As the clock ticks down to the end of the year, the Internal Revenue Service (IRS) faces a critical juncture in its funding. The agency, which has been grappling with budget cuts for over a decade, is now at risk of losing another $20 billion in funds allocated for key enforcement programs. This comes as the IRS is already facing a trifecta of threats to its stability, including the potential ousting of IRS Commissioner Danny Werfel and the defunding efforts led by President-elect Donald Trump and Republicans in Congress.

The IRS's funding crisis is a pressing concern for taxpayers, as it directly impacts the agency's ability to close the tax gap and ensure compliance. The tax gap, which is the difference between what taxpayers owe and what they pay, is estimated to be $688 billion for tax year 2021. The IRS's enforcement efforts, which are funded by the agency's budget, play a crucial role in closing this gap and collecting the legally owed federal revenue.

The proposed funding cut of $20 billion would significantly impact the IRS's ability to close the tax gap. This cut, if not reversed, would lead to a hiring freeze within the IRS, resulting in 6,000 fewer audits of wealthy individuals and 2,000 fewer audits of large corporations. This reduction in enforcement activities would increase the national deficit by $140 billion. The tax gap, which is largely driven by income sources held by the wealthy, would likely widen as a result of the reduced enforcement efforts.

The potential consequences of reduced IRS funding on taxpayer service and compliance are significant. Decreased funding can lead to a decrease in the number of IRS employees, resulting in longer wait times for taxpayers seeking assistance. This can also result in slower processing times for tax refunds and other services. In 2021, 9 out of 10 taxpayer phone calls to the IRS went unanswered due to understaffing. This highlights the importance of maintaining adequate funding for the IRS to ensure that taxpayers receive the assistance they need.

Reduced funding can also lead to a decrease in the IRS's ability to modernize its systems and infrastructure, which can result in decreased efficiency and effectiveness in its operations. The Inflation Reduction Act provided $80 billion in additional funding to the IRS, much of which was dedicated to closing the tax gap and improving service delivery for taxpayers. Reduced funding could limit the IRS's ability to carry out these improvements, further impacting taxpayer service and compliance.

The IRS's improved enforcement and service delivery, bolstered by the Inflation Reduction Act (IRA) funding, significantly contributes to economic growth and fairness. The IRA provided $80 billion in additional funding to the IRS, with a significant portion dedicated to closing the tax gap by enforcing tax compliance among the wealthiest tax evaders. A new analysis from the U.S. Department of Treasury and the IRS estimates that this investment could increase tax revenue by as much as $851 billion over the next ten years. This revenue can be allocated towards various spending priorities, including deficit reduction, contributing to economic growth and stability.

The additional funding has also allowed the IRS to improve taxpayer service, with initiatives like the Direct File pilot program enabling hundreds of thousands of people in 13 states to file their taxes for free without relying on commercial tax preparers. This improved service delivery helps low- and moderate-income taxpayers access the information and assistance they need to accurately claim tax benefits, promoting economic fairness.

In conclusion, the IRS's funding crisis is a pressing concern for taxpayers, as it directly impacts the agency's ability to close the tax gap and ensure compliance. The proposed funding cut of $20 billion would significantly impact the IRS's ability to close the tax gap, with potential consequences for taxpayer service and compliance. The IRS's improved enforcement and service delivery, bolstered by the IRA funding, significantly contributes to economic growth and fairness. Taxpayers should urge their representatives to maintain adequate funding for the IRS to ensure that the agency can continue to carry out its critical mission.