How did the IRS spend $79.5 billion in supplemental funding allocated by Congress as part of the Inflation Reduction Act of 2022 (IRA)? Here’s a hint: It didn’t.
Congress took back big chunks of the IRS funding, leaving less than half of the original funding in place. A recent Treasury Inspector General for Tax Administration (TIGTA) report took a look at how the remaining money has been spent as of March 31, 2025—and how much money was allocated as part of the IRS normal appropriations. Here’s what it found.
How Much Money Did The IRS Receive?
While Congress IRS initially earmarked $79.4 billion in supplemental funding to be spent over ten years as part of the IRA, that didn’t last long. Congress subsequently clawed back more than half of that funding ($41.8 billion), leaving the agency just $37.6 billion, which is expected to last through September 30, 2031.
As of March 31, 2025, the IRS has spent approximately $13.8 billion of that money.
What Was Cut?
Of the $41.8 billion rescinded by Congress, all of it was taken from money previously earmarked for enforcement.
In October 2022, the Congressional Budget Office (CBO) estimated that IRA-funded enforcement activities would generate $204 billion in revenue through 2031. In April 2024, a CBO analysis estimated that a $20 billion rescission in IRA enforcement spending could lead to a $44 billion decrease in federal revenues from 2024 to 2034. The CBO has not, to date, released an analysis to assess the impact of further rescissions.
Where Did The Rest of the Money Go?
The remaining funding has been earmarked to help improve taxpayer services, modernize technology, and increase compliance and enforcement actions.
As of March 31, 2025, the IRS has spent money on the following activities:
- Operations Support – $6 billion of $25.3 billion
- Business Systems Modernization – $2.7 billion of $4.8 billion
- Enforcement – $2.7 billion of $3.8 billion
- Taxpayer Services – $2.2 billion of $3.2 billion
- Energy Security – $63.6 million of $500 million
(The IRS also spent approximately $11.6 million in Fiscal Year 2023 for the Direct e-file tax return study, which is included in the total amount spent.)
Annual Appropriations
The IRA funding was in addition to annual appropriations for the IRS—generally, the annual budget. Approximately $12.3 billion was earmarked for the IRS budget to be used for three of the four primary funding activities for the 2025 fiscal year.
Here’s how the IRS budget generally shakes out.
- It includes $2.8 billion for Taxpayer Services. These funds are intended to support pre-filing assistance and education, filing and account services, and taxpayer advocacy. Funds may also be allocated for the Tax Counseling for the Elderly (TCE) Program, low-income taxpayer clinic grants, and the Community Volunteer Income Tax Assistance matching grants program.
- The budget also allocates $5.4 billion for Enforcement. These funds are intended to support enforcement activities, such as identifying and collecting owed taxes, providing legal and litigation assistance, and conducting criminal investigations (including investigative technologies).
- And finally, it set aside $4.1 billion for Operations Support. These funds are designated to cover the agency’s regular operating expenses, including rent, facilities services, printing and postage, physical security, research and income statistics, as well as information technology development, enhancement, operations, maintenance, and security.
Congress also gave the IRS authority to transfer up to 5% of funds from one funding activity to another (with House Committee on Appropriations approval). There’s one exception: funds may not be transferred for use in enforcement.
The IRA funding was intended to supplement, not replace, the agency’s annual appropriation. Notably, the IRS has received the same annual appropriation each year since the IRA took effect, with no adjustments for inflation. As a result, approximately $2 billion in IRA funds has been used to supplement the IRS annual appropriations, since, according to the IRS, appropriations did not cover normal operating expenses.
Biggest IRA Funding Spend: Employee Compensation
The largest IRA expenditure by category was for employee compensation—meaning pay and benefits—totaling approximately $6.1 billion. Of that $6.1 billion, as of March 31, 2025, 40.3% (approximately $2.5 billion) was spent in the 2025 fiscal year.
So far in 2025, the IRS has reported a decrease of about 25% of its workforce. A total of 25,386 employees have separated, taken a DRP offer, or used some other incentive to leave. Additionally, 294 employees received termination notices due to reduction in force (RIF) actions. You can read more about the reductions here.
While the numbers of employees have dropped, spending has not reflected those cuts. That’s because the DRP separation packages (a total of 21,646) require the IRS to pay and provide benefits to employees through the end of the fiscal year. In other words, the IRS must pay for workers who are not working through September 30, 2025.
(Additionally, although termination notices were sent to probationary employees in February 2025, legal and other challenges have been raised. In July 2025, the U.S. Supreme Court lifted a restriction on issuing or executing RIF notices. It’s not clear whether probationary employees will be reinstated or terminated—that decision will impact funding through the end of the fiscal year.)
Next Biggest IRA Funding Spend—Contractor Support (Non-employee Compensation)
The next largest expenditure of IRA funding was contractor advisory and assistance services—advisory and assistance services—totaling approximately $4.9 billion. That includes management and professional support services (those who assist, advise, or train staff), studies, analyses, and evaluation (including studies that support information technology research and development activities, models, methodologies, and related software support), and engineering and technical services (this also includes consulting services, such as information technology architecture design, capital programming and software services associated with implementing web-based commercial, off-the-shelf products).
Most contractor support was targeted to Business Systems Modernization and Operations Support. (Notably, Congress did not provide any appropriations funding for Business Systems Modernization, which normally provides for upgrades to IRS information technology systems.)
As of April 21, 2025, the IRS has cancelled 93 contracts tied to IRA projects. These 93 contracts had a total obligation of approximately $408 million and included support for the Office of Digital Assets Initiative, business accounts, the Integrated Data Retrieval System (IDRS), the enterprise data platform migration, cybersecurity architecture, enterprise case management, and data-at-rest encryption.
(You may recall that, in February, the Department of Government Efficiency (DOGE) raised eyebrows when it requested access to sensitive taxpayer data at the IRS, including the IDRS. You can think of the IDRS as a master file, which includes tax returns and other taxpayer information, including bank records.)
TIGTA Report
TIGTA was established in January 1999 by the IRS Restructuring and Reform Act of 1998 to provide independent oversight of IRS activities. Today, TIGTA provides audit, investigative, and evaluation services to promote integrity, efficiency, and economy in the administration of the nation’s tax system. While TIGTA sits organizationally within the Department of the Treasury and reports to the Secretary of the Treasury and to Congress, the agency is considered to be independent.
To compile its report, TIGTA used data from the IRS’s Integrated Financial System and evaluated the data by reviewing existing data and interviewing personnel in the Office of the Chief Financial Officer. Data related to funding allocations were based on testimonial evidence obtained from the Office of the Chief Financial Officer.
The TIGTA report was prepared for informational purposes—no recommendations were made.e
You can read the entire report here.