Why the IRS’s ten-year budget needed a one-year payoff
The Inflation Reduction Act gave the IRS about 80 billion dollars over a decade, and opponents promised to cut it from the first day. Multiyear money that can be reversed has to be spent in an order where every tranche stands on its own.
Looking Back revisits one week at a time, from January 2020 to today, and asks what it meant for the banks, health systems and public agencies we serve. The series was written in 2026, with the benefit of hindsight, and each article says which week it looks back on.
The week
On August 16, 2022, President Biden signed the Inflation Reduction Act. It gave the Internal Revenue Service roughly 80 billion dollars in additional funding over ten years, split across enforcement, operations support, business systems modernization and taxpayer services. It also funded a study of a free, IRS-run electronic filing system. The money followed years of service problems. Most callers could not get through on the phone lines. There were large backlogs of paper returns and correspondence during the pandemic. Core systems were old, and the agency and its overseers had long described as outdated, including master files built decades earlier. The funding was contested from the start, especially the share for enforcement, and opponents in Congress said they would seek to reduce it.
Large multiyear appropriations for modernization are rare in government. When one arrives, the natural instinct is to plan a program to match: a long roadmap, foundations first, visible results in later years. The IRS funding showed the risk in that instinct. Money appropriated by one Congress can be rescinded by the next, and a program that spends its early years on invisible foundations may lose its budget before anyone outside the agency sees a result.
The more durable approach treats a reversible appropriation as a series of tranches, each of which must be worth having even if the next never arrives. That principle sorts the budget into three kinds of spending. The first is service improvements that show up within a filing season, The second is multiyear system work that has to be cut into usable stages. The third is recurring commitments, mainly people, that temporary money should be careful about creating.
Year one: service people can feel
The quickest gains are often the least glamorous. In the 2022 filing season, many taxpayers could not reach the IRS by phone at all, and millions of paper returns and letters waited to be opened. Hiring and training phone staff, adding callback options and clearing the paper backlog produce results within one season, and the public notices.
Year-one spending has its own trap. A phone agent who can answer the call but cannot see the case, change an address or release a hold only moves the backlog from the queue to the callback list. The early money works best when it pairs people with small tool changes that let them resolve issues on the first contact. Those include read access to the right systems, scripted authority for common fixes, and a way to route the rest to staff who can act. First-contact resolution is a better year-one measure than answer rate alone.
The IRS put early money there, and Treasury reported a sharp improvement in phone service in the 2023 filing season. That was valuable twice over. Taxpayers got answers, and the agency had evidence, in terms anyone could understand, that the money was doing something.
For other agencies, the parallel is contact center capacity, callback technology, backlog reduction and simple status tools that tell people where their case stands. These are cheap relative to system rewrites. They also generate the measures that sustain a budget: wait times, backlog age and the share of contacts resolved on first try. Publishing those numbers regularly builds a record that is hard to argue with.
Multiyear systems: stages that each pay off
The second kind of spending is the slow, important work. Core tax processing systems hold the authoritative record of every taxpayer’s account. Replacing them takes many years and carries real risk of failure. Done as one large replacement with value only at the end, it is the part of a program most exposed to a budget cut, because a half-built system delivers nothing.
The alternative is staging. Each stage should leave the agency with something it can use if funding stops. A modern data layer that copies records from the old master files can power better online accounts years before the old systems are retired. Digitizing paper returns and correspondence at intake helps today’s processing and tomorrow’s systems alike. Letting people respond to notices online removes mail handling whether or not the core is ever replaced.
Staging has costs. Interim integrations with legacy systems are throwaway work in an ideal plan, and engineers dislike building them. Running old and new side by side for longer adds operating expense. Those costs are the price of insurance against an abrupt stop, and program directors should present them that way rather than hide them inside the roadmap.
Free filing belonged in this category too. The study the law funded led to a pilot, Direct File, in 2024. A small pilot that can be measured and expanded is the staged approach in miniature, though it also showed how exposed a visible new service is to a change in policy.
Recurring commitments: people on temporary money
The third kind of spending creates costs that outlive the appropriation. Permanent staff are the largest example. Hiring is slow in the federal government, training takes months, and staff hired on money that is later cut face layoffs or hiring freezes that undo the investment. Software subscriptions and new operating teams carry the same risk on a smaller scale.
Agencies have a few tools here. They can hire into roles that the base budget could sustain if supplemental money disappeared, and use contractors or term appointments for peaks and one-time work. They can prioritize people who build lasting capability, such as engineers who understand both legacy and modern systems, over roles that only make sense at the full funding level. And they can track, for every new recurring cost, which funding source pays for it in each future year.
That last step is a planning document, not a technology. It shows leadership and appropriators exactly what would stop if a rescission passed. That makes the consequences of cuts concrete before they are made.
With hindsight
The funding did not survive intact. The 2023 debt ceiling law rescinded part of it immediately, and a side agreement redirected about 20 billion dollars, which a later spending law carried out. Further cuts were proposed, and the IRS workforce shrank sharply in 2025. Some early gains held: phone service improved in the first filing seasons after the law, more notices could be answered online, and paper scanning expanded. Direct File ran as a pilot in 2024 and expanded to 25 states in 2025, but the IRS confirmed later that year that it would not be offered in the 2026 filing season. Core modernization continued in parts, more slowly than planned. By 2026 the IRS case shows the sequencing argument at work: the improvements taxpayers saw early were the easiest to defend, and the long-horizon work depended on money that did not last.