BACK IT UP: Just when IRS officials thought they had a funding stream locked in to support a thorough revamping, courtesy of the Inflation Reduction Act, they were hit with something of a surprise over Memorial Day weekend: The debt ceiling deal includes slashing $21.4 billion of the original $80 billion windfall the agency got to spend over the next ten years.

What effect that will have on the IRS’s enforcement and modernization plans isn’t clear yet.

“It’s clearly not helpful,” said former IRS Commissioner John Koskinen.

The agency still has some $60 billion to spend over the next 10 years to improve taxpayer services, upgrade its IT and expand its enforcement for complex partnerships and large corporations, and the administration says it does not expect the $21.4 billion cut to affect the agency’s near-term plans.

Notably, though, the agency projects that it will be spending more and more of the money every year, leaving, for instance, $12.1 and $14.1 billion for fiscal years 2030 and 2031 alone.

That means the IRS will hit a cliff down the line if it doesn’t change its spending plans or receive a new infusion from Congress.

In case you missed it on Sunday, the bill text technically includes an immediate rescission of only $1.4 billion from the IRS’s pot, but White House officials said President Joe Biden agreed to shift $10 billion from the IRS to other agencies during the fiscal year 2024 annual appropriations — and again for the government funding bill for fiscal year 2025.

House Speaker Kevin McCarthy (R-N.Y.) said on Fox News Sunday that the cuts were a step in the right direction and could presage more to come, echoing a belief held throughout the House Republican caucus that the IRS’s ramped-up enforcement plans will inevitably result in more audits of small businesses and middle-class taxpayers.

Rep. Adrian Smith (R-Neb.), who spearheaded legislation that passed the House earlier this year to claw back nearly all the IRS funds, told Weekly Tax that he was encouraged by the commitments McCarthy extracted from the White House on the appropriations process.

WELCOME TO THE WEEK: But before we delve further into those details on the IRS battles, you might find it interesting that 2024 presidential contender Ron DeSantis told conservative radio host Dana Loesch last that he would take the current tax system and “chuck it out the window.”

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BACK TO THOSE IRS PLANS: The good news for the IRS at least is that it still has a significant chunk of change to make visible improvements in taxpayer services over the next several years, Koskinen told Weekly Tax.

If you’ve been around the block a few times, you’d know that the IRS’s perennial problem has been that it can only contract projects on a six- to nine-month basis based on annual appropriations, and the cut from the debt ceiling deal doesn’t change the fact that the agency is now in a position to execute longer-term projects for transforming its infrastructure.

Here’s another point worth considering, though: The GOP has also been chipping away at the IRS’s annual appropriations, notching, for instance, a $275 million reduction for the IRS in last year’s government spending package.

And the less that the IRS has for its annual operations, the more of the IRA money it will have to divert for those purposes.

“The real question is whether, as a result now of having had their pound of flesh as it were, Republicans quit trying to chip away at the annual budget in addition,” Koskinen said.

Former IRS Commissioner Mark Everson, who’s now vice chair for the tax consulting firm alliantgroup, said he thinks there could be something of a silver lining if it gives the IRS some certainty going forward.

“I certainly hope that this represents an armistice, if you will, and that [the IRS is] now able to proceed with this funding pretty well-assured,” Everson said.

THE TAX STICK: A GOP delegation led by House Ways and Means Chair Jason Smith (R-Mo.) had intended to fly to Paris this week to chat with folks at the OECD about the pending international tax framework, though that will surely now be delayed as Congress scrambles to pass the debt deal to avoid a catastrophic default.

Nonetheless, when the Republican tax writers do eventually arrive in the city of lights, they will be armed with new leverage to sink the 15 percent global minimum tax that the OECD has been laboring over for years.

Under GOP legislation unveiled last week, if any foreign government tries to levy an American multinational under the global framework for not paying at least 15 percent the U.S. could retaliate by adding 5 percentage points onto the tax rates of companies and investors from those countries.

The plan would hike rates by 5 percent every year for four years as long as American firms are subjected to the global tax.

While the proposal has no shot of getting enacted with Democrats in control of the Senate and White House, it represents a very real threat for OECD officials pondering the possibility of a Republican administration in 2024.

As Daniel Bunn of the Tax Foundation notes in an analysis of the bill, a never-used section of the tax code dating back to a spat in the 1930s between the U.S. and France authorizes the president to double the tax rates of citizens and businesses of a foreign country that is subjecting U.S. taxpayers to extraterritorial taxation.

So, even under a Democrat-controlled Congress, a Republican president could create a lot of headaches for the OECD rollout just by wielding the power of the executive branch.

We’re sure that point will not escape the attention of the GOP delegation in the upcoming talks.

ACCIDENTAL AMERICANS: For the last item on our docket, you’re likely well aware that the Foreign Account Tax Compliance Act has proven an important tool for the IRS to crack down on tax cheats looking to stash their money out of sight in foreign countries (cited most recently in Finance Committee Chair Ron Wyden‘s (D-Ore.) probe of Swiss banks facilitating tax evasion).

But, in fact, the law isn’t everyone’s favorite, and a group known as the Association of Accidental Americans has now filed 23 complaints with European data authorities challenging FATCA’s legality.

The move follows a win for the association last week in Belgium, which ruled that transfers of information belonging to “accidental Americans” under FATCA are illegal under EU law, giving the group an opening to press its case with other countries in the bloc.

FATCA, by requiring foreign banks to pass on account information of all U.S. citizens, captures in its dragnet some folks who have never lived in the U.S. but nonetheless have U.S. citizenship by dint of having been born in the country.

According to the association, banks have threatened to close accounts belonging to thousands of such foreigners out of fear of being targeted by U.S. sanctions, which in turn has created very stressful situations for people who weren’t even aware they had to file their tax returns every year with the IRS.

Bloomberg: “Switzerland Plans ‘One-Stop Shop’ for OECD Minimum Tax”

Reuters: “Ukrainian lawmakers back tax breaks for domestic drone producers”

FT: “PwC suspends 9 partners over Australian tax leak scandal”

Tax Notes: “JCT Report Explains $200 Billion Revision to Green Energy Revenue Estimates”

Washington Examiner: “What 2024 GOP candidates have said on tax policy”

CNN: “IRS veteran goes public as whistleblower in Hunter Biden criminal probe”

Bloomberg: “India’s Top Oil Producer Posts a Surprise Loss on Tax Provisions”

Guardian: “Greens accuse Labor of ‘sweetheart deal for Woodside’ in petroleum resource rent tax changes”

You can’t take a foreign earned income exclusion on your taxes if the income was earned in international waters.