Corporate Minimum Tax | $313 billion* |
| Prescription Drug Pricing Reform | $288 billion** |
| IRS Tax Enforcement | $124 billion** |
| Carried Interest Loophole | $14 billion* |
| Total Investments | $433 billion |
| Energy Security and Climate Change | $369 billion** |
| Affordable Care Act Extension | $64 billion** |
| Total Deficit Reduction | $300+ billion |
| * = Joint Committee on Taxation Estimate | |
| ** = Congressional Budget Office Estimate |
With respect to taxes, the summary states that the Act will “[m]ake the biggest corporations and ultra-wealthy pay their fair share” and “[t]here are no new taxes on families making $400,000 or less and no new taxes on small business – we are closing tax loopholes and enforcing the tax code.”
Section 10301 of the Act, entitled “Enhancement of Internal Revenue Service Resources,” provides the following appropriations:
- IRS: $78,911,000,000
- Taxpayer Services: $3,181,500,000
- Provide taxpayer services, including pre-filing assistance and education; filing and account services; taxpayer advocacy services; and other services authorized by 5 U.S.C. 3109 (relating to employment of excerpts and consultants on a temporary or intermittent basis)
- Enforcement: $45,637,400,000
- Conduct tax enforcement activities to determine and collect owed taxes; provide legal and litigation support; conduct criminal investigations; provide digital asset monitoring and compliance activities; enforce criminal statutes related to violations of internal revenue laws and other financial crimes; purchase and hire passenger motor vehicles; and provide other services authorized by 3109
- Operations Support: $25,326,400,000
- Support taxpayer services and enforcement programs, including rent payments; facilities services; printing; postage; physical security; headquarters and other IRS-wide administrative activities; research and statistics of income; telecommunications; information technology development, enhancement, operations, maintenance and security; hire of passenger motor vehicles, operations of the IRS Oversight Board; and other services authorized by 3109
- Business Systems Modernization: $4,750,700,000
- Improve the business systems modernization program, including development of callback technology and other technology to provide a more personalized customer service experience but do not include the operation and maintenance of legacy systems.
- Report on IRS-Run Free “Direct Efile” Tax Return System: $15,000,000
- Deliver to US Congress (within nine months) a report on the cost of developing and running a free direct efile tax return system; taxpayer opinions, expectations and level of trust—based on surveys—for such a system; and opinions of an independent third party on the overall feasibility, approach, schedule, cost, organizational design and the IRS’s capacity to deliver such a system
- Treasury Inspector General for Tax Administration (TIGTA): $403,000,000
- For necessary expenses of the TIGTA in carrying out the Inspector General Act of 1978, including purchase and hire of passenger motor vehicles
- Office of Tax Policy: $104,533,803
- To carry out functions related to promulgating Treasury Regulations
- US Tax Court: $153,000,000
- For necessary expenses, including contract reporting and other services as authorized by 3109
- Treasury Departmental Office: $50,000,000
- For necessary expenses to provide oversight and implementation support for IRS actions to implement the Act
- Taxpayer Services: $3,181,500,000
The IRS is also required (within six months after enactment) to provide Congress with a plan that details how the funds appropriated for Taxpayer Services, Enforcement, Operations Support and Business Systems Modernization will be spent over the 10-year period ending with FY2031. The IRS must provide quarterly updates to Congress regarding any updates to the plan, progress made in implementing the plan and any changes in circumstances or challenges in implementing the plan.
Practice Point: It remains to be seen whether the Act will pass Congress and be enacted. Potential sticking points include the omission of the elimination of the $10,000 state and local tax deduction cap and the inclusion of a carried interest proposal, which has faced opposition in the past. However, it appears that the IRS is close to finally getting the additional funding it has been seeking for years to increase customer service enforcement efforts, update technology and explore ways to improve the tax return filing process. As tax controversy practitioners, we have seen an uptick in examination activity by the IRS in the last few years. With the IRS likely receiving much needed additional resources, we expect this trend to continue into the foreseeable future.
