Democrats fear more IRS cuts in funding fight with GOP

The White House and congressional Democrats are fighting to protect $20 billion in funds for the IRS as the tax collection agency faces significant changes next year.

As bipartisan funding talks near a key December deadline, Democrats are worried they’ll lose another $20 billion of the original $80 billion funding boost for the IRS passed in 2022 amid entrenched GOP opposition.

Democrats are already bracing for the incoming Trump administration and GOP-controlled Congress to take a hatchet to efforts to ramp IRS enforcement and update its technology.

President-elect Trump also said he will nominate former Rep. Billy Long (R-Mo.) to serve as IRS commissioner. That move that would oust current IRS Commissioner Danny Werfel from the agency before the end of his term and give the Trump administration free rein to undo Democratic changes.

But the freeze on the funds could preempt that move, leaving Democrats in a desperate fight to preserve what’s left of their plans to bolster the IRS.

Senate appropriator and Budget Committee member Chris Van Hollen (D-Md.) told The Hill last week that senators are working on getting the funds released.

“This is something we are trying to resolve,” he said. “I’ve been in touch with the Treasury folks. I agree with them. It’s going to be very important that the White House take a firm position on this.”

If Democrats lose the funding, it would be the second $20 billion rescission from the now $60 billion funding boost for the IRS that was meant mostly to increase audits on the wealthy and corporations. 

To maintain the IRS enforcement boost, Democrats are saying they need special language, known as an “anomaly,” in the continuing resolution (CR) that’s now being debated to keep the government funded.

“Unless Congress takes action to address IRS funding with an anomaly in the coming weeks — as I am urging my colleagues to do — IRS will continue to be unable to access $20 billion of the funding we secured in the Inflation Reduction Act,” Rep. Steny Hoyer (D-Md.), a top appropriator and ranking member of the financial services and general government subcommittee, told The Hill.

“There’s an issue about that fact that under the continuing resolution, unless you have some additional language, the cuts continue on a month-to-month basis,” Van Hollen added.

The Treasury Department told reporters at the end of November that the additional IRS funding would have been securely in place if Congress were looking to fund the government with a larger spending package, sometimes called an omnibus.

But using temporary measures like CRs have made the money vulnerable to cuts, due to the wording of the agreement.

“If you live in a CR world all year, then you lose the $20 billion, but if you have an omnibus, and the omnibus doesn’t say anything about this, then the $20 billion is restored,” Deputy Treasury Secretary Wally Adeyemo told reporters last month.

Lawmakers are looking at a Dec. 20 deadline to fund the government, and it’s expected they’ll do that with a CR, which is a temporary stopgap measure that generally keeps spending levels where they are.

Congress passed a three-month CR to stave off the last shutdown threat in September. That measure largely kept government spending at the levels last hashed out as part of the fiscal 2024 funding packages that passed in March. 

“Because the rescissions were included in the final [fiscal] '24 legislation, it requires an explicit and affirmative provision in the CR that was negotiated in September to prevent the money from being frozen,” a congressional aide told The Hill, regarding the IRS funding.

“That was a fact that everybody was aware of and was considered and negotiated when congressional corners got together to deliberate what the first CR should look like.”

A Biden administration official told The Hill they asked more than once for the anomaly to be addressed to make sure the funds could go through.

“The administration formally asked to turn off the rescission for the September CR in our late summer anomaly request and repeated that ask in the anomaly request sent to the Hill last month,” the official said.

“Without the anomaly, $20.2 billion in IRA balances would be precluded from obligation during the period of the CR, which would undermine tax enforcement by disrupting ongoing hiring and modernization efforts,” they added.

Congressional Republicans suggested to industry publication Tax Notes that the hold on the funds was the product of a stealth negotiating tactic and part of a broader strategy by Republicans.

“It’s been a continuous process — how do we do this and not draw attention to it?” Rep. David Joyce (R-Ohio), chair of the subcommittee that crafts annual funding for the IRS, told the outlet.

The House congressional aide who spoke to The Hill said that “obviously, the Republican position of not including that affirmative provision won out.” 

Sen. Tammy Baldwin (D-Wis.) said Democrats were working on getting the freeze lifted.

“We have to address that anomaly,” she said. “It’s necessary. We’re going to fight hard to address it.”

But getting Republicans to agree to a deal to unlock more funding for the IRS that the party has staunchly opposed could be a heavy lift for Democrats as they negotiate another stopgap funding bill. 

“I didn't think they should have given them the first $80 billion,” Sen. Mike Crapo (Idaho), top Republican on the Senate Finance Committee, told The Hill last week. He added that he thinks “there’s savings that can be made” and noted the funding “was approved by a different Congress.” 

The IRS has barely spent any of the Inflation Reduction Act (IRA) money it got for ramping up audits on people making more than $400,000 per year, which was a key priority for the Biden administration.

Of the original $45.6 billion the IRS received to ramp up audits, only 1.7 percent — or $805.1 million — has gone out so far. Taking the rescissions into account, it’s 3.4 percent of the reduced $24 billion enforcement budget, according to a September summary of the spending by the Treasury’s tax inspector general.

That’s compared to 44 percent of the taxpayer services budget, 12 percent of the operations support budget, 33 percent of the tech budget and 10 percent of an energy security budget. The agency has hired 4,583 auditors with the money so far, far shy of the 87,000 new officials the Biden administration called for in 2021.