President Sends 2022 Discretionary Funding Request to Congress

April 12, 2021

By Miri Forster 

On April 9, 2021, President Biden sent Congress the Administration’s FY 2022 Discretionary Funding Request (the “Request”). The Request includes $769 billion for non-defense discretionary spending, a 16% increase over amounts enacted for FY 2021. The Request is intended to get non-defense discretionary back to its 30-year historical average of approximately 3.3% of GDP. It does not include mandatory proposals or tax reforms; it provides funding recommendations for Congress’ annual appropriations process.

The Request includes $14.9 billion to advance Treasury Department priorities, which is a $1.4 billion or 10.6% increase from FY 2021.

  • Boost IRS Funding—The Request suggests $13.2 billion for the IRS, a $1.2 billion (or 10.4%) increase from what the agency received for FY 2021. Funding would allow the IRS to:
    • Increase enforcement of high-income and corporate tax returns to ensure tax compliance;
    • Provide new and improved online tools for taxpayers to communicate with the IRS; and
    • Improve taxpayer customer service, including outreach and assistance to underserved communities.

The Request also provides an additional $417 million in funding for tax enforcement as part of a multiyear tax initiative that would increase tax compliance and increase revenues. Together, the Request would increase resources for tax enforcement by $0.9 billion.

  • Provide Access to Credit In Disadvantaged Communities—The Request recommends $330 million, an increase of 22.2% from FY 2021 for annual appropriations, to support expanding the role of Community Development Financial Institutions (CDFIs), which offer loans to start-ups and small businesses to promote the production of affordable housing and community revitalization projects.
  • Increase Corporate Transparency and Safeguard the Financial System—The Request proposes $191 million for the Financial Crimes Enforcement Network (FinCEN), $64 million above FY 2021, to create a database that tracks the ownership and control of certain companies and organizations and helps combat the use of complex corporate structures to shield illegal activity.

Notably, the President’s Discretionary Request does not mention increased funding for audits of pass-through entities. Pass-through entities currently make up over 80% of total business income tax filings. In addition, effective for 2018 and forward, the centralized partnership audit regime has significantly changed how partnerships are audited, and how taxes on partnership adjustments are assessed and collected. The centralized partnership audit regime shifts the administrative burdens associated with the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) from the IRS to the partnership and is expected to streamline the audit process and ultimately result in an increase in the number of partnership audits that the IRS can handle. Later this year, the IRS is also expected to roll out a large partnership compliance program similar to the agency’s existing large corporate compliance program which uses data analytics and other tools to help with audit selection.

Earlier this year, House Representatives Ro Khanna (D-CA) and Peter DeFazio (D-OR) introduced separate bills to increase funding for IRS enforcement and technology upgrades and set sizeable IRS audit thresholds for high-income taxpayers and large corporations. These bills have been met with skepticism. Tax experts have argued that voluntary compliance does not improve with arbitrary mandatory audit rates; rather, to improve tax compliance, the IRS should focus on high-risk compliance issues and high-income non-filers.

 

About Miri Forster

Miri Forster, Leader of the Tax Controversy practice, has over 20 years of experience providing tax dispute resolution services to public and private corporations, partnerships and high net worth individuals on a wide range of technical and procedural issues.