IRS funding cut would increase US deficit, slow service

WASHINGTON (Reuters) - Cuts in funding for the Internal Revenue Service, long eyed by Republicans in Congress, would increase the federal deficit by $140 billion over a decade, slow service and reduce complex audits of big companies, Deputy Treasury Secretary Wally Adeyemo said on Tuesday.

Adeyemo told reporters that the IRS faced a $20 billion drop in funding over the next decade unless Congress acted as part of its next government funding measure to address a budgetary anomaly included in the September continuing resolution.

The IRS would have to slow its modernization drive and reduce enforcement while call wait times would surge unless Congress fixed the budget issue, he said. And the challenges would get worse if Republicans made good on their vow to target IRS funding.

Cutting IRS funding would mean the end or a big slowdown in enforcement initiatives targeting wealthy individuals, large corporations or complex partnerships, he said, citing two initiatives that have recovered $1.3 billion so far.

Less funds for technology, artificial intelligence and machine learning would limit big-ticket enforcement efforts, while audits of middle-class taxpayers would likely increase because they were easier to carry out with less technology.

U.S. President-elect Donald Trump previously backed efforts to replace 1960s-era IRS equipment, and the current strategic plan largely mirrored one drafted by his previous IRS commissioner, Adeyemo said. But Trump vowed during this campaign to rescind all unspent funds from the Inflation Reduction Act, including billions of dollars earmarked for increased enforcement by the IRS.

He said IRS enforcement funds would run out sometime in fiscal year 2025, and funds for improving services would run out the following year, unless the funding was restored.

(Reporting by Andrea Shalal; Editing by Mark Porter)