How Changes in Funding for the IRS Affect Revenues

The Internal Revenue Service's (IRS's) budget funds various activities that directly and indirectly affect the amounts of revenues it collects. Historically, the IRS's funding has primarily been discretionary—that is, the agency has mostly been funded through annual appropriation acts. Through 2031, however, the agency's activities are also supported by nearly $80 billion in mandatory funding provided in the 2022 reconciliation act (Public Law 117-169).

In this report, the Congressional Budget Office describes how funding for the IRS affects CBO's baseline projections of revenues and how CBO estimates the revenue effects of rescissions of such funding. (Rescissions are provisions of law that cancel budget authority previously provided before it is scheduled to expire.) In addition, the agency estimated the budgetary effects over the next 10 years of three illustrative options that would rescind varying amounts of the IRS's mandatory funding:

• A $5 billion rescission would reduce revenues by $5.2 billion over the 2024–2034 period and increase the cumulative deficit for that period by $0.2 billion.
• A $20 billion rescission would reduce revenues by $44 billion and increase the cumulative deficit by $24 billion.
• A $35 billion rescission would reduce revenues by $89 billion and increase the cumulative deficit by $54 billion.

In CBO's assessment, the IRS would respond to a rescission by maintaining its planned spending in the near term and reducing outlays in the final years before the budget authority expires. CBO also expects that the IRS would first curtail enforcement activities that, in its view, will have the lowest average return. Thus, the revenue reduction per dollar rescinded would be larger for a $20 billion rescission than it would be for a $5 billion one and even larger for a $35 billion rescission.