All posts by : Shamima A

Congress will settle on a $833 billion defense spending topline for fiscal 2025, one House leader says. But in typical fashion, it won’t be on time—so lawmakers are readying a budget extension.

“It looks like there’s going to be another continuing resolution that will come up next week, probably the middle of next week. The debate has been: how long should that CR go?” Rep. Rob Wittman, R-Va., vice chairman of the House Armed Services Committee, said Wednesday at a Defense News event. 

Translated, that means the budget won’t be passed before the start of the new fiscal year—Oct. 1—so Congress will temporarily fund the Defense Department at 2024 levels for an as-yet-undetermined time. Since it’s an election year, lawmakers may well punt the final decisions on 2025 spending until a new Congress has taken office in January.

Continuing resolutions are a reality, but Wittman said they are “the worst way for us to be able to manage the defense enterprise.” Pentagon officials regularly bemoan the costs of a continuing resolution, which costs the department billions in buying power and prevents the services from starting new initiatives.  

Lawmakers, now returning from August recess, have much to negotiate in both the defense authorization and appropriations bills. The full Senate has yet to approve its versions, which differ on both policy provisions and the overall top line from the House versions largely crafted by GOP lawmakers. 

Despite many differences, and whether it happens in the 118th Congress or 119th, Wittman said lawmakers will settle on $833 billion for the topline, which falls in line with the requirements of last year’s Fiscal Responsibility Act. 

The Pentagon “should be able to do most of the things that it needs to do with that number,” he  said. “I think that’s the number you’re actually going to have to live with.”

But Wittman also said lawmakers might consider adding more funding later in fiscal 2025. 

Pentagon officials have signaled that another supplemental funding package will be needed if wars in Europe and the Middle East continue. Congress passed a $95 billion supplemental package earlier this year to fund weapons for Ukraine, Israel, Taiwan, and support Indo Pacific security needs.  

The chance of Congress passing another supplemental bill depends on what’s in it, Wittman said, but cautioned that it wouldn’t happen anytime soon because getting it through a lame duck Congress is a “complicated process.”

“I think if it was very focused, and there was an explanation about why it was critical to this nation, in relation to the threat from China or Russia or otherwise, it might have a chance. I think anything that gets spread wider than that really has a difficult time, especially in relation to the whole debate that took place with the FRA and the issue about managing this nation’s spending,” Wittman said.

The White House’s Office of the National Cyber Director announced a new hiring sprint for the nearly half a million cyber jobs across the United States on Wednesday. 

The effort, dubbed Service to America, will last through October. ONCD is collaborating with the Office of Management and Budget and Office of Personnel Management on the sprint.

“Throughout our history, generation after generation of Americans have stepped up to meet the challenges of their day, protecting and serving our nation in a variety of ways,” Harry Coker, national cyber director, wrote in a blog. “Today, we face a new challenge and with it a new opportunity to serve: defending cyberspace.”

There are currently approximately 470,000 cyber jobs in the United States, per Cyberseek. 

The federal government alone had 3,000 open jobs in the 2210 occupational series — which encompasses IT work, including some cyber jobs — in fiscal 2024. 

That’s per an inventory the White House’s cyber office is fielding with OMB and OPM, Seeyew Mo, assistant cyber director for workforce, education and awareness at ONCD, told Nextgov/FCW. 

The hiring push is the latest in the administration’s efforts to fill in the national cybersecurity workforce. 

The White House’s cyber office released a workforce-specific strategy last year. Since then, it’s also garnered commitments from organizations to train and expand the cyber workforce and remove four-year degree requirements from cybersecurity jobs — a move the federal government is also pursuing for its own cyber hiring.

The government’s HR agency has also pitched lawmakers on a legislative revamp of cyber hiring and pay, although that effort doesn’t appear to have piqued the interest of lawmakers yet, at least publicly.

The new campaign is meant to both raise awareness for jobseekers who may not know of opportunities in cyber, as well as engage with public and private sector employers, said Mo.

“We’re trying to connect more Americans to good paying, meaningful jobs in cyber,” said Mo. “We need more Americans to be interested in this work.”

Part of the battle is perception, wrote Coker.

A highly technical background or cybersecurity degree isn’t necessary to work in the field, he wrote. Still, there are barriers to entry for some, including requirements for degrees, years of experience and cybersecurity certifications.

Removing those obstacles is something the administration says it’s been focused on. 

Last spring, ONCD and OPM announced that they would be rewriting requirements for the federal government’s IT workforce in an effort to enable agencies to hire feds without college degrees that learned skills on the job.

The Labor and Commerce Departments also fielded a push for cybersecurity apprenticeships in 2022.

As for the latest effort, the cyber czar’s office will be coordinating with other federal agencies to recruit and hire at career fairs, said Mo. The first one, targeted at military spouses, will take place Thursday.

ONCD is also encouraging both agencies and private sector counterparts alike to use best practices like removing degree requirements and offering entry level cyber jobs, apprenticeships and paid internships, said Mo.

“We are trying to open up opportunities for each and every American who wants to serve their nation,” he said. “It’s about broadening pathways and removing barriers.”

The administration has also been seeking to hire AI professionals into the government after Biden signed an executive order focused on the technology last fall. 

The landing page for the new OCND effort includes links to tech and AI jobs, in addition to cybersecurity. The efforts are complementary, Mo said. 

“Cyber is more than cybersecurity,” he noted. “You don’t need a ‘cyber’ in your title to be doing cyber work.”

Congresswoman Eleanor Holmes Norton, D-D.C., the nation’s capital’s non-voting House lawmaker, last week reintroduced legislation that would grant congressional employees whistleblower protections and an additional form of paid leave.

Employees of the government’s legislative branch — including lawmakers’ staffs, employees of agencies like the Government Accountability Office, Congressional Budget Office and U.S. Capitol Police officers — are covered by the Congressional Accountability Act, which confers abridged workplace protections that federal employees enjoy under laws governing whistleblowers, workplace safety and labor issues.

The Office of Congressional Workplace Rights is the agency tasked with enforcing those various laws. In each of its two most recent biennial reports to Congress, the agency recommended improving whistleblower and Occupational Safety and Health Act protection and enforcement.

“Federal law provides broad employment protection to executive branch employees who disclose information that the whistleblower reasonably believes evidences a violation of law, rules or regulations, or mismanagement, gross waste of funds, abuse of authority or a substantial and specific danger to public health and safety,” the office wrote in December 2022. “There are no analogous protections for legislative branch employees, even those who would raise an issue with a committee of jurisdiction or other appropriate legislative branch official. The lack of statutory protection leaves legislative branch employees who would provide critical information at risk for retaliation.”

The Congress Leads by Example Act (H.R. 9420) would apply some of the Office of Congressional Workplace Rights’ latest recommendations for updating the Congressional Accountability Act to provide whistleblower and OSHA retaliation protections to legislative employees, and grants the office with subpoena authority to investigate alleged OSHA violations. Additionally, the bill would grant congressional workers with parental bereavement leave, in line with the two weeks per year afforded to executive branch employees.

In a statement, Norton said her legislation would continue the work that Congress started in 2018 when it amended the Congressional Accountability Act to update how Congress handles accusations of misconduct and extended protections to unpaid staff and interns, following the #MeToo movement and reports of sexual harassment on Capitol Hill.

“Congress must abide by the laws it imposes on the American people and their workplaces,” she said. “Congress already acknowledged the importance of accountability in the legislative branch workplace when it passed the Congressional Accountability Act of 1995 and further confirmed it when it passed the Congressional Accountability Act of 1995 Reform Act in 2018. As a former chair of the U.S. Equal Employment Opportunity Commission, I take issues of workplace discrimination and abuse very seriously. My bill builds on the protections in previous laws, bringing the protections for legislative branch employees in line with those for other workers.”

A tranche of major federal agencies have nearly met a Sept. 30 deadline requiring them to build out and adopt a degree of zero trust architecture on their networks, federal CIO Clare Martorana said Wednesday.

The zero trust cybersecurity model is a methodology where users on a network are never inherently trusted and must be regularly verified to be allowed access into sensitive systems and webpages.

The 24 CFO Act agencies — federal regulators affected by a 1990 law that gave the White House new authorities to oversee the government’s financial management — are “all in the high 90% range” and, more broadly, federal entities “moved from 81% to 87% completion rate for agencies on that journey,” said Martorana, who did not specify an exact timeline to when the jump to 87% was made.

There is no one single zero trust solution available for agencies to procure. But several private firms specializing in specific zero trust pillars have been working for years to secure contracts with agencies since a major cybersecurity executive order was signed by President Joe Biden in 2021.

The Cybersecurity and Infrastructure Security Agency in May provided agencies guidance to meet website encryption requirements and move closer toward their zero trust goals.

Zero trust isn’t a one size fits all approach because nation-state adversaries and cybercriminals can still innovate and find workarounds that allow them to breach architected systems. 

“It is a continued journey that the government is going to undergo for many years,” Martorana said.

The May 2021 executive order directed all federal agencies to develop a plan for implementing zero trust strategies. The Office of Management and Budget later issued a memo in January 2022 that, in part, required agencies to undertake a series of steps by the end of fiscal 2024 “to form a starting point to implementing zero trust architecture.”

Federal cyberdefenses became a top issue for the Biden administration after the Colonial Pipeline and SolarWinds Orion incidents that occurred in the past couple years. Other headline-making hacks have followed, including last summer when Chinese operatives accessed the email inboxes of U.S. officials, which later became the subject of a major DHS oversight report.

The U.S. Postal Service successfully implemented most of its initiatives in response to increased demand during fiscal 2024’s peak season; however, service performance scores for most of its products decreased during the same period. 

In a report published on Aug. 26, the postal inspector general found that USPS — with respect to the period last year between Thanksgiving through New Year’s Eve — met some processing and distribution goals, all logistics ones and most related to retail and delivery. 

For example: 

• It accurately forecasted the demand on its air network for 99.4% of peak season. 
• For surface transportation, USPS increased efficiency by reducing the number of trips by 14.9%, an approximate 6% reduction compared to peak season fiscal 2023. 
• USPS management said staffing was not a major issue, as they hired about 12,000 employees, 81% more than the planned number of nearly 6,800. (The OIG reported this was not a sign of poor planning partly because additional hiring was necessary at some facilities to perform work that had been done by contractors.) 

But service performance declined for most USPS products compared to the previous peak season and none met performance targets. 

First-class mail, for instance, was delivered on time 83% of the time, which is a 5.4% reduction from fiscal 2023 and 9.5% less than the 92.5% target. Competitive products, like priority mail, experienced relative declines, but the OIG didn’t provide specific numbers. 

While USPS processed packages more efficiently in fiscal 2024 by reducing the number of parcels handled manually, the OIG reported a 23.3% increase in delayed inventory compared to fiscal 2023. (Such delays mean a processing plant failure and not necessarily a delay in arrival time.) 

The inspector general, however, acknowledged that severe weather and unanticipated processing facility closures affected delivery as well as operational changes under USPS’ 10-year plan. 

The Postal Regulatory Commission has called on Postmaster General Louis DeJoy to pause reform efforts under his 10-year plan due to difficulties that occurred after some changes were rolled out. Members of Congress from both parties have also criticized the reforms. 

The OIG recommended that USPS evaluate the plan to effectively manage operational precision performance, a daily measure of how close each processing facility ran according to plan, during peak season. The postal agency concurred with the recommendation and set an implementation date of Nov. 30. 

Looking ahead to peak season fiscal 2025, USPS’ primary air network supplier is changing for the first time since 2001. The OIG warned that planning ahead will be critical to ensure peak season deliveries are made on time. 

The Biden administration has requested that Congress ensure spending on election security and presidential transition efforts can continue in the absence of a deal in Congress to fund the government in fiscal 2025, as well as the unusual step of reiterating its full budget request for the Social Security Administration, as the White House and lawmakers prepare for the possibility of needing a continuing resolution to keep the government funded past September.

Each August, as lawmakers inevitably run short on time to reach an agreement on how to fund the government for the next fiscal year beginning Oct. 1, the Office of Management and Budget sends a list of so-called “budget anomalies” that the White House would like included in a short-term continuing resolution.

Often, anomalies include items like renewing spending authorities and other short-term fixes for ongoing government programs or to ensure funding is available to implement planned initiatives during the term of the continuing resolution.

OMB submitted its list of requested budget anomalies to Congress last week. In the 30-page document, the Biden administration took the unusual step of requesting that the Social Security Administration’s administrative functions be funded at the rate of the president’s fiscal 2025 budget proposal of $15.4 billion. Without such an anomaly, the agency’s operations would continued to be funded at its current annual appropriation of $14.2 billion under a continuing resolution.

In its submission, which anticipates the need for a continuing resolution until “mid-December,” the White House said without additional funding, SSA will hit a half-century staffing low before the end of the CR.

“Language is needed to provide the Social Security Administration a rate for operations of $15.4 billion in the Limitation on Administrative Expenses account in order to improve current levels of customer service and avoid the lowest staffing levels in more than 50 years during the period of the CR,” OMB wrote. “SSA continues to face increasing workloads across its operations, and call volume typically peaks during the first quarter of the fiscal year.”

The message also includes a clearer picture of how a flat budget would further deteriorate service at the beleaguered agency: worse IT support for employees, the closing of some local field offices and the shortening of hours at others.

“Without the anomaly, SSA would be required to reduce funding for core information technology operations, including SSA’s network support,” the administration wrote. “In addition, SSA would likely reduce the hours field offices are open to the public and would need to close field offices over time, extending wait times for seniors and individuals with disabilities.”

The Social Security Administration is funded differently from most other federal agencies. The cost of administering Social Security retirement and disability benefits is paid for not through the U.S. Treasury, but directly from federal payroll taxes. For decades, that budget was set at 1.2% of benefit outlays, until President George H. W. Bush made it part of the discretionary budget process, and in recent years it has slid down below 1% of benefits.

Biden’s request is also noteworthy in that it remains higher than either chamber has thus far set aside for the agency in fiscal 2025. The appropriations bill in the Republican-controlled House calls for a $450 million cut from current funding levels next fiscal year, while the Senate’s legislation would impose a half-billion dollar increase.

The administration’s anomalies request also includes provisions that would ensure that the Presidential Election Campaign Fund and both the White House’ and General Services Administration’s presidential transition activities can continue to be funded ahead of the 2024 election. And it requests an additional $436 million for the Office of Personnel Management as the HR agency prepares to launch the Postal Service Health Benefits Program this fall.

As we approach the end of 2025, a significant shift is on the horizon for federal employees and all taxpayers across the country. The Tax Cuts and Jobs Act, enacted in 2017, is set to expire at the end of next year. 

This sunset will bring about the reversion of several tax provisions to their pre-TCJA state unless Congress takes action. For federal employees, understanding how these changes may impact your tax situation is crucial for effective financial planning.

A Brief Overview of the Tax Cuts & Jobs Act

The TCJA brought about sweeping changes to the U.S. tax code. Some of the most notable changes included:

• Lower Individual Tax Rates: The TCJA reduced individual income tax rates across all brackets.
• Increased Standard Deduction: The standard deduction nearly doubled, which simplified tax filings for many by reducing the need to itemize deductions.
• Increased Child Tax Credit: The child tax credit was expanded, making it more generous for families.
• State and Local Tax (SALT) Deduction Cap: The deduction for state and local taxes was capped at $10,000, impacting taxpayers in high-tax states.
• Estate Tax Exemption: The estate tax exemption was doubled, allowing more wealth to be transferred without incurring estate taxes.
• Reduced Corporate Tax Rate: The corporate tax rate was significantly reduced from 35% to 21%.

While many assume that the current tax law is the norm, the TCJA was only approved as a temporary solution and the changes were not made permanent. To prevent the expiration of the TJCA, Congress will need to approve an extension or a new plan altogether. 

Since we all know how difficult it can be for Congress to present an agreed-upon plan, we need to prepare for the implications of a TCJA Sunset. 

The Impact of the TCJA Sunsetting on Federal Employees

Federal employees, like all taxpayers, will be affected by the sunsetting of the TCJA. Here’s how the potential changes could impact your tax situation:

1. Reversion to Higher Tax Rates

One of the most immediate impacts of the TCJA’s expiration will be the return to higher individual tax rates. For example, a couple with joint income between $94k and $201k will see their tax rate increase from 22% to 25%. The next bracket up will increase from 24% to 28%.

What this means for federal employees: If your income remains steady, you could find yourself in a higher tax bracket, resulting in more of your earnings being subject to federal income tax. Even if your income drops in the future, you could be taxed at a higher rate than you are right now because of the changes in the tax brackets. 

2. Reduction of the Standard Deduction

The standard deduction, which doubled under the TCJA, will return to its pre-2018 levels. For 2024, the standard deduction for single filers is $13,850 and $27,700 for married couples filing jointly. Post-sunset, these amounts could be nearly halved.

What this means for federal employees: A lower standard deduction means that less of your income will be shielded from taxes, potentially increasing your taxable income. If you’ve been taking the standard deduction, you might consider whether itemizing deductions could be more beneficial moving forward.

3. Changes to Itemized Deductions

Several itemized deductions that were limited or eliminated under the TCJA could return. For instance, the cap on the State and Local Tax (SALT) deduction could be lifted, allowing federal employees in high-tax states to deduct a larger portion of their state and local taxes.

What this means for federal employees: If you live in a state with high income or property taxes, the return of full SALT deductions could provide some relief, but only if you itemize your deductions.

4. Child Tax Credit and Family Benefits

The expanded child tax credit, which increased from $1,000 to $2,000 per child under the TCJA, will revert to its lower level. The eligibility for this credit will also become more restrictive.

What this means for federal employees: Families with children could see a reduction in their tax credits, leading to a higher overall tax liability.

5. Estate Tax Implications

The estate tax exemption, which doubled under the TCJA, is set to return to its pre-TCJA level. This change could significantly impact estate planning for federal employees with substantial assets.

What this means for federal employees: If you have a larger estate, more of it could be subject to estate taxes, which could affect the wealth you plan to pass on to your heirs.

The Political Landscape: What Could Happen Next?

As we move closer to the expiration of the TCJA, both political parties are proposing different approaches to tax policy, which could shape the future of taxation in the U.S.

Republican Proposals

Republicans generally favor extending or making permanent the tax cuts introduced by the TCJA. This includes:

• Making the Individual Tax Cuts Permanent: Republicans aim to maintain the lower tax rates, the higher standard deduction, and the expanded child tax credit.
• Further Reductions in Corporate Taxes: There is ongoing support for maintaining or even lowering the corporate tax rate further to encourage business investment and economic growth.
• Estate Tax Elimination: Some Republicans advocate for the complete elimination of the estate tax, which they argue is a double tax on wealth.

If Republicans gain control of Congress or the presidency, these proposals could shape future tax policy. For federal employees, this could mean an extension of the current tax benefits and potentially even lower taxes.

Democratic Proposals

On the other side, Democrats generally advocate for rolling back some of the tax cuts introduced by the TCJA, especially for higher earners. Their proposals include:

• Increasing Taxes on the Wealthy: Democrats propose higher tax rates for high-income earners and the restoration of the top marginal tax rate to 39.6%.
• Expanding Tax Credits for Low- and Middle-Income Families: There is support for expanding the Earned Income Tax Credit (EITC) and child tax credit, targeting more relief to lower and middle-income families.
• Corporate Tax Increases: Democrats propose raising the corporate tax rate, though not necessarily back to the pre-TCJA level, to fund social programs and reduce the deficit.
• Tightening Estate Tax Provisions: Democrats may look to reduce the estate tax exemption or introduce new taxes on large inheritances to address wealth inequality.

If Democrats maintain or gain control of Congress and the presidency, federal employees might see higher taxes on income, especially for those in higher brackets, alongside expanded benefits for middle-income families.

What Should Federal Employees Do Now?

With the TCJA sunsetting and the uncertainty surrounding future tax policies, federal employees should take proactive steps to prepare:

1. Consider Tax-Efficient Investment Strategies: Explore tax-advantaged accounts, such as the ROTH Thrift Savings Plan (TSP) or ROTH IRAs, to help manage your tax liability. Roth contributions, which are taxed upfront but grow tax-free, might be especially valuable if tax rates rise.
2. Estate Planning: If you have a significant estate, now is the time to review your estate plan. Consider gifting strategies or trusts that could help minimize your estate tax liability under the anticipated lower exemption levels.
3. Consult a Financial Advisor: Given the potential changes, consulting with a financial advisor who understands the unique needs of federal employees can help you navigate these shifts and make informed decisions. When you’re making tax decisions, it’s important to consider your potential lifetime tax bill, not just what you’ll owe this year. A good Financial Advisor can create a plan that maps out your lifetime income and strategize ways to lower the tax burden for you and your loved ones. 

The expiration of the TCJA at the end of 2025 marks a pivotal moment for tax policy in the United States. Federal employees should be aware of the potential changes and start planning now to mitigate any adverse effects on their financial situation. Whether the tax landscape shifts toward continued tax cuts or higher taxes, being prepared will allow you to make the most of your financial future and make the most of the opportunities available.

Austin Costello is a certified financial planner with Capital Financial Planners. If you don’t feel confident in your investment strategy or your ability to keep a level head and would like feedback, register for a complimentary check up. For topics covered in even greater depth, see our YouTube page.

The Department of Veterans Affairs’ ongoing effort to develop a streamlined platform for veterans to access education benefits has been hobbled by serious setbacks and cost overruns, according to a watchdog report released on Wednesday. 

The Forever GI Bill, passed by Congress in 2017, offered enhanced education support for veterans and called for the Veterans Benefits Administration to modernize its information technology systems to better provide services. 

VBA signed a $453 million contract with Accenture Federal Services in March 2021 to develop and implement a new Digital GI Bill platform to improve the processing of education-related claims and modernize related systems. The system was initially scheduled to be operational by April 2024.

In a highly critical review, however, VA’s Office of Inspector General found that “insufficient planning by VBA hindered development and completion of the Digital GI Bill platform and has led to significant delays and contributed to about $479 million in additional costs.”

OIG said the initial contract requirements for the platform’s development “were unclear and included unrealistic expectations,” which caused the total cost of the modernization initiative to more than double. VA now estimates that the platform will be completed around July 2026.

The watchdog said these issues began at the very start of the contract development process because “VBA failed to include staff who had the required technical expertise to develop performance work statements, which outline the necessary steps to complete the platform development and therefore drive contract requirements.” VA and Accenture ultimately renegotiated their contract in December 2023 to account for the program’s additional needs.

OIG also said that VBA “did not choose to follow the best practices” developed by the Government Accountability Office for developing “an integrated master schedule to guide a project.”

The watchdog provided three recommendations to VA, including calling for VBA to establish a process for monitoring implementation steps under the renegotiated contract, to develop a clear timeline for the program’s implementation and to enhance communication between Accenture and department officials.

Although VA concurred with OIG’s recommendations, the department said the additional costs associated with the renegotiated contract “were needed to correct the original contract and meet the objectives of the [Digital GI Bill] platform.”

The release of the report comes as Congress has grown increasingly frustrated by the program’s delays. Bipartisan members of the House Veterans’ Affairs Committee previously pressed VA officials during a July 2023 hearing about delays in the project’s implementation, with lawmakers expressing particular concern at the time about the fulfillment of contract requirements. 

In an Aug. 28 letter to the VA, Rep. Mike Bost, R-Ill. — who chairs the House panel — said OIG’s report “shows that the Digital GI Bill project was predestined for cost overruns, delays and disappointing results from the outset.”

“The project has already cost taxpayers an extra $479 million, and this is hardly the end of the cost overruns,” he wrote. “On top of that, the system still has not met its original goals to make student veterans’ education benefits more user friendly. This is wholly unacceptable and student veterans — and taxpayers — deserve better.”

Bost requested that VA respond to his committee by Sept. 8 with additional information about its plans to address OIG’s recommendations and its disciplinary actions against officials who are responsible for the program’s setbacks. 

President Joe Biden promised that tens of billions of dollars for the IRS in the 2022 Inflation Reduction Act would not be used to increase audits of individuals making $400,000 or less annually. But an IRS watchdog is questioning whether the tax agency will actually be able to fulfill that promise. 

The Treasury Inspector General for Tax Administration reported on Aug. 26 that IRS has not developed a plan to comply with a 2022 directive from Treasury Secretary Janet Yellen that implements Biden’s long standing promise regarding IRA funding and the audit rate. 

While the agency has selected tax year 2018 as the base year for comparing future audits conducted with IRA funding, it hasn’t finalized a methodology to calculate the audit rate for that year with respect to tax returns under $400,000. That is mainly because IRS is considering alternative methods to follow the 2022 directive. 

For example, the agency at one point proposed an authority to waive audits from the calculation if a taxpayer seems to have purposefully understated income to avoid the $400,000 threshold. TIGTA warned that such a waiver could be abused. 

“We were concerned that the proposed waiver authority would allow the IRS too much discretion to waive examinations that are under the $400,000 threshold, essentially permitting the IRS to say, ‘we’ll know what constitutes a waiver when we see it,’” investigators wrote. 

According to the report, IRS dropped the idea and emphasized that any proposal shouldn’t be considered definitive until the methodology is finalized.  

TIGTA said that IRS also should examine adjustments for cases when two spouses each earn less than $400,000 but together make more than that amount and craft a definition for small businesses, which the 2022 directive also exempts from the increased audit rate. 

IRS officials told investigators that they are not treating the development of the methodology as an urgent matter because the directive applies to audits beginning with tax year 2023. However TIGTA said those returns will begin to be examined in fiscal 2025, which starts in October. 

“The IRS was unable to provide TIGTA with a timetable or milestone dates to ensure that it is progressing toward completion,” investigators wrote. “The absence of timetables and milestones increases the risk that the methodology may not be developed in time to ensure compliance with the 2022 Treasury directive.”

Additionally, the inspector general predicted that conducting increased audits of those making more than $400,000 would challenge IRS because historically it has focused on taxpayers reporting less than that amount. Between fiscal 2019 and 2023, examinations of individuals under that threshold consistently accounted for more than 90 percent of total audits. 

IRS agreed with a recommendation to accelerate discussions with the Treasury Department to finalize a methodology to ensure IRA funds are used in compliance with the 2022 directive. It set an implementation date of Dec. 31. The agency also agreed with a TIGTA recommendation to formally document discussions and meetings regarding the methodology’s development. 

However the agency disagreed with a recommendation to use “return transaction file” data to determine the number of filers above and below the $400,000 threshold. Instead, it will use “statistics of income” data, which TIGTA criticized for being derived from a probability sample. IRS countered that TIGTA’s preferred option is a raw data source that is subject to inconsistent reporting and other data anomalies. 

TIGTA also recommended that IRS ensure a field in its audit information management system includes a taxpayer’s reported income plus any unreported income identified during the audit in order to measure post-audit income. While IRS only partially agreed with the suggestion, the inspector general said that actions the agency plans to take in response to it are in the spirit of the recommendation.  

Previously, a TIGTA analysis found that targeting a smaller portion of wealthy individuals, as opposed to all those making more than $400,000, could be more effective.