Modernization

Inflation Reduction Act funds dwindling, but IRS still has billions for tech

The tax agency has spent 64% of its funding from the 2022 law, but there’s another $8.6 billion remaining for technology and operations support, per a watchdog report.

By Matt Bracken

September 4, 2026

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IRS Commissioner Daniel Werfel speaks during an event on Aug. 2, 2023, in McLean, Va. Treasury Secretary Janet Yellen also attended the event and spoke on “the significant progress that’s been made on modernizing the IRS and improving taxpayer service in the first year of the Inflation Reduction Act.” (Photo by Alex Wong/Getty Images)

The IRS has spent nearly two-thirds of its Inflation Reduction Act funds, but still has billions to work with for technology projects and operations support.

In a snapshot report released Friday, the Treasury Inspector General for Tax Administration revealed that as of March 31, the agency had spent $9.9 billion allocated by the 2022 law to tech and ops.

That leaves another $8.6 billion in the bucket, which includes business systems modernization, to spend by Sept. 30, 2031. The largest component of operations support is technology, TIGTA noted.

After congressional recissions drained roughly $50 billion out of the IRA’s initial $79.4 billion in supplemental funding to the IRS, the agency now has about $9.5 billion remaining over the next five years after spending $16.5 billion (64%).

The vast majority of those funds are ticketed for tech and ops, while enforcement ($85 million), taxpayer services ($415 million) and energy security ($436 million) are left with comparative scraps.

Beyond those primary budget activities, the IRA had also allocated $15 million for a feasibility study into a free electronic tax filing service. Those funds led to the creation of Direct File, which the Trump administration unceremoniously dumped after years of lobbying against it by the tax preparation industry and congressional Republicans.

Direct File wasn’t the only IRA-linked project eliminated at the IRS. According to TIGTA, the tax agency canceled 167 contracts related to the Biden-era law. The IRS had already paid $784 million in contract fees prior to the terminations, while the agency still holds an extra $8 million in “unliquidated obligations for costs that have been incurred but not paid.”

“By cancelling these contracts, the IRS reduced the obligations for those contracts by $127 million,” the report said.

Going forward, the IRS “has considerable leeway in how it uses available” IRA funds, per the report, as it considers those dollars alongside an operating budget composed of annual appropriations and miscellaneous resources.

The tax agency received nearly $11.2 billion in funding from the fiscal 2026 Consolidated Appropriations Act, with $3.2 billion set aside for technology and operations support.

“These funds are to be used to support taxpayer services and enforcement programs, including rent payments, facilities services, printing, postage, physical security, headquarters,” TIGTA wrote. “In addition, these funds can be used for other IRS-wide administration activities, such as research and statistics of income, telecommunications, information technology development, enhancement, operations, maintenance, and security.”

The IRS did tell TIGTA — which did not make any recommendations as part of its report — that the IRA funding is still needed because the annual appropriations “did not cover normal operating expenses.”

The report didn’t examine IRS modernization efforts at a granular level, though the ongoing projects remain a concern to lawmakers and former IT staffers in the wake of massive staff cuts. TIGTA reported earlier this year that the agency’s IT staff is down 42% since the start of the second Trump administration.