Congress is racing to finish the appropriations process before a January 30 deadline, and the IRS is facing a double cut in funding. Efforts to reach a broad healthcare agreement failed while the House Ways and Means Committee moved to mandate electronic barcodes on paper tax returns.
IRS Funding
The IRS is facing a $1.1 billion funding cut under a bipartisan agreement reached before government funding expires on January 30. The legislation would fund the IRS at $11.2 billion for fiscal year 2026, down from the $12.3 billion the agency received in 2025. A separate government funding bill would also rescind $11.6 billion of the approximately $18.6 billion left of the special allocation of funding from the Inflation Reduction Act (IRA).
BDO Takeaway
The approximately $7 billion left in IRA funding could blunt the impact of the cut on the IRS’s annual budget, but the agency faces major challenges from workforce losses and vacant leadership positions. The IRS must also implement major changes to tax law under the One Big Beautiful Bill Act. The IRS recently announced the 2025 filing season would open on time on January 26.
Ways and Means Committee Action
The Ways and Means Committee passed several modest bills on January 15, including bipartisan legislation (H.R. 6956) that would require any tax returns prepared electronically and filed on paper to include a barcode to convert the data to electronic format. The legislation passed the committee unanimously.
BDO Takeaway
The bill received unanimous bipartisan support in the committee, but the next steps are not clear. The IRS in the past has resisted implementing barcode technology for paper forms, instead prioritizing a push toward direct e-filing.
Healthcare Negotiations
Moderate Senators abandoned a plan to release a compromise on extending enhanced Affordable Care Act premium tax credits and other health care provisions after efforts to reach a deal fell apart last week. President Donald Trump responded by releasing his own healthcare framework. The plan is light on details but appears to propose replacing ACA tax credits with payments that would go directly to individuals through a health savings account or other mechanism.
It is not clear whether a bipartisan healthcare deal remains possible. The credits expired at the end of 2025, and it could be administratively difficult to reopen the exchanges if the credits are extended retroactively. Senate lawmakers are pushing to add a provision on pharmacy benefit managers to appropriations legislation. The compromise was originally envisioned as part of a broader healthcare deal.
President Trump is also pushing legislation on housing affordability, and several lawmakers have suggested raising the cap on the exemption for capital gains on the sale of a principal residence.
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