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IRS Budget Could Be on Chopping Block Under Republican Administration

The IRS might face deep cuts in its budget given President-elect Donald Trump's win on Nov. 5. Accounting Today reported that funding for the IRS has become a political issue. Republicans successfully called to cut the extra $80 billion funding from 2022's Inflation Reduction Act (IRA).

According to Bloomberg Tax, given that Republicans now control both the Presidency and the Senate, annual IRS appropriations and the billions in supplemental funding from the IRA might be in a precarious position and be on the chopping block.

IRS funding was characterized as a “lightning rod” for Republicans in Congress by Dave Kautter, federal specialty tax leader for RSM US LLP. Kautter was assistant Treasury secretary for tax policy during the Trump administration, reported Bloomberg Tax.

Accounting Today stated that Rochelle Hodes, a principal at Crowe LLP,  thinks that IRS funding, both the annual appropriation funding and the remaining IRA funding, is at considerable risk currently.

Thus far, Republicans have mostly wanted cuts in the IRS's budget for enforcement. The increase in enforcement is supposed to be utilized to pay for the cost of the IRA, but the funding rise is also supposed to be allotted for taxpayer service and technology improvements. "The only question for me on funding is, will any portion of the funding remain available for taxpayer service-related improvements at the IRS?" Hodes noted.

The Direct File free tax prep program that the IRA funded can also be a target even as the IRS intends to expand the program beyond the initial 12 pilot states in 2024 to 24 next tax season, Accounting Today reported.

A more significant priority will be the extension of the expiring provisions of the Tax Cuts and Jobs Act of 2017, Hodes noted. He said that getting TCJA resolved will be the first priority, adding that the next question is, "How will the cost of that endeavor be determined? If the view that is held by several Senate Republicans wins the day, then the cost of extending the expiring provisions will not be counted under those particular budget rules that are created dealing with extending current policy. If, however, that view is not adopted, then there is a high cost just to TCJA, and so many other provisions with cost will sort of stretch the boundaries of what many in Congress would be comfortable with. I think it will be necessary to see how the scoring goes for extending TCJA provisions."

How this might all play out might rely on who ends up in Congress, with many key races in the House still undecided. "Although the House remains undecided, the Republicans' control of the Senate makes it much more likely that Republicans will be able to implement many of Trump's proposed tax policies, such as making parts of the expiring 2017 TCJA provisions permanent," John Gimigliano, a principal  at KPMG, noted in a statement.

Gimigliano said that the pressing question currently is how the Administration and Congress will finance an ambitious agenda and what added measures they might introduce including removing taxes on tips and overtime, which Trump proposed while campaigning for President. According to Gimigliano these items will only add to the massive over $4 trillion cost they entail. He emphasized that, "Until then, taxpayers should continue to stay apprised of developments and scenario plan for the different outcomes to get ahead."