The IRS’s Inflation Reduction Act Spending Through March 31, 2026

On September 1, 2026, the Treasury Inspector General for Tax Administration (TIGTA) released its fourth periodic snapshot of how the IRS has spent its Inflation Reduction Act (IRA) funding — Report Number 2026-IE-R014, titled "Snapshot: The IRS's Inflation Reduction Act Spending Through March 31, 2026." The report is informational only — TIGTA made no recommendations — but the numbers tell a clear story about where the IRS's modernization dollars are going, how quickly the agency's remaining IRA funding is shrinking, and what that could mean for enforcement activity and taxpayer service levels going forward (TIGTA; Oversight.gov).

For practitioners advising clients on audit exposure, IRS responsiveness, or the trajectory of enforcement priorities, this report is worth a close read. Here is what it says and why it matters.

From $79.4 Billion to $26 Billion: A Funding Pool That Keeps Shrinking

When Congress enacted the Inflation Reduction Act of 2022 (Pub. L. No. 117-169), it supplied the IRS with roughly $79.4 billion in supplemental, multi-year funding available through September 30, 2031. Since then, four separate pieces of legislation have clawed back a combined $53.5 billion of that amount, leaving the IRS with just $26 billion in current IRA funding:

Legislation	Rescission
Fiscal Responsibility Act of 2023 (Pub. L. No. 118-5)	$1.4 billion
Further Consolidated Appropriations Act, 2024 (Pub. L. No. 118-47)	$20.2 billion
Full-Year Continuing Appropriations and Extensions Act, 2025 (Pub. L. No. 119-4)	$20.2 billion
Consolidated Appropriations Act, 2026 (Pub. L. No. 119-75)	$11.7 billion

 

Of the total rescissions, $41.8 billion came out of Enforcement funding and $11.7 billion came out of Operations Support — meaning the cuts have disproportionately hit the exact activities (audits, collections, and technology upgrades) that were supposed to close the tax gap.

The IRS Has Already Spent 64 Percent of What's Left

As of March 31, 2026, the IRS had spent approximately $16.5 billion — 64 percent — of its remaining $26 billion in IRA funding. Spending has been especially aggressive in two categories:

·         Enforcement: $3,763,063,413 spent against $3,847,875,000 available — 97.7 percent exhausted.

·         Taxpayer Services: $2,766,386,168 spent against $3,181,500,000 available — 86.9 percent exhausted.

By contrast, the Technology and Operations Support category still had $8.6 billion remaining, while Enforcement had only $85 million left and Taxpayer Services only $415 million. In plain terms: the enforcement and taxpayer-service buckets are nearly dry, while technology modernization dollars are the primary funding still in reserve.

Cumulatively, employee compensation ($7.7 billion) and contractor advisory and assistance services ($5.4 billion) are the two largest categories of IRA spending recorded to date.

Spending Has Slowed Sharply in FY 2026

The pace of spending has dropped considerably. From October 1, 2025, through March 31, 2026 (the first half of FY 2026), the IRS spent about $787 million in IRA funds — down from roughly $2 billion during the preceding six-month period (April through September 2025). IRA-funded labor costs followed the same pattern, falling from about $1.2 billion in that prior six-month window to just $410 million in the first half of FY 2026.

That slowdown lines up with a wave of workforce reductions. Since January 2025, the IRS has run three rounds of Deferred Resignation Program offers plus voluntary early retirement and separation incentives. In total, 21,647 employees accepted a deferred resignation offer and 9,626 more separated through early retirement, buyouts, or voluntary departure. Fewer staff, unsurprisingly, means less IRA-funded payroll spending.

IRA Funds Are Quietly Propping Up Day-to-Day Operations

One of the more notable findings: IRA money isn't only funding new initiatives — it's backfilling the IRS's regular annual budget. IRS officials told TIGTA that approximately $5.1 billion in IRA funds have been used to supplement annual discretionary appropriations, covering $3.5 billion in labor costs and $1.3 billion in IT operating and maintenance costs. This became necessary in part because of lapses in annual appropriations in October 2025 and February 2026.

For clients wondering why phone service, correspondence turnaround, or exam staffing feels inconsistent, this dynamic — a shrinking supplemental fund plugging holes in an already tight base budget — is part of the explanation.

Why the Rescissions May Cost More Than They Save

The Congressional Budget Office's own estimates suggest the enforcement rescissions are a net revenue loser, not a saver. CBO originally projected in October 2022 that IRA-funded enforcement would generate $204 billion in revenue through FY 2031. After the first two rescissions, CBO estimated in February 2024 that a $35 billion cut would reduce federal revenue by $89 billion from FY 2024 through FY 2034. Most recently, in January 2026, CBO estimated that rescinding the additional $11.7 billion in the FY 2026 appropriations bill would reduce revenues by $2.7 billion in 2026, $25.6 billion cumulatively through 2030, and $38.6 billion cumulatively through 2035.

In other words, every dollar of enforcement funding cut has historically been projected to cost the Treasury multiple dollars in foregone collections. That's a data point worth citing when clients ask whether reduced IRS staffing means reduced audit risk — the agency's own budget trajectory suggests Congress does not view enforcement cuts as cost-free.

Contractor Spending and Cancelled Contracts

Contractors have absorbed a large share of IRA dollars. Since enactment, the IRS has paid approximately $5.4 billion in IRA funds for contractor "advisory and assistance services" — spanning management and professional support, IT studies and analyses, and engineering/technical services tied to systems modernization.

At the same time, the IRS has been unwinding a significant number of IRA-related contracts. As of March 31, 2026, the agency had cancelled 167 IRA-related or IRA-funded contracts, having already paid $784 million on them before termination, with $8 million more in unliquidated (incurred but unpaid) obligations. The cancellations reduced total obligations by $127 million. Affected projects reportedly touched the Office of Digital Assets Initiative, business accounts, the Integrated Data Retrieval System, enterprise data platform migration, cybersecurity architecture, enterprise case management, and data-at-rest encryption — mostly IT modernization efforts.

A New Strategic Plan Is Coming

The report also flags an organizational shift: the IRS's original 2023 IRA Strategic Operating Plan (updated in 2024) is being replaced. Following Treasury's release of its Strategic Plan 2026–2030 in April 2026 — which prioritizes goals like Main Street growth, taxpayer-dollar stewardship, national security, and operational efficiency — the IRS intended to publish its own new five-goal strategic plan by August 2026, superseding the original SOP. Practitioners should watch for that plan's release, since it will likely reset the agency's modernization and enforcement priorities for the remainder of the decade.

Practical Takeaways for Practitioners and Clients

·         Enforcement funding is nearly spent (97.7 percent), but that doesn't necessarily mean audit activity drops immediately — much of that money already funded hiring, training, and case inventory that will keep working through the system, and CBO's own projections tie enforcement funding directly to future collections.

·         Taxpayer service funding is also nearly exhausted (86.9 percent), which may explain continued strain on phone lines, correspondence exam response times, and practitioner hotline access.

·         Technology dollars remain the deepest reserve ($8.6 billion left), suggesting future IRA spending will skew toward IT modernization rather than new enforcement hires or expanded service staffing.

·         Workforce attrition has been substantial — over 31,000 separations combined from deferred resignation and other voluntary programs — which has real implications for case assignment timelines, EA/CPA power-of-attorney processing, and IRS response speed on client matters.

·         Watch for the IRS's new FY 2026–2030 strategic plan, expected to reshape stated priorities around service, enforcement, and technology.

Bottom Line

TIGTA's 2026-IE-R014 snapshot confirms that the IRS's IRA funding cushion has shrunk dramatically — from $79.4 billion to $26 billion — and that what remains is being spent quickly, with enforcement and taxpayer service categories nearly depleted while technology modernization retains the largest reserve. Combined with historic workforce reductions and CBO projections tying enforcement cuts to significant revenue losses, the report offers useful context for any conversation with clients about what to expect from the IRS in the coming months: continued staffing constraints, a heavier reliance on legacy annual appropriations, and a pending strategic pivot once the agency's new plan is released.

Have IRS Tax Problems?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Source: TIGTA Report 2026-IE-R014, "Snapshot: The IRS's Inflation Reduction Act Spending Through March 31, 2026," issued September 1, 2026; Oversight.gov, Treasury Inspector General for Tax Administration.

IRS Watchdog Finds Nonfiler Program Riddled With Gaps — What It Means for Taxpayers Who Haven't Filed?

If you have unfiled tax returns sitting in a drawer somewhere, a new federal watchdog report is worth your attention. On August 31, 2026, the Treasury Inspector General for Tax Administration (TIGTA) released Report No. 2026-308-047, Agencywide Coordination Could Enhance the IRS's Approach to Nonfilers, a sharply critical audit of how the IRS identifies, tracks, and pursues taxpayers who fail to file required returns.

The findings matter well beyond IRS headquarters. They reveal an enforcement system that is inconsistent, under-resourced, and in thousands of cases actively working against taxpayers who have already done the right thing.

The Nonfiler Problem, By the Numbers

Nonfilers are a meaningful piece of the federal Tax Gap, the difference between taxes owed and taxes actually paid on time. TIGTA's audit puts the projected gross Tax Gap for Tax Year 2022 at $696 billion, and attributes roughly $63 billion (9%) of that directly to taxpayers who simply never filed (TIGTA).

The pool of potential nonfilers has also grown sharply. The IRS's own identification program flagged nearly 8.8 million potential nonfilers for Tax Year 2015; a number that climbed to nearly 14.7 million by Tax Year 2022, an increase of about 5.9 million taxpayers (TIGTA).

Cases Stuck in Limbo — With Real Dollars at Stake

TIGTA's most striking findings involve cases that are simply sitting idle:

·        As of June 30, 2025, 38,824 high-priority nonfiler cases involving 33,653 taxpayers were stuck in "first-notice status," meaning the IRS had sent an initial notice but taken no further enforcement action. TIGTA estimates that releasing these cases could allow the IRS to secure a return or make an assessment on 10,482 cases, worth roughly $321.3 million in additional tax (TIGTA).

·       Separately, 10,969 high-priority cases involving 8,853 taxpayers sat unworked in the IRS collection queue. Prioritizing those cases could yield assessments on 2,962 cases worth an estimated $90.8 million (TIGTA).

·       By December 31, 2025, 33,757 high-income nonfiler cases remained in first-notice status and 9,463 cases remained in the collection queue — showing the backlog persists even after the IRS reported moving cases out of first-notice status in March 2026 (TIGTA).

A Costly Irony: Notices Sent to Taxpayers Who Already Filed

Perhaps the most consequential finding for ordinary taxpayers: the IRS issued first notices to 4,918 cases (4,748 taxpayers) who had, in fact, already filed their returns — returns collectively reporting $178.3 million in additional tax due, plus interest and penalties (TIGTA).

Of those already-filed returns, 67% were paper-filed and 33% were e-filed, and the IRS took more than a year to post 29% of them (1,433 returns). TIGTA concluded that folding these taxpayers into the nonfiler initiative and delaying processing "compromised the taxpayers' right to quality service" and imposed unnecessary burdens on people who had already complied (TIGTA).

Practical takeaway: if you or your business filed a return on paper and later received an IRS nonfiler notice, don't assume it's a mistake you can ignore, but also don't assume you actually owe anything. Respond promptly with proof of filing (certified mail receipt, e-file confirmation, or a transcript request) to avoid escalation to collections.

Why the Program Is Falling Short

TIGTA traced the breakdowns to a lack of coordinated leadership:

·       The IRS's Nonfiler Strategic Plan was finalized in May 2018 and has never been updated (TIGTA).

·       The Nonfiler Executive Steering Committee, which is meant to oversee the program across IRS divisions, hasn't met since September 2020, and doesn't even represent all the IRS functions involved in nonfiler work (TIGTA).

·       The IRS generally prioritizes collecting on accounts with a known balance due over pursuing taxpayers who haven't filed at all: in FY 2025, 76% of Small Business/Self-Employed collection dispositions addressed balance-due accounts versus just 24% for unfiled-return cases (TIGTA).

·       The IRS's own performance report showed 657,000 individual returns secured and about $1.2 billion collected in FY 2025 — but the agency couldn't break out how much each individual nonfiler program contributed, making it impossible to evaluate what's actually working (TIGTA).

Compounding all of this, IRS staffing fell sharply between January 2025 and January 2026 — from roughly 103,000 to 74,000 employees, a 30% reduction. Frontline collection functions were hit hardest: the Automated Collection System lost 46% of its tax examiners and collection representatives, and Field Collection lost 40% of its staff (TIGTA).

TIGTA's Recommendations — and the IRS's Response

TIGTA issued six recommendations, including: lifting the first-notice-status hold so cases can move forward or be referred to other enforcement channels; addressing the backlog of unworked delinquency investigations; building a genuine agencywide nonfiler strategy with executive ownership and dedicated staff; separately tracking resources devoted to nonfiler work; better prioritizing high-risk nonfilers for tools like the Automated Substitute for Return program; and reporting results program-by-program rather than in aggregate. The IRS agreed to all six and has outlined corrective actions (TIGTA).

What This Means for You

1.       If you have unfiled returns, the enforcement backlog described in this report is not a reason for complacency — a strained system is still a system that eventually catches up, often with penalties and interest that compound the longer you wait. Voluntary disclosure or a delinquent-return filing now is almost always better than waiting for an IRS notice.

2.      If you've received a nonfiler notice but already filed, gather your proof of filing immediately and respond in writing rather than assuming the notice will resolve itself — TIGTA's data shows the IRS's own systems can take over a year to catch up.

3.      If you're under IRS collection pressure on a balance-due account while also having unfiled prior-year returns, be aware the IRS's internal prioritization tends to favor collecting on known balances over chasing unfiled returns — which can create planning opportunities but also compliance risk if left unaddressed.

As always, the right first step is a conversation with a tax professional who can review your specific filing history, IRS transcripts, and notice history before you respond to the IRS directly.

Have IRS Tax Problems?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Federal Circuit Just Killed the NIIT Treaty Credit Refund Strategy

Americans living in Canada or France just lost a major argument for avoiding double taxation on investment income. On August 31, 2026, the U.S. Court of Appeals for the Federal Circuit ruled in two companion cases — Estate of Paul Bruyea v. United States, No. 2025-1563 (opinion), and Christensen v. United States, No. 2024-1284 (opinion) — that foreign tax credits under the U.S.-Canada and U.S.-France income tax treaties cannot offset the 3.8% Net Investment Income Tax (NIIT) imposed by IRC § 1411 (KPMG).

Why the NIIT Falls Outside the Foreign Tax Credit

The NIIT sits in Chapter 2A of the Code, entirely separate from Chapter 1, where the foreign tax credit rules of IRC §§ 27 and 901 live. Because those sections limit credits to "the tax imposed by this chapter" (Chapter 1), and § 26(b) confirms the NIIT isn't a Chapter 1 tax, the Code itself has never allowed a credit against it — a gap taxpayers had hoped their treaties would fill.

The Two Cases

·         Bruyea: A U.S. citizen in British Columbia paid Canadian tax and $263,523 in U.S. NIIT on a Canadian real estate sale, then sued for a refund under Article XXIV of the U.S.-Canada treaty. The Court of Federal Claims agreed with him in 2024 — reversed on appeal.

·         Christensen: U.S. citizens in Paris paid French tax and $3,851 in NIIT on a stock sale, relying on Article 24(2)(b) of the U.S.-France treaty (the provision specific to dual U.S. citizen/French residents). The Court of Federal Claims sided with them in 2023 — also reversed.

The Court's Reasoning: The "U.S. Law Limitation" Controls

Both treaties grant relief "in accordance with the provisions and subject to the limitations of the law of the United States." The Federal Circuit held this phrase incorporates the Code's Chapter 1 restriction directly into the treaty — it isn't merely a computational cross-reference.

In Christensen, the taxpayers argued that Article 24(2)(b) escaped this limitation because it doesn't repeat the language. The court disagreed, applying the "whole-text canon": the limitation appears once, up front in Article 24(2), and governs both subparagraphs. The court also noted that the treaties' re-sourcing provisions would be pointless if the credit already operated independently of the Code, and that the taxpayers' reading would let citizens abroad claim both a treaty credit and the foreign earned income exclusion on the same income — a "double benefit" the Code expressly bars for U.S. residents.

Why This Reaches Beyond Canada and France

The "subject to the limitations of U.S. law" language the court relied on is standard across the U.S. treaty network, not unique to these two treaties. Practitioners should expect the same analysis to apply to clients under other bilateral treaties with comparable clauses (Current Federal Tax Developments).

What Clients Should Do Now

·         Drop the treaty-credit refund theory. It's no longer viable under Canada or France treaties, and likely not under most others.

·         Consider the § 164 deduction for foreign taxes as a partial offset, since it reduces the NIIT base even without a dollar-for-dollar credit.

·         Review timing and character of gains to see if income can avoid "net investment income" classification under § 1411(c).

·         Know that Mutual Agreement Procedure relief remains a government-to-government option, separate from a self-help credit on a tax return.

Bottom Line

Bruyea and Christensen confirm that the NIIT's placement in Chapter 2A puts it outside the reach of both statutory and treaty-based foreign tax credits unless a treaty explicitly overrides the Code — and none currently does. Expatriate clients facing double taxation on investment income need updated planning now.

Have IRS Tax Problems?

     Contact the Tax Lawyers at

Marini & Associates, P.A. 

for a FREE Tax HELP Contact us at:
www.TaxAid.com or www.OVDPLaw.com
or Toll Free at 888 8TAXAID (888-882-9243)

Sources: 

Bruyea opinion 

Christensen opinion 

KPMG summary 

Current Federal Tax Developments analysis