Accounting
IRS faces steep budget cuts without congressional action
The Treasury Department is warning Congress that it needs lawmakers to unlock $20 billion in funding for the Internal Revenue Service that could be rescinded due to duplicative legislative language.
The $20 billion is targeted at IRS enforcement and is separate from the more than $20 billion that has already been clawed back from the Inflation Reduction Act’s extra $80 billion in funding for the IRS over a decade. If Congress doesn’t act during the appropriations process before the end of President Biden’s term, the $20 billion may be rescinded, putting at risk the IRS’s ability to hire more employees and carry out its duties next tax season.
“The IRS is going to potentially have to make dramatic decisions about stopping hiring and starting to budget for a world [in] which they don’t have $20 billion, which will stop a lot of their progress,” Treasury Deputy Secretary Wally Adeyemo said during a call with reporters Tuesday, according to the
The IRS received an extra $80 billion in funding over 10 years for enforcement, taxpayer service and technology upgrades as part of the Inflation Reduction Act of 2022. But as part of a deal to raise the debt ceiling in 2023, the funding was reduced by $1.4 billion, and later as part of another agreement last year an additional $20 billion of the tax enforcement money was distributed to other federal agencies for nondefense spending. That $20 billion cut was mistakenly duplicated in the legislative language, so the IRS faces another steep budget cut unless Congress acts to amend the language during its year-end appropriations process.
The budget cuts could also exacerbate the deficit as the extra money for tax enforcement was expected to generate tax revenue. The Treasury estimated the national debt could grow by $140 billion without the extra funding for tax enforcement.
The incoming Trump administration is already expected to slash IRS enforcement funding once President-elect Trump takes office. Republican lawmakers have been calling for cuts in the IRS budget, including the
Despite opposition among many Republicans in Congress to the Direct File program, Direct File may have the support of Tesla CEO Elon Musk, who has been assigned by President Trump to head a new Department of Government Efficiency with former GOP presidential candidate Vivek Ramaswamy with the goal of cutting waste and inefficiency in the federal government. On the recently created X account for DOGE, they
“In 1955, there were less than 1.5 million words in the U.S. Tax Code,” said the DOGE account. “Today, there are more than 16 million words. Because of this complexity, Americans collectively spend 6.5 billion hours preparing and filing their taxes each year. This must be simplified.”
However, that doesn’t necessarily mean the Trump administration will preserve the IRS Direct File program after next tax season.
“I would anticipate that it goes forward this coming year, in other words, for the 2024 filing season,” said former Intuit CEO Bill Harris, who developed TurboTax when he was president of ChipSoft, which Intuit acquired in 1993. “I’m sure it’s already all baked. The following year, it could just go away. I would bet more that it just withers on the vine. But I think that’s too bad too because one of the things that the IRS really needs to do is take a customer-focused view.”
He acknowledged, however, that Intuit and other tax software companies have been fighting to end the Direct File program.
“Some people, for instance, at the tax preparation software companies, are against it because they perceive it to be competition,” said Harris, who is now founding CEO of Evergreen Money, a development-stage financial services company. “I really don’t think that that’s the proper view. I think the proper view is that for the kinds of simple returns that they’re capable of handling, I think that’s great, and people should have a free mechanism to do that. And it’s also clear that the government will never be in a position to build something that’s terribly sophisticated. And so even for people with moderately complex taxes, they’re going to need something like professionally and privately built tax software. I see this as an opportunity for an excellent private-public partnership, so I hope the IRS continues with it, and I hope that the private companies embrace it.”
After leaving Intuit in 1999, Harris was co-founding CEO of PayPal, which merged Elon Musk’s X.com with Peter Thiel’s Confinity. Accounting Today asked Harris what he thought of the prospects for Musk’s DOGE to find enough savings from cutting government waste to make up for the lost tax revenue from the extension of the Tax Cuts and Jobs Act and the various tax exemptions proposed by Trump on tip income, overtime pay, Social Security benefits and more.
“Nothing to do with Elon Musk, although I know he’s obviously going to be a part of this, but absent any personalities, it’s remarkably hard even for a Republican administration to rein in costs,” Harris replied. “Certainly the initial Trump administration did not do that. They expanded expenditures. There was a big runup in the debt, particularly as the party has moved from traditional Republican notions of fiscal conservatism to essentially populism.”
Cutting the IRS enforcement budget could contribute to the national debt, as the Treasury Department warned, and could have a spillover effect leading to slowdowns in taxpayer service and technology improvements as well.
“You could see monies being taken away from enforcement, but probably continuing the customer service modernization portion of the IRS,” said Tax Guard CEO Hansen Rada. “The IRS requires a lot of people because the Tax Code is so complicated, and that’s really Congress’s fault. It’s not the IRS’s fault. It’s almost like yelling at the policeman when he pulls you over for speeding. If you want the speed limit raised, you go to your local representatives, you don’t yell at the policemen, and the IRS is just the enforcement arm. Barring any sort of drastic change to simplification of the Code, it’s going to require people, because of deductions and all the other considerations in order to execute that. The vast majority of returns are simple returns, W-2’s, and so this Direct File, or this app that Elon hinted at would be a modernization effort to help the majority of returns, but not the complicated ones, and that still would require people.”
President Donald Trump’s drive to enact trillions of dollars in tax cuts and raise the federal debt is on track after he and congressional leaders successfully corralled House Republican lawmakers to approve a
The 216-214 vote Thursday on the budget — which outlines the parameters for the tax cut and
The president worked the holdouts by phone and in a White House meeting. House Speaker Mike Johnson held a press conference to declare himself “committed” to coming up with at least $1.5 trillion in spending cuts. And Senate Republican leader John Thune joined the speaker to announce “a lot of” Republican senators shared the goal, though he stopped short of a commitment.
It was enough.
With the budget approved, the way is open for a follow-on package to cut taxes by up to $5.3 trillion over a decade and raise the debt ceiling by $5 trillion, in exchange for $4 billion in spending cuts. Republicans can now pass Trump’s tax-cut agenda solely on GOP votes, bypassing the need for negotiations with Democrats.
Trump offered congressional Republicans “Congratulations” in a social media post minutes after the vote.
The vote came a day after Trump announced a 90-day pause on some of his sweeping tariff plans that have roiled markets and sparked predictions of a looming recession. Financial markets — often a barometer of success for the president — initially soared on the news, though U.S. stocks
Republicans are planning to renew Trump’s first-term tax cuts for households and the owners of privately held businesses, and enact a fresh round of reductions, including expanding the state and local tax deduction and eliminating levies on tipped wages.
Conservative hardliners in the House say they want a final package to trim $2 trillion in spending over the next decade, a significant increase over the $4 billion the Senate is directed to cut in the budget passed Saturday. To make those reductions they’ll likely need to curb Medicaid, food stamps and other social programs with tens of millions of beneficiaries.
A group of moderate Republicans sought — and gained — assurances from Johnson during the vote that the final bill would not cut benefits for qualified Medicaid individuals and institutions, said New Jersey Republican Jeff Van Drew.
“We voted late to make the point,” Van Drew said.
The group, however, is open to eligibility reviews and work requirements for Medicaid recipients, he said.
The budget outline punts many of the hard decisions for lawmakers to hammer out later in the tax-cut negotiations. That could lead to a standoff with the Senate at the end of the process, where several members are resistant to large cuts in safety-net programs.
Democrats assailed the plan as cutting benefits for the poor in order to pay for a tax cut skewed toward the wealthy.
“Republicans do nothing to lower the high cost of living,” Democratic Leader Hakeem Jeffries said on the House floor. “In fact, you’re making the affordability crisis in America worse, not better, when you target earned benefits and things that are important to the American people, like Medicaid.”
Senator John Barrasso, the No. 2 Senate Republican, said GOP lawmakers in both chambers are committed to “very serious savings for the American taxpayer.”
Trump hosted Republican holdouts at the White House on Tuesday to urge their backing. He echoed his pleas while speaking later that day at a donor event in Washington, imploring members who were hesitant to vote for the budget to “just get the damn thing done and stop showboating.”
“It is IMPERATIVE that Republicans in the House pass the Tax Cut Bill, NOW! Our Country Will Boom!!!” Trump posted on Truth Social Wednesday.
Johnson has set a target of the end of May to enact the tax bill, while Senate Republicans have talked of being able to complete the process by August. The 2017 tax cuts don’t expire until the end of the year.
Those self-imposed deadlines could be overrun by a fiscal deadline: the debt ceiling.
The nonpartisan Congressional Budget Office estimates that the Treasury will be unable to pay all of its bills in August or September, but that date could come as soon as late May if tax receipts are low.
Baker Tilly, a Top 25 Firm based in Chicago, reportedly is close to a megamerger with Moss Adams, another Top 25 Firm based in Seattle, creating a firm with $3 billion in annual revenue.
The deal, reported Wednesday by
Baker TIlly declined to confirm the deal, but acknowledged it’s always searching for merger candidates.
“We can’t comment on speculation or confidential discussions,” said Baker Tilly spokesperson Nicole Berkeland in an email to Accounting Today. “What we can say is that we’ve been transparent about our strategy to grow through strategic mergers. We are continually exploring opportunities with respected firms that align with our vision and will strengthen our ability to serve the middle market.”
Moss Adams also declined to comment. “It’s our policy not to comment on market speculation,” said Moss Adams spokesperson Greg Kunkel.
Koltin Consulting Group CEO Allan D. Koltin, who has previously advised Baker Tilly and Moss Adams on strategy and M&A, sees major ramifications from the deal. “Just when we thought nothing could get any bigger in CPA firm M&A than Forvis (formerly BKD and Dixon Hughes), and CBIZ (formerly CBIZ and Marcum), here comes Baker Tilly and Moss Adams (potentially) combining to create the sixth largest CPA firm in the country (only behind the Big Four and RSM),” Koltin said in an email. “After the combination, Baker Tilly will become the largest (non-Big Four) CPA firm in the Western region and Moss Adams will become part of a Top 10 Global Network. Additionally, both firms will bring over their unique areas of industry specialization and service line expertise which should provide robust organic growth opportunities to the combined firm. As a 44-year veteran and advisor to the accounting profession, I daresay there has been more change and transformation in the accounting profession in the past 4 years than the 40 prior years combined!”
Another merger expert also sees benefits in the combination. “The primary reason for this reported merger is to expand both firms’ scale and market position,” said Brad Haller, a senior partner in West Monroe’s mergers and acquisitions practice. This move would significantly boost Moss Adams’ scale and provide Baker Tilly with access to Moss Adams’ extensive client base. Together, they would become the sixth largest firm, leapfrogging over Grant Thornton and others. Additionally, this merger would allow Moss Adams to tap into Baker Tilly’s global networks, enabling them to expand their wallet share with clients. While there will be modest synergies in the long term as they combine redundant support services, the immediate benefits of this merger would be substantial.”
Baker Tilly is part of the Baker Tilly International network, based in London, which reported $5.6 billion in worldwide revenue in 2024. Baker Tilly has done several acquisitions since receiving
Last May, it merged in
Moss Adams does not do M&A deals as often, but last December, it entered the Salesforce.com consulting market by acquiring
States are looking beyond the 150-hour requirement for CPA licensure and adding alternative pathways amid the profession’s pervasive ongoing talent shortage.
See below for where things stand in those states that are moving forward on the issue, and read
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