By Abby Schultz
The Trump administration's proposed budget for the next fiscal year has attracted attention for its $1.5 trillion request in military spending. But the budget also calls for $1.4 billion in funding cuts at the Internal Revenue Service, the agency responsible for collecting money to fund the government.
If approved by Congress, the fiscal year 2027 budget proposal, submitted on April 3, would lead to the largest cut in the agency's history. Most of the potential cut -- nearly $900 million -- would come out of the agency's enforcement capabilities.
The proposed cuts follow a $1.1 billion, or 9%, reduction in the IRS's budget for fiscal year 2026. That budget included an approximate $439 million reduction in the enforcement budget.
The fiscal year 2027 budget will address the "bureaucratic morass of this bloated agency," which the Trump administration charged has been "weaponized against the American people, small businesses, and nonprofit organizations," according to the proposal.
Critics say the cuts will leave the agency starved for funding to assess complicated tax filings from wealthier individuals and businesses, which require more time, resources, and seasoned staff.
"The cuts that are proposed here, and the cuts that the IRS has enacted recently, will increase the deficit significantly," Brandon DeBot, policy director at the Tax Law Center at New York University, said in an interview. "That means the government has less to pay for the priorities Congress and the administration enact."
The latest proposal would lead to a more than 10% cut to the IRS' base budget, DeBot says. Relative to 2010, that cut grows to nearly 50%, adjusting for inflation, he adds.
The Inflation Reduction Act of 2022 allocated $79.4 billion to the IRS to strengthen its ability to enforce the tax code over a 10-year period. But nearly $54 billion of that amount has since been rescinded, including nearly $42 billion for enforcement of complex filings and another $11.7 billion to upgrade technology and operations at the agency, according to the IRS' latest Congressional Budget Justification and Annual Performance Plan and Report, which was also released on April 3.
For fiscal 2027, the proposed base discretionary budget for the IRS is $9.8 billion, a 12.2% decrease from fiscal 2026, according to the Congressional Budget Justification report.
All of these cuts have put the IRS in "a weaker position to enforce the tax laws against complex businesses and high income people," DeBot says. "This budget [for fiscal year 2027] would double down on those cuts."
Under the Trump administration, the IRS staff has been reduced by 27%, the budget proposal confirmed. In early March, Social Security Administration Commissioner Frank Bisignano, who also serves as the chief executive officer of the IRS -- a new position not confirmed by the Senate -- reported to Congress that he was comfortable with current staffing levels at the agency.
Rep. Jason Smith, a Republican from Missouri who chairs the House Ways and Means Committee, has described the Inflation Reduction Act funding as a "pay raise" to the IRS that was used to "prioritize audits on working families," eschewing the legislation's goal to "make wealthy taxpayers and big corporations pay the taxes they owe," as was described in President Joe Biden's proposed fiscal year 2025 budget.
Smith has also argued the IRS doesn't need more agents, but rather better technology, including artificial intelligence, to run more efficiently and fairly. A strategic priority of the IRS next fiscal year is data-driven enforcement, according to the Congressional Budget Justification report.
Technology modernization involving AI, could help the agency, Alex Muresianu, a senior policy analyst at the nonpartisan Tax Foundation, said in an email. "But cutting resources in advance of promised (rather than already proven) efficiency improvements is worthy of skepticism," Muresianu said.
Critics are concerned that the spending cuts are already hobbling the agency's ability to ensure more complex returns are filed correctly.
"The staff cuts have been quite large and very bad for enforcement in particular," Samantha Jacoby, deputy director of federal tax policy at the Center for Budget and Policy Priorities, said in an interview.
Muresianu noted that "determining the exact marginal impact of a change in IRS spending on enforcement revenue is difficult." But he added that cuts to enforcement spending "would almost certainly reduce revenue, and at current levels of funding, I would expect that reduction in revenue to be much larger than the fiscal savings from lower IRS spending."
According to the Congressional Budget Justification, the IRS is lowering its target for examinations of taxpayers with more than $10 million in income. For fiscal year 2025, the target had been 6,786 examinations; for fiscal year 2026, that target fell to 2,264. It rises slightly to 2,486 for fiscal year 2027. The IRS says these audits can taken an agent more than 250 hours to complete.
DeBot says its important to remember that these latest budget reductions come after a decade of funding cuts, from 2010 through 2020, that led to a 70% reduction in the audits of millionaires, and a 50% reduction in audits of large corporations.
That staff and enforcement cuts are likely to lead to less tax revenue is bolstered by academic research that estimates an additional $1 spent auditing taxpayers above the 90th income percentile can yield $12 in revenue, according to a February 2025 paper in the Quarterly Journal of Economics. The paper, titled "A Welfare Analysis of Tax Audits Across the Income Distribution," also said audits of taxpayers with incomes below the median yielded only $5.
Similarly, a March 18 report from the Treasury Inspector General for Tax Administration (TIGTA) on the IRS' inability to develop a successful strategy for evaluating large partnership returns, noted that every dollar the IRS spends on examining these complex partnerships yields $20 in revenue.
IRS staff dedicated to examining partnerships -- which includes interests in private-equity funds, for instance -- was cut by 20% from January through December 2025, the TIGTA report said. The original levels of IRA funding would have allowed the IRS to boost its examination of partnerships to 1% of all filings in the 2026 tax year from 0.1% in 2019, even as filing increased, according to the report.
"Many of those audits have been dropped because they don't have the staff, and it's likely new audits won't be happening," Jacoby says.
Write to Abby Schultz at abby.schultz@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
April 07, 2026 10:44 ET (14:44 GMT)
Copyright (c) 2026 Dow Jones & Company, Inc.
Comments