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IRS Funding Cut – Taxes Affected

Recently, Congress passed an omnibus spending bill (an omnibus bill seeks to amend, repeal or enact several Acts, and it is characterized by the fact that it has several related but separate parts) that would reduce a budget increase for the IRS which was previously passed by the House.  The IRS was originally set to receive a 14% increase to its budget but instead will only receive a 6% increase.

Omnibus Bill Breakdown

The budget cuts the IRS now has to face will have an impact on how the agency moves forward in the future.  The already struggling agency will now have to concentrate its smaller amount of increased funding to improve taxpayer service, as opposed to its original plans.  The new spending bill did not mention items previously approved by the House, including tax provisions set to encourage retirement savings, along with a rollback of requirements for amortizing research and development costs under the Tax Cuts and Jobs Act.

How IRS Will Spend Extra Budget

Overall, the bill will provide $12.6 billion to the IRS, but the 8% difference in increase means the IRS will lose out on a billion dollars in funding.  Even with the reduced increase, the IRS will still be getting up to $75 million to address the IRS’s paper inventory of amended returns, correspondence, and adjustments to filings that make up the “backlog”.  Additionally, the IRS’s Criminal Investigation division will get an extra $225 million for enforcement with $21 million will be allocated for investigative technology within the unit.

Wrap Up

While the IRS may not be getting the full funding they were promised, they will still receive a sizable budget increase.  If all goes according to plan, this should help the IRS chip away at its backlog and make some changes to drive up tax revenue in coming years.

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