How the IRS’s $20 Billion Funding Crisis Could Impact Taxpayers in 2025

In the world of taxes, the Internal Revenue Service (IRS) plays a crucial role in collecting funds that support government programs. However, the IRS is currently facing a significant issue that could affect how it operates, and it’s not about collecting more money from taxpayers.

Instead, the agency is fighting to recover $20 billion in funding lost due to a mistake in legislation. This issue could have serious consequences, not just for the IRS but for everyday Americans as well. Here’s what you need to know about the situation.

What Led to the Loss of $20 Billion?

The trouble began with the Inflation Reduction Act of 2022, which allocated $79.4 billion to the IRS to improve its operations, including better tax enforcement, customer service, and technology upgrades.

However, last year, as part of a debt ceiling deal, $1.4 billion was taken back from the IRS. On top of that, $20 billion was mistakenly cut from the IRS enforcement division’s budget due to a mistake in the wording of a September funding bill.

The mistake was simple but costly: the error was carried over from the previous bill, which now threatens to prevent the IRS from keeping the $20 billion meant for its operations. If the IRS doesn’t get this money back, it may face several challenges in the coming years.

Source: Yahoo

What Could Happen If the IRS Doesn’t Get the $20 Billion?

If the IRS doesn’t get this $20 billion, the impact will be felt across the country. Wally Adeyemo, the Deputy Secretary of the Treasury, warned that the IRS could be forced to make tough decisions, such as stopping new hires or cutting back on audits. Some of the key consequences include:

• Fewer audits of wealthy individuals and large corporations: Without the necessary funding, the IRS would have to reduce the number of audits conducted. This means 6,000 fewer audits of lower-income individuals and about 2,000 fewer audits of large companies.
• Less money for tax enforcement: The IRS might not be able to fully enforce tax laws, which could result in billions of dollars in unpaid taxes, worsening the nation’s debt problem.
• Hiring freeze: The agency would have to halt hiring plans, which means fewer people to handle the workload, leading to slower processing times for tax returns and customer service requests.

The $4.7 billion recovered from back taxes with the previous funding shows that when the IRS has the resources it needs, it can make a real difference. However, without this funding, the IRS could struggle to collect enough taxes to cover essential government spending.

Why Should Americans Care About IRS Funding?

Many people may not have much sympathy for the IRS, given that it is often seen as a difficult organization to deal with. However, the agency’s role in collecting taxes is essential for maintaining the country’s financial health. When the IRS doesn’t have enough resources, it directly impacts Americans in various ways:

1. Slower tax returns and customer service: If you need help with your taxes or if you need to submit an amended return, it may take longer to get a response if the IRS is underfunded. Customer service representatives might be harder to reach, which could be frustrating for those needing assistance.
2. Reduced audits could hurt fairness: When the IRS has fewer resources, it may struggle to conduct audits, especially for high-income individuals and large corporations. As a result, these groups may avoid paying their fair share of taxes, which can lead to a higher burden on middle and low-income taxpayers.
3. Impact on government programs: Taxes fund essential government programs, such as healthcare, education, and infrastructure. If the IRS cannot collect enough taxes due to fewer audits and resources, the government will face a difficult choice: cut important programs or print more money, which could lead to inflation.

The bottom line is that the IRS plays a critical role in keeping the tax system running smoothly. Ensuring that the agency has adequate funding is important for everyone to contribute their fair share and maintain the functioning of government services.

Source: ABC7Chicago

 

Will the $20 Billion Be Recovered?

There’s hope that the funding issue can be resolved in the near future. Treasury officials are optimistic that the $20 billion will be reinstated during upcoming budget discussions in Congress. These discussions will happen in a “lame-duck session,” which refers to the time when outgoing lawmakers continue to work after an election but before a new administration takes office.

However, there is a challenge: once a new president takes office, especially if it’s someone who opposes the current funding plan, it might be harder to recover the lost money. If the funding issue isn’t resolved soon, it could severely affect the IRS’s ability to perform its duties starting in fiscal year 2025.

The Bigger Picture: Why the IRS Matters to You

While many people may have negative feelings about the IRS, it’s important to understand that the agency’s work directly affects all taxpayers. Without adequate funding, the agency won’t be able to collect enough revenue to keep government programs running or ensure fairness in the tax system. It’s not just about the IRS—it’s about making sure that the entire country has the resources it needs to function properly.

Conclusion

The loss of $20 billion in IRS funding may seem like a technical issue, but it has far-reaching consequences. It could result in slower service, fewer audits, and a greater tax burden on regular Americans. For the benefit of all, it’s important that Congress acts to correct the funding mistake and give the IRS the resources it needs to continue its work.

This article has been carefully fact-checked by our editorial team to ensure accuracy and eliminate any misleading information. We are committed to maintaining the highest standards of integrity in our content.