The Inflation Reduction Act, signed in August, included approximately $80 billion in supplemental funding for the Internal Revenue Service over a ten-year period — the largest one-time appropriation in the agency’s history. The funding was distributed across four operational categories: enforcement, taxpayer services, operations support, and business systems modernization. By far the largest share, more than $45 billion, went to enforcement.
For the nonprofit sector, which had spent more than a decade watching Exempt Organizations enforcement collapse to historic lows, the appropriation raised hopes that meaningful regulatory capacity might be restored. Those hopes were tempered, then partially deflated, by how the funding was actually allocated within the agency.
The Exempt Organizations slice
The Treasury implementation plan published in 2023 directed the bulk of new enforcement funding to large-corporation, complex-partnership, and high-net-worth-individual examination — the categories where revenue-yield projections were highest. Exempt Organizations received an increase, but a modest one in absolute terms and a smaller share of the total package than the sector’s share of the economy would have suggested.
The pre-IRA Exempt Organizations division had a workforce of roughly 1,200 employees responsible for oversight of approximately 1.8 million tax-exempt entities. The post-IRA hiring plan envisioned growth to roughly 1,600 over five years — a meaningful increase, but one that would still leave the division at a fraction of its 2010 staffing level relative to the number of organizations it oversees.
What the additional capacity might do
Within the Exempt Organizations strategic plan published in late 2023, the priority categories for new examination capacity were articulated as: large complex organizations (especially health-care systems and university endowments), syndicated conservation easements, and abusive private-foundation transactions. Donor-advised fund administration was named as an area of priority but was framed primarily as a guidance and education function rather than an examination one.
For the great majority of US 501(c)(3) organizations — community foundations, social-services agencies, congregations, schools, arts organizations — the practical effect of the new funding was likely to be small. Examination rates for organizations under $50 million in revenue would remain a fraction of one percent, as they had been since the early 2010s. Most compliance issues at smaller organizations would continue to be addressed, if at all, through state attorney general offices.
The longer-term structural question
The IRA funding episode underscored a structural problem in nonprofit regulation that had been recognized for years but never resolved. The federal regulator of charitable organizations is housed within an agency whose primary mission is revenue collection. Resource allocation within that agency follows revenue-yield logic. Nonprofit oversight, by definition, does not generate revenue.
Several commentators in the months that followed raised the older proposal of separating exempt-organizations regulation into a distinct agency or transferring it (with corresponding funding) to the Department of the Treasury more generally. None of these proposals advanced. The structural mismatch between the regulator’s mission and the sector’s needs persisted.