House GOP appropriations bill would slash IRS funding

House Republicans have introduced a spending resolution that would slash Internal Revenue Service funding by around $2.8 billion, threatening taxpayer service and enforcement.

The spending proposal would go beyond even the cuts proposed by the Trump administration. The fiscal year 2026 Financial Services and General Government appropriations bill was marked up Monday night by the House Appropriations Financial Services and General Government Subcommittee. 

"This 23% cut is more than the cut that the administration proposed, which was 20%," said Rochelle Hodes, a principal in the Washington national tax office at Crowe, a Top 25 Firm based in Chicago. "That would bring the budget for the IRS to the lowest levels since 2002."

The cuts for enforcement are about 45%, whereas the administration budget was going to cut it by about 30%, she noted. 

"However, the House doesn't act alone," she added. "It's got to go over to the Senate. I think the Senate's got other fish to fry. The Senate has been generally in the camp of keeping IRS at consistent funding, not higher, not lower."

She noted that during the negotiations over the One Big Beautiful Bill Act, the Senate Republican version diverged considerably from the House GOP version, and ultimately the Senate version was the one that passed.

"The Senate has their own ideas, and they really don't feel constrained by what the House puts forward, so they're going to go their own route," said Hodes.

Other administrative proposals in the bill would prohibit the IRS from targeting individuals or groups for exercising their First Amendment rights or ideological beliefs, and prohibit the IRS from using funds to develop a free electronic return-filing service option like its Direct File system without prior congressional approval. The bill also threatens to withhold funds from the Financial Accounting Standards Board unless it withdraws its income tax disclosure standard.

The Trump administration has already eliminated over 25% of its workforce this year through layoffs, retirements, voluntary buyouts through two Deferred Resignation Programs, and reductions in force that are expected to accelerate after a recent Supreme Court ruling.

On Tuesday, the Treasury Inspector General for Tax Administration issued a report providing an update on IRS workforce reductions, showing how the agency went from 103,000 employees in January to approximately 77,000 in May 2025.

"According to IRS records, 25,386 employees separated, took a DRP offer, or used some other incentive to leave," said the report. "Another 294 employees were sent termination notices due to RIF actions."

Certain business units and positions were impacted more than others. Approximately 27% of tax examiners were separated from the IRS, while 26% of revenue agents separated. "Tax examiners are responsible for reviewing and processing federal tax returns to ensure compliance and accuracy," the report explained. "Revenue agents conduct examinations (audits) by reviewing financial records of individuals and businesses to verify what is reported."

Hodes is concerned about what might happen with the cutbacks in areas like the Taxpayer Advocate Service. She has clients who are anticipating large tax refunds and are waiting to hear back from TAS. 

"I'm concerned that when I try to go to the IRS, the folks that I need at the IRS to actually do the operation aren't going to be there," said Hodes. "This is before budget cuts, and we're already seeing significant slowdowns."

The National Treasury Employees Union is also concerned about the budget cuts. It noted that by recommending that the IRS receive $853 million less for taxpayer services than the president requested, the IRS would have fewer employees available to answer calls from individuals and businesses, endangering the public's faith in the tax system and depriving taxpayers of the services they deserve

"Customer service representatives are an incredibly vital piece of our tax system because they are on the front lines helping honest taxpayers meet their tax obligations and avoid errors," said NTEU national president Doreen Greenwald in a statement Monday. "Slashing this part of the workforce is a disservice to the millions of Americans who contact the IRS every year for help.

The IRS' own budget document says that without the $853 million investment, the level of service provided to telephone callers would "plummet" to 16% during the 2026 filing season, down from 87% in 2025. And instead of a 60% level of service for the full calendar year 2026, the cuts would drop service levels to 11%.

The appropriations bill would cut the agency's regular funding by $2.7 billion in fiscal year 2026, but without the planned investments from the Inflation Reduction Act, the agency would have $9.9 billion less money to spend next year.

Hodes noted that taxpayers and tax professionals will need help with resolving questions about the One Big Beautiful Bill Act and problems that have arisen along with the cutbacks.

"The IRS is sending erroneous penalty notices some taxpayers who had their due date for payment extended due to disasters," she said. "People paid on time and filed on time because they got this extension, and then after they filed, they got a penalty notice for late payment. Now are they going to get it resolved? Sure, it's an error, but still, I have to now go get somebody from customer service or from TAS who now has extra things on their plate."