Senate Joins House in Passing Omnibus Spending Bill Providing Additional IRS Funding; “Extenders” and Other Tax Provisions Not Included

The US Senate joined the US House of Representatives in passing the $1.5 trillion omnibus spending package on March 10th. The measure now goes to the President, who is expected to sign the bill into law.

The bill is a whopping 2741 pages long and, once signed, will fund the federal government through September 30th, 2022.

IRS Funding

The legislation includes $12.6 billion in funding for the IRS, an increase of $675 million compared to last year, and represents the largest increase in over 20 years.

The funds are primarily targeted to combat the paper returns backlog and various customer service difficulties currently plaguing the IRS. Increased funds are also provided for enforcement and systems modernization.

The House Appropriation Committee summary indicates that the bill provides special funding transfer authority and direct hire authority to address the backlog of returns and correspondence. Of the total $12.6 billion allocated to the IRS, the bill breaks out:

$2.8 billion for Taxpayer Services, a $225 million increase from the FY 2021 enacted level. This total includes support for the Volunteer Income Tax Assistance Matching Grants Program, Low Income Taxpayer Clinic, the Taxpayer Advocate, Tax Counseling for the Elderly, and increased personnel to improve IRS customer service.

$5.4 billion for Enforcement, a $225 million increase from the FY 2021 enacted level. These funds support increased enforcement efforts and additional essential personnel.

$4.1 billion for Operations Support, a $173 million increase from the FY 2021 enacted level, and includes the program integrity allocation adjustment.

$275 million for Business Modernization, a $52 million increase from the FY 2021 enacted level. The monies will help modernize IRS legacy systems and improve IRS Web applications.

The bill also provides additional funding for the IRS to “finally crackdown on big corporations and the wealthy who aren’t paying their fair share and to provide better customer service to working families navigating the tax system,” according to the summary.

In total, the IRS plans to hire 5,000 additional staff over the next few months, and 5,000 more through 2023.

Substantive Tax Provisions Not Included

Despite a significant push by many tax professionals, the bill does not include any substantive tax provisions. None of the tax provisions in the Build Back Better reconciliation bill made it into the omnibus bill being sent to President Biden, including the failure to renew the expired child tax credit expansion. There is no extension of the 40+ expired tax provisions or extenders going back to 2021. 

Despite repeated bipartisan efforts to help businesses by rolling back changes to IRC sections 174 and 163(j), and a push to reinstitute the employee retention credit for the fourth quarter of 2021, the only no tax provisions included is an extension of the exemption for telehealth services related to IRS section 223 - Health Savings Accounts.

What to Expect in 2022

There is no clear consensus in Washington, DC right now. Some expect lawmakers to produce a tax package later this year - perhaps after the election - that will address these and other issues. Others don’t see the likelihood of anything substantial being introduced this year as the Administration and Congress face many other challenges ranging from rising inflation to potential war in Europe.