In the recently enacted budget reconciliation act, Congress authorized Treasury to issue about two dozen new tax regulations affecting very different groups of taxpayers—from servers earning tips to big businesses facing new international tax laws.
But Congress has been cutting IRS’s enforcement budget—most recently through rollbacks of the Inflation Reduction Act’s ten-year boost. And President Trump’s FY26 budget proposes a further 34 percent reduction in next year’s tax enforcement funding.
When enforcement funding is cut, taxpayers potentially lose an important service provided by the IRS: the chance to gain clarity and, in some cases, certainty about what the tax code means for them before they file a tax return riddled with unintentional errors.
Those services are not cheap—either for the IRS or taxpayers. As a result, they are mostly used by businesses or high-income individuals. Rather than cutting enforcement, lawmakers should consider other approaches that expand access to guidance by low- and middle-income taxpayers.
Rulings and regulations clarify the tax code
The IRS budget has two separate line items for taxpayer services and enforcement, but the line between the two accounts is blurry. For example, the enforcement budget funds audits but also many services that provide guidance to taxpayers—such as rulings and regulations.
Rulings and regulations fill in the holes left in tax legislation. For example, taxpayers can ask the IRS to explain how a complicated tax provision applies to their particular situation. Those private letter rulings are legally binding and are advantageous to receive before engaging in a potentially taxable activity or, at least, before filing a return.
Revenue rulings and regulations also provide guidance but encompass a broader spectrum of issues and apply to many taxpayers.
Demand for rulings and regulations has long exceeded resources, prompting the IRS to charge fees for private letter rulings. And after seeking public input, each year the Treasury Department and the IRS release a priority plan for undertaking the broader revenue rulings and regulations.
The most recent guidance plan lists 231 priority projects—with no guarantees that unfinished projects will be priorities next year. Backlogs are common.
And certainty about tax law comes at a cost—either direct or indirect—to taxpayers. The amount of the fee for private letter rulings varies with income, but the lowest amount—$3,450—is still too high for most people.
No fees are charged for suggesting projects for the guidance plan or commenting on proposed regulations, but the complicated process still deters broader participation.
Not surprisingly, New York University researchers Chye-Ching Huang and Emily Shi found that most suggestions for the guidance plan came from law firms and industry organizations representing high-income taxpayers and big businesses. Other researchers have found similar patterns for comments provided on the regulations themselves.
As my TPC colleague Howard Gleckman pointed out in the aftermath of the Supreme Court’s Loper Bright ruling that limited agencies’ authority to interpret legislation, “tax law often is written at the last minute by non-experts gathered in a backroom,” with lawmakers deferring to Treasury and IRS lawyers to fill in the blanks.
Competition for designation of future priority projects will be steep in the coming months given the reconciliation act, funding and staff cuts at the IRS, and additional work demands imposed by Trump’s executive orders (14192 and 14219) requiring agencies to identify rulings and regulations for elimination.
CAP offers some corporations certainty
The compliance assurance process (CAP) is another taxpayer service funded through the enforcement budget. CAP gives a corporation an option for achieving certainty before it files its tax return. The company describes a situation and how they propose to treat it for tax purposes.
During the review period, the company proactively provides the IRS with relevant information that will affect whether a tax position is compliant. After some discussion, the IRS delivers its interpretation and later confirms that the filed return is consistent with the CAP agreement.
While the IRS does not charge a fee to participate in CAP, only corporations with at least $10 million in assets—and that are not currently under investigation by the IRS—can participate. In 2024, the program accommodated 123 corporations.
Lawmakers have models to consider in the future
Conventional enforcement activities can effectively curb intentional errors on returns, but other approaches—such as those currently funded with enforcement funding—may be less intrusive ways to reduce unintended errors by taxpayers who want to comply with a complicated tax code.
Lowering the costs of submitting requests for private letter rulings and encouraging groups representing the interests of lower- and middle-income taxpayers to submit comments on the priority guidance plan and regulations are two ways to increase access to more certainty. Opening the doors to a voluntary CAP-like process to small businesses and individual filers is another way.
Rather than take a sharp knife to the IRS’s enforcement budget, lawmakers could support collaborative strategies that make it easier for taxpayers to get it right the first time.
