After three years, the IRS still has nearly two-thirds of supplemental funding unspent from the $80 billion it received from Inflation Reduction Act (IRA) during the Biden Administration, according to the Tax Inspector General for Tax Administration (TIGTA). TIGTA’s recent report outlines the IRS’s IRA funding as of March 31, 2025. In a follow-up report, TIGTA sheds light on IRA-funded information technology modernization efforts and the Trump Administration’s approach to modernization.
The IRS received the $80 billion influx of supplemental funding from the IRA, with much of the funds directed toward tax enforcement. Congress later rescinded some of these funds, leaving the IRS with a total of $37.6 billion. Of this amount, the IRS has spent a total of $13.8 billion as of March 31, 2025. The follow-up report notes that $5.7 billion of that has been spent specifically on information technology modernization.
The TIGTA report is part of TIGTA’s quarterly report series on IRA funding. There have been several notable changes to the IRS’s strategy for using its supplemental funding since the Trump Administration came into office and Republicans took control of Congress. First, it has decided to reevaluate its Strategic Operating Plan which was first released in 2023 as a guideline for IRS transformation with the funding. Second, it has dissolved the Transformation and Strategy Office that was established to oversee these efforts. The IRA funding report also puts IRS transformation into context of ongoing issues affecting IRS spending: staffing costs in light of reductions in force and stagnant annual appropriations.
Moving forward, broad-based policy changes at the IRS must be guided by a thorough modernization plan to ensure that resources are used efficiently and to provide Congress with adequate information for future funding decisions.
Reevaluating the Strategic Operating Plan
Keen IRS-observers noticed earlier this year that the IRS had taken down its earlier Strategic Operating Plan from its website, signaling a shift in its strategy around IRA funding use. While the SOP was later reposted, the Administration is reevaluating its strategy. The IRS has not yet released an updated modernization plan, which we believe is one of the most critical steps that this Administration must take for IRS transparency and accountability.
The IRS’s first Strategic Operating Plan, released in 2023, outlined its strategy for using the IRA funding and included five main transformation objectives:
Dramatically Improve Services to Help Taxpayers Meet Their Obligations and Receive the Tax Incentives for Which They Are Eligible
Quickly Resolve Taxpayer Issues When They Arise
Expand Enforcement Focused on Taxpayers with Complex Tax Filings and High-Dollar Noncompliance to Address the Tax Gap
Deliver Cutting-Edge Technology, Data, and Analytics to Operate More Effectively
Attract, Retain, and Empower a Highly Skilled, Diverse Workforce and Develop a Culture That is Better Equipped to Deliver Results for Taxpayers
While the Strategic Operating Plan was well-intentioned, it only offered vague short-term goals for achieving these objectives, with very little measurable benchmarks for success. In 2024, the IRS issued an update that included future goals and tracked progress of some of its initial goals for Fiscal Year (FY) 2024, which was almost over at the time.
The Strategic Operating Plan update reported that none of the FY 2024 milestones for information technology modernization had been completed, and several of the most critical taxpayer services milestones had also not been met. Despite these shortcomings, the IRS soon after released a report card touting its alleged successes in completing tasks with IRA funding. By comparing the report card’s examples of progress with the full breakdown of milestone completion in the SOP update, we created our own report card assigning the IRS grades of “C” in taxpayer services, “C” in closing the tax gap, and “D” in modernization.
Going forward, an updated modernization plan is needed, and this must include a detailed punch list of goals and tasks that includes milestones by fiscal year, a description of work, estimates of the staff and budgetary resources required, as well as an update on legacy systems that need to be replaced. The IRS previously stated that it was implementing the Strategic Operating Plan through an “enterprise roadmap” but never released this to the public, and goals for technological modernization were not initially part of the roadmap. The IRS has signalled an interest in modernizing through initiatives like the hackathon in April 2025, yet has not released information publicly about what it learned through that process.
Dissolving the Transformation and Strategy Office
Earlier this year, the IRS announced it was dissolving the Transformation and Strategy Office intended to oversee IRA funding implementation. TIGTA previously reported that the IRS had spent $42 million on this office through September 30, 2024, with those funds being spent nearly evenly between taxpayer services, enforcement, and operational support. Notably, none of the Office’s spending was directed towards the most critical element of IRS transformation: business system modernization.
IRS Staffing Costs and Reductions in Force
The TIGTA IRA spending report also highlights the IRS’s significant personnel costs over the past few years. Of the $13.8 billion in IRA funding that the IRS has spent through March 31, $11 billion was spent on employee compensation and contractor assistance, with $6.1 billion for employees and $4.9 billion for contractors.
TIGTA also highlights that the vast majority of funding spent on contractor assistance was evenly divided between business system modernization and operations support. The IRS has terminated 93 contracts related to IRA projects so far this year. The Department of the Treasury has previously stated that it had terminated several duplicate contracts and is shifting focus to “fewer contractors and a leaner tech stack.”
In addition, TIGTA reports that approximately 25% of the IRS total staff has departed due to recent policies that either terminated probationary employees or offered deferred resignation programs to employees. About 85% of the 25,386 terminated employees are still eligible to collect pay up to September 30, 2025, as part of the deferred resignation program. TIGTA also notes that some probationary employees may be returned to work due to ongoing litigation.
As we wait to see what the true impact is of reduced staffing at the IRS, it is important that staffing cuts do not affect taxpayer service and technological modernization, two functions that should be complementary. Focusing resources on technological modernization can provide taxpayers with more self-service and online assistance options to reduce taxpayer service staffing needs during the next tax season.
Insufficient Technological Modernization Funding
TIGTA paints a holistic picture of IRS funding by putting the IRA funds in the context of the IRS’s annual appropriations and other revenue sources. Congress appropriated $12.3 billion to the IRS for FY 2025. This appropriation has remained constant since the passage of the IRA. The IRS has not received any appropriations for Business System Modernization since passage of the IRA. Congress did give the IRS authority to transfer 5% of its appropriation from one budget category to another so long as funding is not transferred to enforcement.
TIGTA’s follow-up report on information technology modernization efforts highlights that there is a need for more funding directed toward Business System Modernization. Despite only spending $2.1 billion of its $4.8 billion in IRA funds for Business System Modernization, the IRS spent a total of $5.7 billion of its IRA funding on technology transformation. The IRS has likely spent IRA funding from the Enforcement and Taxpayer Service allocations to modernize technology specifically for those uses.
Since the IRS has spent more than its IRA allocation for Business System Modernization on technological modernization efforts, it is clear that Congress needs to restart annual appropriations directed towards modernization. Providing the IRS with the authority to transfer funds between budget categories without congressional approval is an important step in providing flexibility during a time of transformation. However, providing an adequate amount of funding for modernization up-front serves as a better guarantee for lasting change.
Under the previous administration, the IRS claimed it would need to use IRA modernization funds to “keep the lights on” due to stagnant annual appropriations. While we pointed out that the IRS has funding for normal operating expenses and does not need to draw down the Business System Modernization account to keep the lights on, the TIGTA report on IRA spending again repeats the IRS claim that annual appropriations do not cover normal operating expenses. The follow-up provides further evidence that the IRA’s designated modernization funding was not enough.
From the time the IRA passed, we have called for IRA funding to be reallocated or transferred to Business System Modernization to provide resources for new technologies, hardware, and high-skilled staff. In February 2025, we testified before the House of Representatives Ways and Means Committee that enforcement funding should be reallocated to modernization efforts.
Conclusion
TIGTA sheds light on the Trump Administration’s shift in strategy, but shows that there is much work remaining to chart a path forward for IRS transformation and modernization. Continuous monitoring of IRA funds by TIGTA is essential. The Administration should also deliver an updated modernization roadmap by the end of 2025 to replace the outdated Strategic Operating Plan, set measurable goals, and ensure that funds are used where they will have the greatest impact for taxpayers. Otherwise, the risk is that billions more will be spent without delivering the technological and service improvements the IRS has promised.