The Inflation Reduction Act of 2022 (IRA), enacted on August 16, 2022, increases IRS enforcement funding by $80b over the next 10 years. The additional funds are expected to generate $204b in additional revenue, with a net of $142b, that will partially finance $430 billion in climate, energy and healthcare provisions.

Under the IRA, the increased funding will be allocated as follows:

• $45.6b for enforcement, which includes examinations, collections, criminal investigations, legal and litigation support, and digital asset monitoring
• $25.3b for operations support, including legacy information technology systems and telecommunications
• $4.8b for business systems modernization, including technology to improve customer service
• $3.2b for taxpayer services, including pre-filing assistance and education, filing and account services, and funding for the Taxpayer Advocate Service.

Implications

This historic investment in rebuilding the IRS and its technology is ultimately intended to reduce the tax gap. In the coming months, the IRS is expected to release plans for hiring and training new employees across the organization, including enforcement personnel, customer service representatives, IT specialists and other positions. The ability to leverage multi-year funding for information technology projects should stabilize modernization efforts.

The additional funding will likely result in more audits of high-wealth and high-income individuals, as well as complex partnerships and large corporations, but an increase in those audits may not be immediate. Taxpayers could also see an increase in the quality of IRS customer service over the next decade as the IRS agency modernizes.

———————————————