IRS Funding Changes Reshape Agency Budget and Services

Congress has taken several budget actions over the past two fiscal years that affect IRS funding, cutting billions from long-term Inflation Reduction Act money while keeping annual funding flat for FY2024. The changes shape how the agency plans enforcement, customer service, and operations, particularly during periods when government funding lapses.

Congress Cuts and Preserves Key IRS Funding Streams

Congressional action affecting IRS funding has unfolded through multiple laws rather than a single budget vote. The most significant change occurred in March 2024, when lawmakers enacted the Further Consolidated Appropriations Act, 2024, known as Public Law 118-47. That law provided the IRS’s regular annual appropriations for fiscal year 2024 while also canceling part of the agency’s previously approved multi-year funding.

Lawmakers Rescind Inflation Reduction Act Funding

According to the Congressional Research Service, Public Law 118-47 rescinded $20.2 billion from the IRS funding that had been provided under the Inflation Reduction Act. That funding had been designated as mandatory, multi-year money intended to support enforcement, taxpayer services, operations support, and technology modernization.

An earlier budget measure also reduced IRS resources. CRS reports that the Fiscal Responsibility Act of 2023, or Public Law 118-5, rescinded $1.4 billion in unobligated Inflation Reduction Act enforcement funding. That rescission applied to funds that had not yet been committed to specific enforcement activities.

CRS states that, taken together, these actions reduced the total Inflation Reduction Act funding available to the IRS to about $57 billion as of FY2024, a figure that includes amounts already spent.

Congress Holds Annual IRS Appropriations Flat for FY2024

While lawmakers cut long-term funding, CRS reports that Congress kept the IRS’s annual appropriations steady. Total FY2024 yearly funding for the agency matched FY2023 levels, with each of the four appropriations accounts funded at the same amounts as the prior year.

CRS notes that this flat funding applies to taxpayer services, enforcement, operations support, and business systems modernization. As a result, short-term operating funds remained unchanged even as Congress reduced longer-term Inflation Reduction Act resources.

CRS Explains How IRS Funding Is Structured

Annual Appropriations Continue to Cover Core Operations

CRS emphasizes that the IRS budget comprises multiple funding streams. Annual discretionary appropriations provide the agency's baseline funding for core functions, including customer service, compliance work, and routine technology maintenance.

These appropriations must be renewed each fiscal year and are subject to annual congressional negotiations. CRS explains that annual funding largely determines the IRS’s day-to-day operating capacity, including staffing and service levels.

Multi-Year IRS Funding Shrinks After Rescissions

In addition to annual appropriations, the IRS receives other resources, including multi-year funding authorized by statute. The Inflation Reduction Act initially provided $78.9 billion in mandatory funding available for obligation from FY2022 through FY2031, according to CRS.

That funding was intended to support longer-term initiatives, including modernizing IRS systems and expanding enforcement. CRS explains that rescissions reduce the total amount of that dedicated funding available, even though the remaining funds retain their multi-year character.

IRS Details Operations During a Lapse in Appropriations

Separate from budget rescissions, the IRS has publicly outlined how it operates when annual appropriations lapse, such as during a government shutdown. In an Oct. 21, 2025, IRS Newsroom statement, the agency described how funding gaps affect operations.

IRS Limits Services but Keeps Filing and Payments Active

The IRS said that during a lapse in appropriations, agency operations are limited, but legal tax requirements remain in effect. Filing deadlines and payment obligations continue to apply even when staffing levels are reduced.

According to the statement, IRS.gov remains available during a lapse, along with certain automated tools. The IRS also continues to accept and process payments and remittances received electronically or by mail while appropriations are unavailable.

IRS Outlines How Shutdowns Affect Refunds and Assistance

IRS Scales Back Phone and In-Person Support

The IRS said live telephone customer service is limited during a lapse in appropriations, although most automated toll-free applications remain operational. Walk-in Taxpayer Assistance Centers are closed, and scheduled appointments are canceled until the government reopens.

Appointments related to the Independent Office of Appeals and the Taxpayer Advocate Service are also canceled during a shutdown and rescheduled afterward. The IRS said it generally does not respond to paper correspondence during a lapse, which can lead to processing backlogs.

IRS Continues Some Refund Payments While Delaying Others

Refund processing depends on how a return is filed. The IRS said refunds are generally not issued during a lapse in appropriations, with one exception. Refunds for electronically filed, error-free Form 1040 returns that can be automatically processed and direct-deposited will continue to be issued.

Processing of paper returns is delayed until full operations resume, though payments sent with paper filings are still accepted and deposited as received. The IRS warned that correspondence and paper return delays may persist after reopening.

Federal Reports Leave Key Questions About IRS Staffing Unanswered

CRS Says Service Impacts Remain Unspecified

Although CRS details the amount of IRS funding Congress rescinded, it does not specify how those cuts will translate into staffing levels or service outcomes. In its FY2024 appropriations overview, CRS noted that the IRS had not announced which specific functions would be affected by the $20.2 billion rescission.

CRS also distinguishes between the legal availability of funds and the agency's operational decisions. Staffing changes, hiring plans, and service improvements depend on internal IRS decisions and future congressional action, not solely on the remaining balance of multi-year funding.

Funding Changes Signal What Taxpayers Should Expect Next

IRS Urges Electronic Filing as Service Delays Persist

For taxpayers, the immediate effect of IRS funding changes is most visible during a lapse in appropriations. The IRS has said electronic filing and direct deposit remain the most reliable options when operations are limited.

CRS confirms that annual IRS funding for FY2024 remained level, while multi-year Inflation Reduction Act funding was reduced. Taxpayers should expect limited phone assistance, closed in-person offices, and slower paper processing during shutdowns, with delays potentially continuing after full operations resume.

Sources

• Congressional Research Service, Internal Revenue Service Appropriations, FY2024 (Apr. 8, 2024)
  
• Congressional Research Service, Internal Revenue Service Appropriations, FY2025 (CRS product page)
  
• IRS Newsroom, Statement on IRS operations limited during the lapse in appropriations; regular tax deadlines remain (Oct. 21, 2025)

‍By William Mc Lee, Editor-in-Chief & Tax Expert—Get Tax Relief Now