Former IRS chief warns of long-term impacts from staffing cuts
Tax agency's reduced workforce could strain system in coming years, ex-official says.
1Major workforce reductions at IRS
Elon Musk's DOGE unit slashed over 25% of the IRS's 100,000 employees. In the 2026 tax season, the IRS processed 140.2 million returns and issued 90.4 million refunds, showing a slight decline from the previous year. Former IRS Commissioner Douglas O'Donnell warned the effects of cuts would become more apparent in coming years. The IRS claims it will maintain stable staffing levels with 74,000 employees by end of 2026.
2Modernization efforts and obstacles
The IRS has struggled for decades to reduce paper processes. Paper returns account for just 6% of all filings but 72% of processing costs. The agency plans to cut paper processing expenses from $450 million to under $20 million by 2029. O'Donnell notes the IRS has lagged behind other countries in modernization, with chronic underinvestment across multiple administrations.
3Role of Inflation Reduction Act
The 2022 Inflation Reduction Act included an $80 billion plan to modernize the IRS through technology upgrades, improved data access, and skilled workforce recruitment. However, DOGE cuts not only stalled this progress but reversed it. IRS CEO Frank Bisignano claimed in April testimony that they cut $2 billion from IT budgets without operational disruptions by renegotiating wasteful contracts.
4Unclear objectives behind DOGE cuts
O'Donnell says DOGE's exact objectives remain unclear: "There's no strategic document. The focus seemed to be cutting enforcement and technology while maintaining service levels." The IRS has long aimed to use technology to enhance services and eventually reduce workforce size. But initial automation efforts often require more human labor to implement new systems effectively.
5Unexpected impacts of automation
O'Donnell argues automation initially increases labor demand as human workers troubleshoot new systems and expanded operations require more staff. "To improve services digitally, you first need budget increases for systems investment before reducing headcount," he explains. The real concern isn't workforce reduction itself, but lacking immediate replacements to maintain service quality during transitions.
6Declining audit coverage risks
Staff reductions threaten to decrease tax audits, particularly for large corporations. "Over time, losing employees means covering fewer taxpayers," O'Donnell notes. This erosion of oversight capacity undermines IRS leaders' confidence in taxpayer compliance. While audits are unpopular, some level of enforcement maintains confidence in the tax system's fairness and integrity.
7Shrinking IRS budget trajectory
The IRS's discretionary budget fell from $12.2 billion in FY2025 to $11.2 billion in FY2026, with a projected drop to $9.8 billion in FY2027. These cuts will further strain the agency's service capacity. O'Donnell warns that maintaining services this year doesn't guarantee future sustainability. As systems become more strained, confidence in accurate tax filings may decline.
8Future of tax administration
The IRS faces growing challenges from staffing cuts, delayed tech investments, and shrinking budgets that threaten system sustainability. O'Donnell's warnings highlight how short-term savings may incur greater long-term costs. Modernizing tax administration and ensuring adequate funding remain critical for maintaining public trust and effective revenue collection in coming years.
Original article: Fortune — IRS'deki kesintilerin uzun vadeli etkileri uyarısı