Over the past two years, the Internal Revenue Service (IRS) has experienced significant fluctuations in funding, receiving billions at one point only to see cuts soon after. These rapid changes have sparked confusion among taxpayers about how their tax dollars are being managed. The debate over IRS funding has become a contentious issue, with some lawmakers advocating for increased support while others push for defunding the agency entirely. This ongoing clash leaves taxpayers with an unclear understanding of the IRS’s financial situation and performance.
Amid the heated rhetoric, it is crucial for taxpayers to know the facts—understanding how much funding the IRS has received and how it has used those resources provides a clear view of the agency’s operations. A closer look may reveal surprising insights into how your tax dollars are being put to work.
A Timeline of recent IRS funding and activity
Let’s take a look back on the journey of the funding and the resulting use of the funds for the agency for the past two years.
January 2023
Former President Joe Biden signs the Inflation Reduction Act (IRA) that provides $80B in new funding to the IRS. The Biden Administration and IRS laud this new funding as an opportunity to bring the IRS into the modern digital age and fully recover from the agency’s challenges derived from the pandemic. The funds provided by the IRA were set to be deployed through September 2031, providing nearly a 9-year timeline for the funds to be utilized.
March 2023
The IRS utilizes funds provided by the IRA to hire 5,800 new employees specifically to provide direct taxpayer services. These new hires were intended to answer phones, reopen taxpayer assistance centers, and process the backlogged and current tax returns. The IRS noted that the pandemic heavily impacted its workforce, and these hires would support the agency’s ability to return to pre-pandemic staffing levels.
August 2023
The IRS reports it will deploy funds from the IRA to initiate a paperless processing initiative. This program is planned to eliminate up to 200 million paper documents processed by the IRS. Once fully implemented, it would allow electronic filing of forms beyond just the annual income tax return and extend to an additional 150 of the most-used non-tax forms. Plus, correspondence from the IRS would evolve from mailing hard copy letters to sending digital communication to taxpayers by the 2026 filing season.
September 2023
The IRS posted job openings to support their plans to hire 3,700 new enforcement agents using funds provided by the IRA. These new employees were slated to focus on tax enforcement for high-income earners, partnerships, and large corporations. The agency reported that “this hiring effort builds off earlier efforts to add taxpayer service employees at the IRS, part of the landmark Inflation Reduction Act funding.” The then IRS Commissioner, Danny Werfel, praised the move, noting, “this next wave of hiring will help the IRS add key talent like tax accountants to help reverse a decade-long decline of audits for the wealthy as well as complex partnerships and corporations.”
November 2023
The IRS shared key achievements in the paperless processing initiative, with the first goal achieved three months ahead of schedule. The agency celebrated the release of a new digital correspondence tool that allowed taxpayers to respond to notices electronically. It announced other digital features designed to reduce the volume of paper documents. The then-IRS Commissioner, Danny Werfel, applauded the program’s initial success. “The bottom line,” Werfel says, “is an IRS after the Inflation Reduction Act is a very different IRS than before. This is good for taxpayers and good for the nation.”
January 2024
The agency shared its next phase in the effort to modernize the IRS, using funds provided by the IRA, with the launch of a Simple Notice Initiative. This program was designed to provide shorter, clearer letters to reduce taxpayer confusion. The IRS issued a press release on this work stating:
April 2024
The IRS Filing season 2024 report card showed notable improvements in their service level. The agency credits the IRA for providing the resources to improve their call wait times, provide in-person assistance, and support the timely delivery of taxpayer refunds. Their press release touted a “world-class service model that achieved an 88% Level of Service on the phones, exceeding then Secretary of the Treasury Janet Yellen’s goal of 85%.”
December 2024
Congress clawed back approximately $21.6 billion in funding originally provided by the IRA. This results in a reduction of the available funding for the IRS to approximately $57.8 billion.
January 2025
President Donald Trump signed the America First Trade Policy, which specifically addressed spending by the IRS. President Trump issued a hiring freeze for new IRS employees for an indefinite period and required the release of all probationary employees employed by the agency for two years or less.
March 2025
Congress passed a continuing resolution that included a provision to claw back an additional $20.2 billion in IRS funding. This reduced the remaining funding provided by the IRA from $57.8 billion down to $37.6 billion.
In recap, the IRS received $80 billion in new funding, hired 9,500 new employees, implemented key initiatives, lost $21 billion in funding, was subjected to a hiring freeze, released 6,000 employees, and lost $20 billion more in funding. Sounds like a rollercoaster ride, right? Buckle up, the biggest twist of the journey is just ahead as we explore how the IRS spent the funding it was provided and its plans for the future.
How did the IRS use its new funding?
Through the end of 2024, the IRS spent a total of $9 billion of the resources provided by the IRA in the two years since the IRA was passed. This represents only 15.6% of the $57.88 billion in funding after the first clawback. The U.S. Treasury Inspector General for the Tax Administration (TIGTA) provides oversight on the use of funds by the IRS and issues quarterly reports. In their most recent report, TIGTA reported that only $7 billion of those dollars were used to implement improvements to the agency. Their report stated that approximately $2 billion of the $9 billion of expended IRA funding has been used to supplement its regular annual expenses. The TIGTA report cited the IRS’s defense of redirecting IRA funds to its operating activities. IRS officials stated the amount received in its annual appropriation was insufficient to cover normal operating expenses, and therefore, using IRA funding was necessary.
Ultimately, the IRS spent $7 billion of its available resources to improve the operations of the agency, while $2 billion was spent on day-to-day operations. This resulted in a quarter of its IRA funds having no impact on the improvements of the agency. While it’s clear the agency scored some key achievements with the money utilized for its intended purpose, it’s equally clear that the IRS used a quarter of the funds on operations that were not aligned with the intended purpose of the IRA.
How is the IRS planning to spend its remaining funding?
Taxpayers experienced the benefit of the IRA resources deployed through the end of 2024, which focused primarily on taxpayer services. The IRS’s plans for future spending of IRA funds were outlined in its strategic operating plan. The plan highlighted a shift in their focus to enforcement activities beginning in 2026. This is illustrated most clearly based on their hiring plans disclosed in the report. The TITGA Spending snapshot summarized the hiring plans in the table below over the remaining years of IRA funding.
The agency planned to add 23,700 new full-time equivalents (FTEs) beginning in 2026. These additions include 17,300 new enforcement officers or auditors. The hiring of auditors was planned to expand to add another 64,900 by 2029. Over the next 4 years, nearly 65% of the planned hires by the IRS were earmarked for new auditors. These planned hires represent the majority of the use of IRA funds.
These plans have elicited mixed reactions from legislators and have been the driving force behind the calls to defund the IRS. The original intent of the IRA funding was to address long-standing challenges within the IRS, such as outdated technology and declining audit rates, and to enhance the agency’s ability to enforce tax laws effectively. In his remarks on the IRA, Former President Joe Biden highlighted the importance of upgrading the IRS’s outdated systems and improving its capacity to serve taxpayers effectively. He stated that the investment would enable the IRS to provide better customer service, reduce wait times, and make the tax filing process more efficient for Americans. Additionally, the funding aimed to bolster enforcement efforts to close the tax gap by targeting wealthy tax evaders and large corporations that exploit loopholes to avoid paying taxes. Clearly, the original intent focused on enhancing taxpayer services; however, the planned use of funds evidences that enforcement is the top priority for the IRS. This is the primary reason calls to defund the IRS have grown louder in recent years. Some lawmakers argue that the additional funding provided to the IRS through the IRA will result in government overreach and lead to increased audits of middle-class Americans and small businesses. They assert that this expansion may result in undue scrutiny of these groups.
Amid the ongoing debate, taxpayers’ voices deserve to be heard just as clearly as those of elected officials. By gaining a complete understanding of the IRS’s current activities and future plans, taxpayers can form their own informed opinions about the agency. This knowledge empowers them to make their own decisions about supporting or opposing IRS funding—decisions they can express at the ballot box.