Congress unveiled the Consolidated Appropriations Act, 2022 on Wednesday, March 9, 2022. The roughly $1.5 trillion “omnibus” would entirely fund the federal government through Sept. 30, 2022, and provide economic, humanitarian and military aid to Ukraine. The measure passed the House on Wednesday and now awaits Senate approval.

Click here to read the text, a summary and report language.

This alert focuses exclusively on the funding for the Internal Revenue Service (IRS).

Internal Revenue Service Funding

Overall, the IRS is allocated $12.6 billion, a $675 million increase over FY 2021 enacted levels and the largest increase for IRS funding since 2001. These numbers are further broken down below.

In addition to appropriations, the omnibus contains provisions that outline further congressional directives to the IRS. The directives, related to taxpayer communications, enforcement, and data privacy and cybersecurity, are outlined in greater detail below.

Taxpayer Communications

• Transferring Funds to Address Backlog. Congress directed the IRS to address the backlog of returns and correspondence by providing the agency authority to transfer funds from Enforcement and Operations Support and providing direct hire authority for additional staff to address the backlog. Further, the IRS is directed to brief Congress within 30 days of enactment on the status of the backlog, with an emphasis on the time frame and strategy to reduce the backlog.
• Communications with Rural Taxpayers. Congress also directed the IRS to “examine options during their modernization efforts that ensure taxpayers in rural areas will not face undue burdens following the conclusion of the modernization period.”

Enforcement

• Tax Gap Composition Report. Congress directed the IRS to brief Congress within 60 days of enactment on the composition of the tax gap, highlighting groups of taxpayers who have neglected to pay their full tax obligation.
• Audit Rates. Congress directed the IRS to submit a report within 60 days of enactment on how the IRS determines its audit policies.
• Misclassification of Contractors. Congress directed the IRS to continue notifying the congressional tax committees prior to making any staffing reductions or reallocations within the SS-8 processing program, which issues determination letters to firms and workers on the proper classification of a worker for purposes of federal employment taxes and income tax withholding.

Data Privacy and Cybersecurity

• Implement Watchdog Recommendations. Congress included a number of data privacy and cybersecurity directives for the IRS. For instance, Congress urged the agency to implement recommendations from the Government Accountability Office (GAO), the Taxpayer Advocate and the Treasury Inspector General for Tax Administration that would address known security weaknesses.
• GAO Review of IT Investments. The omnibus directs the IRS to conduct a semiannual review of its major IT investments and directs GAO to provide a new annual report on the cost, functionality and schedule of these investments.

Looking Ahead

In addition to approving the omnibus, the House passed a short-term continuing resolution to extend government funding to Tuesday, March 15. This will provide the Senate enough time to pass the funding package and avoid a government shutdown. Final passage is expected next week before the expiration of the continuing resolution.