The Treasury Department is calling on Congress to address an “anomaly” in the latest stopgap spending bill that, if unaddressed, could result in the IRS seeing another $20 billion cut to its modernization fund.

Deputy Treasury Secretary Wally Adeyemo told reporters the continuing resolution that’s keeping current government spending levels in place through Dec. 20 may have inadvertently duplicated a one-time $20 billion cut to IRS funding.

The IRS received $80 billion in the Inflation Reduction Act to rebuild its depleted workforce and make long-deferred upgrades to its legacy IT systems, after more than a decade of budget cuts.

But lawmakers, as part of negotiations last year to raise the debt ceiling, agreed to cut $20 billion in IRS funding. The Fiscal Responsibility Act passed by Congress outlined the details of this deal — including the IRS spending cuts.

The current stopgap spending bill, however, also requires the IRS to hold $20 billion of its Inflation Reduction Act funding — even though Congress already made those cuts.

Adeyemo said Congress would need to reach a comprehensive spending deal for the rest of fiscal 2025, or include additional language in another continuing resolution to avoid another $20 billion IRS cut from going into effect.

“If you live in the CR world all year, then you lose the $20 billion. If you have an omnibus and the omnibus doesn’t say anything about this, then the $20 billion is restored,” Adeyemo told reporters Tuesday.

If the IRS saw another $20 billion cut to its multi-year modernization fund, Adeyemo said the agency would run out of enforcement funding in FY 2025, and exhaust funding for taxpayer services in FY 2026.

“Ultimately, unless Congress provides the IRS with certainty with regard to resources in the near term, you could see a dramatic fall-off in our ability to do the two things that I think matter most, which is raise revenue — especially from those people who are not paying on a regular basis, wealthy individuals and corporations — but also a dramatic fall-off in customer service,” he said.

Adeyemo said the IRS, under this scenario, may have to make some “dramatic decisions,” such as a potential freeze on new hires. A hiring freeze, he added, would hurt the agency’s ongoing efforts to collect taxes wealthy individuals owe the IRS.

“At some point, if they don’t get an anomaly, the [IRS] commissioner is going to have to make decisions about what he slows or stops in order to make sure that they’re in a position where they don’t run out of money for enforcement, which is likely to happen in fiscal year 2025,” he said.
“At this point, they’re continuing to work on the plan, but I know from talking to the commissioner that he’s considering what he would have to slow or stop going into calendar year 2025 if we don’t get an anomaly.”

Without congressional action, Adeyemo said the IRS would see 8,000 fewer audits of wealthy individuals and large corporations between 2025 and 2029 — and would increase the deficit by $140 billion.

“They’re at the ramp-up phase where they’re still hiring people, where they’re still building out. If, at this moment, they’re forced to pause or stop because they don’t have certainty about the future, it will mean that they’re not able to meet their goals in terms of hiring, and it will make it harder for them to do the audits they need to bring in that revenue,” Adeyemo said.

Adeyemo said further cuts to IRS funding would also lead to higher attrition among its current workforce.

“Retention there, for me, was based on the idea that there was this promise that they were going to get funding to do their jobs better going forward,” he said.

About half of the IRS workforce will be eligible for retirement in the next five years. Adeyemo said the IRS would likely lose its most senior employees, who play a key role in training new hires, and would hamper the agency’s ability to recruit new employees for years to come.

“I do worry that if we were to lose funding, you would lose a great deal of the human capital talent that exists at the IRS. And I think a challenge is you can gear back the hiring of people, but the lack of certainty and the ability to sign long-term contracts is something that will hurt the IRS not just today, but over the next five, 10, 15, 20 years,” he said.

Further cuts would also reverse the agency’s progress in providing a higher level of customer service to taxpayers.

The IRS is currently answering about 85% of its incoming calls, and taxpayers on average are waiting 3 minutes for an employee to answer their call.

But without additional money, Adeyemo said the IRS during the 2026 filing season would only be able to answer about 20% of calls, and that average call wait times would increase to 28 minutes.

“Not only would we be in a position where we don’t have the money to go after the people who are trying to deliberately cheat and not pay their taxes, but we also don’t have the resources to help the people who are trying to pay their taxes make it more efficiently without this funding from Congress,” he said.

Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, told reporters that IRS modernization funding has been effective, and “will continue to be effective, assuming it’s left in place.”

“It’s not raising taxes. It’s just working to ensure people pay what they owe. And there’s an emphasis on helping them to do so in a way that makes paying taxes easier and improves customer service,” MacGuineas said.

“IRS funding does have a high return. It does pay for itself. And so it seems like a fiscal no-brainer to me,” she added.

The IRS estimates the “tax gap” between what taxpayers owe and what the agency collects every year has grown to $606 billion. Adeyemo said the tax gap would grow if the IRS sees further cuts.

“If that mandatory funding is to go away, the IRS then will be in a position where the tax gap, instead of getting narrower, is likely going to expand, which will only put us in a worse position to be able to collect the taxes that we owe,” he said.

The IRS’ current strategic plan, he added, largely reflects a modernization plan drafted by former IRS Commissioner Chuck Rettig. Retting also called on Congress to approve multi-year modernization funds for the IRS.

“Fundamentally, we are at the beginning of a modernization and transformation effort of the IRS that frankly reflects modernization plans that were announced by several administrations, including the previous Trump administration,” Adeyemo said.

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