As we look ahead to 2025, the landscape of IRS funding and operations is poised for significant changes under the return of Donald Trump to the presidency. This post outlines the current funding status, anticipated changes, and the implications for taxpayers and the agency’s operations.
Current Funding Landscape
For Fiscal Year (FY) 2025, the Biden administration has requested a budget of $12.3 billion for the IRS, which aligns with previous funding levels but falls short of what the agency needs for effective operations and modernization efforts. This request includes allocations for various operational areas such as enforcement, taxpayer services, and technology modernization. However, recent actions by House Republicans have proposed a budget cut to $10.1 billion, which is approximately $2.2 billion less than both the current funding level and the administration’s request.
Breakdown of Proposed Funding
Enforcement: $3.44 billion (compared to a requested $5.4 billion)
Taxpayer Services: $2.78 billion (matching the request)
Operations Support: $3.75 billion (requested $4.1 billion)
Business Systems Modernization: $150 million (no funding requested)
These cuts reflect a broader Republican strategy aimed at reducing IRS funding as part of their fiscal policy agenda. This budget reduction will be essential during the coming months as Congress tries to pass tax law through the budget reconciliation process.
Potential Impact of Trump Administration Policies
The Trump administration is likely to pursue further budget cuts to the IRS, echoing past sentiments against what he describes as excessive government spending on tax enforcement. While Trump has not explicitly outlined plans to slash IRS budgets, his previous administration’s policies and rhetoric suggest a continuation of efforts to limit IRS capabilities, particularly those funded by the Inflation Reduction Act (IRA) of 2022.
Key Considerations
IRS Leadership Changes: Trump’s intention to nominate Billy Long as IRS commissioner may signal a shift in agency priorities and strategies, potentially impacting enforcement and taxpayer service initiatives.
Funding Freeze: There is an ongoing legislative freeze on approximately $20 billion in IRS funds from the IRA due to political gridlock, which could exacerbate operational challenges for the agency if not resolved.
Probability and Impact of Funding Cuts
The probability of significant funding cuts under a Trump administration appears high based on historical patterns and current Republican proposals. The GOP’s control over both chambers of Congress increases their leverage to implement budgetary constraints on federal agencies, including the IRS. The newly formed Department of Government Efficiency will provide added pressure to cut the IRS budget and have it operate more efficiently. However, how this is accomplished is yet to be determined, particularly in a budget constrained environment.
Potential Outcomes
Increased Budget Cuts: There is very high likelihood of additional budget cuts and repeal of the funding under the Inflation Reduction Act (IRA) which is sure to severely limit IRS operations.
Operational Strain: Continued reliance on IRA funds without new appropriations, if it remains at all, will lead to operational strains within the IRS as they attempt to modernize and improve services without adequate resources.
Tax Compliance Challenges: Reduced funding will hinder the IRS’s ability to enforce tax laws effectively, potentially increasing the tax gap—the difference between taxes owed and taxes paid.
Enforcement: There is high likelihood that enforcement funding under the Trump Administration will get cut for funding dollars to be spent on modernization and taxpayer services.
Conclusion
The future of IRS funding in 2025 under the Trump administration remains uncertain but likely to involve significant cuts and restructuring. This should ease the regulatory environment and eliminate many of the unnecessary costs we all incur through enforcement activities. We will continue to monitor the evolving tax policy along with its impacts on the IRS and its operations. Please feel free to reach out if you have any questions regarding this topic.
