The Treasury Department is calling on Congress to address an ‘anomaly’ in the latest stopgap spending bill that, if not corrected, could result in an additional $20 billion cut from the IRS in its fund of modernization.

Deputy Treasury Secretary Wally Adeyemo told reporters that the current resolution, which maintains the current level of government spending until December 20, could have inadvertently replicated a one-time $20 billion cut in government funding. IRS.

The IRS received $80 billion in the Inflation Reduction Act to replenish its depleted workforce and make long-delayed upgrades to its existing IT systems, after more than a decade of budget cuts.

But lawmakers, as part of negotiations last year to raise the debt ceiling, agreed to cut $20 billion in IRS funding. The Fiscal Responsibility Act passed by Congress outlined the details of this deal, including reductions in IRS spending.

However, the current stopgap spending bill also requires the IRS to withhold $20 billion of its Inflation Reduction Act funding — even though Congress has already made those cuts.

Adeyemo said Congress should reach a comprehensive agreement on spending for the remainder of fiscal year 2025, or include additional language in another continuing resolution to avoid an additional $20 billion cut to the IRS does not come into force.

“If you live in the CR world all year round, you lose the $20 billion. If you have an omnibus and the omnibus doesn’t say anything about it, then the $20 billion is returned,” Adeyemo told reporters on Tuesday.

If the IRS sees an additional $20 billion cut in its multi-year modernization fund, Adeyemo said the agency would run out of law enforcement funds in fiscal year 2025 and deplete funds intended for services to taxpayers in fiscal year 2026.

“Ultimately, unless Congress provides the IRS with certainty regarding near-term resources, we could see a dramatic decline in our ability to do the two things that I believe matter most, namely increasing revenue, especially from those non-regular payers, high net worth individuals and businesses – but also a dramatic decline in customer service,” he said.

Adeyemo said the IRS, in this scenario, may have to make “dramatic decisions,” such as a potential freeze on new hires. A hiring freeze, he added, would hurt the agency’s ongoing efforts to collect taxes that the wealthy owe to the IRS.

“At some point, if they don’t see an anomaly, the (IRS) commissioner will have to make decisions about what they will slow down or stop in order to make sure that they are in a position where they “We won’t have any more money to enforce the law, which is expected to happen in fiscal year 2025,” he said.
“At this point, they’re still working on the plan, but I know from talking to the commissioner that he’s thinking about what he should slow down or stop until calendar year 2025 if we don’t get anomaly.”

Without action from Congress, Adeyemo said the IRS would experience 8,000 fewer audits of wealthy individuals and large businesses between 2025 and 2029 — and increase the deficit by $140 billion.

“They’re in the ramp-up phase where they’re still hiring staff and they’re still growing. If, at that moment, they are forced to take a break or stop because they do not have certainty about the future, it will mean that they will not be able to achieve their goals in terms of hiring and this will make it more difficult for them. asking them to do the audits they need to do to generate that revenue,” Adeyemo said.

Adeyemo said further cuts to IRS funding would also lead to greater attrition among its current workforce.

“The retention there, to me, was based on the idea that there was this promise that they would get funding to do their job better in the future,” he said.

About half of the IRS workforce will be eligible to retire within the next five years. Adeyemo said the IRS would likely lose its most experienced employees, who play a key role in training new hires, and hamper the agency’s ability to recruit new employees for years to come.

“I’m concerned that if we lost the funding, you would lose a lot of the human capital talent that exists at the IRS. And I think the challenge is you can slow down the hiring of people, but the lack of certainty and the ability to sign long-term contracts is something that will hurt the IRS not only today, but over the course of five, 10, 15, 20 years,” he said.

Further cuts would also reverse the progress the agency has made in providing a higher level of customer service to taxpayers.

The IRS currently answers about 85% of its incoming calls, and taxpayers wait an average of 3 minutes for an employee to answer their call.

But without additional money, Adeyemo said the IRS, during the 2026 filing season, would only be able to respond to about 20% of calls, and average call wait times would increase to 28 minutes.

“Not only would we be in a position where we would not have the money to pursue those who deliberately try to cheat and not pay their taxes, but we would also not have the resources to help those who attempt to cheat. to pay their taxes, they do it more efficiently without this funding from Congress,” he said.

Maya MacGuineas, chair of the bipartisan Committee for a Responsible Federal Budget, told reporters that funding for IRS modernization has been effective and “will continue to be effective, provided it stays in place.”

“It’s not about raising taxes. It’s just about making sure people pay what they owe. And the focus is on helping them do it in a way that makes paying taxes easier and improves customer service,” MacGuineas said.

“IRS funding has a high return. It pays for itself. So this seems to me to be tax obvious,” she added.

The IRS estimates that the “tax gap” between what taxpayers owe and what the agency collects each year is $606 billion. Adeyemo said the tax gap would increase if the IRS sees further reductions.

“If this mandatory funding is to disappear, then the IRS will find itself in a position where the tax gap, instead of narrowing, will likely widen, which will only put us in a worse position to be able to collect the taxes that we owe,” he said.

The current IRS strategic plan, he added, largely reflects a modernization plan written by former IRS Commissioner Chuck Rettig. Retting also called on Congress to approve multi-year funds to modernize the IRS.

“Fundamentally, we are at the beginning of an effort to modernize and transform the IRS that frankly mirrors the modernization plans announced by several administrations, including the previous Trump administration,” Adeyemo said.

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