Beginning with the Inflation Discount Act in 2022, the Inside Income Service began to really feel it lastly had the sources to begin upgrading its antiquated expertise methods, beef up enforcement actions to cut back uncollected taxes, and enhance customer support.
In 2025, all of that has come to an finish.
Between January and Could 2025, staffing was decreased from round 103,000 workers to round 77,000, or round 25%. The almost $80 billion in funding from the Inflation Discount Act has been regularly decreased to $37.6 billion.
As of this writing, within the face of the federal authorities shutdown because of lack of approval of a federal finances for the 2026 fiscal 12 months, after sustaining employees for the primary week of the shutdown, the IRS has introduced the furlough of round 34,000 workers, or about 46% of its present workforce. The IRS intends to make use of remaining funding from the Inflation Discount Act to retain 39,878 workers for important capabilities.
Though we had identified the numbers of decreased staffing, it was not clear what capabilities had been impacted by the reductions. Now, nonetheless, the Treasury Inspector Common for Tax Administration has launched a report dated Oct. 15, 2025, which provides some element to these numbers. The report is titled “Administration and Efficiency Challenges Dealing with the IRS for Fiscal 12 months 2026.”
Decreased workflow and finances
Along with the decreased Inflation Discount Act funding, the Fiscal 12 months 2026 IRS proposed finances lowers annual funding by 20%. The TIGTA report states that the IRS has already spent $13.8 billion (or 37%) of its remaining Inflation Discount Act funding.
The capabilities that the IRS has recognized that it’s making an attempt to keep up in the course of the shutdown are e-filing methods, fee processing, issuance of computerized refunds (particularly for direct deposit), testing of tax submitting methods for the upcoming tax submitting season, processing remittances, and updating tax types. Ample employees can be being maintained to maintain expertise working. Automated notices akin to collections, intent to levy, and warnings of asset seizures could proceed to be issued.
Areas that the IRS has recognized as receiving little to no assist in the course of the persevering with shutdown embrace in-person and cellphone contact, audit correspondence, employees related to enforced collections, the Taxpayer Advocate Service (with solely 93 workers retained), paper return processing, funds, and correspondence.
Pete Kiehart
The Massive Enterprise & Worldwide Division was estimated to be shedding 74% of its employees, the Small Enterprise/Self-Employed Division 67% of its employees, and the Tax-Exempt and Authorities Entities Division 84% of its employees. The Tax Courtroom at current said that it was nonetheless open for filings however that there have been potential cancellations of trial periods.
The TIGTA report states that the data expertise employees has misplaced 25% of its individuals. The IRS positioned 48 senior IT workers on administrative go away, 26 of whom had been in key administration positions or had been people particularly recruited for his or her experience in restructuring efforts. The TIGTA report states that half of the IRS’s 700 enterprise methods are legacy methods requiring alternative.
Whereas the IRS has made some progress with particular person tax processing methods, it has deserted another modernization efforts. The company is hoping that integrating AI capabilities into its methods could assist; nonetheless, it nonetheless has not adopted cloud computing.
Enhancing operational efficiencies
The IRS is hoping that the federal authorities program to remove paper checks will assist with its effectivity. Additionally it is hoping to automate processing of amended tax returns. Though the company’s Doc Add Software permits on-line responses to mailed notices, the IRS should nonetheless print out these responses for assessment.
Defending taxpayer information
TIGTA faults the IRS for failure to terminate entry to methods by departing workers. New efforts by the Trump administration to increase interagency doc sharing have resulted in some situations of the IRS transferring inaccurate information. The IRS was additionally criticized for careless disposal of delicate paperwork.
Implementing tax regulation modifications
TIGTA said that the IRS had assessed an estimated $591 million in penalties and curiosity on 403,711 tax accounts for employers who did not well timed pay their deferred Social Safety taxes. The IRS computer systems additionally had been incorrectly rejecting tax returns claiming the Clear Automobile Credit score, largely because of late submissions by sellers.
TIGTA said that it reviewed almost 1,000 tax returns with indicators of potential id theft involving restoration of erroneously paid Worker Retention Credit. The IRS was additionally creating a technique to attempt to successfully take away sure tax advantages from noncitizens.
Whereas the IRS has made some progress in addressing digital currencies and high-income nonfilers, it has but to take enforcement motion towards an estimated 150,000 people with $13.2 billion in playing winnings and tax money owed of $1 billion in taxes, curiosity and penalties who did not file tax returns. The company additionally continues to battle with difficult reality conditions involving refundable tax credit such because the Further Little one Tax Credit score, the Earned Revenue Tax Credit score, the American Alternative Tax Credit score, and the brand new Premium Tax Credit score.
Relying on how lengthy the shutdown lasts, the IRS could also be unable to finalize 2025 types, directions and publications in time for a standard begin to the 2026 tax submitting season.
Taxpayer providers and rights
TIGTA discovered that the latest optimistic IRS statistics on phone responses and wait instances solely included probably the most utilized cellphone traces and didn’t embrace many different cellphone traces with much less favorable statistics. The IRS determined to discontinue self-service kiosks at Taxpayer Help Facilities after discovering that just about one-half had been inoperable. And it’s making an attempt to make use of voicebots to attempt to scale back wait instances and to develop a number of the synthetic intelligence instruments utilized by non-public assortment businesses.
Affect on taxpayers
Whereas the federal government is shut down, obligations of taxpayers below the tax regulation stay. Usually, submitting deadlines stay in impact. Curiosity and penalties proceed to accrue on unpaid balances due.
Usually the IRS has delayed the beginning of tax submitting season, akin to throughout COVID, when the company was additionally shut down, or to permit it to mirror last-minute legislative modifications on the finish of the tax 12 months, or because of federally declared pure disasters for the areas affected by these disasters.
It’s attainable that, as this shutdown continues, it might end in a later-than-normal begin to the 2026 tax submitting season. After some preliminary hints that the tax submitting season can be delayed because of efforts to include the One Large Stunning Invoice Act, these indications had been outdated by an announcement that the date of the beginning of the tax submitting season has not but been set.
Tax planning
Taxpayers ought to assume all tax deadlines stay in impact except specifically introduced in any other case. To make sure well timed processing of tax returns and receipt of refunds, taxpayers ought to file electronically and arrange for direct deposit of any tax refunds. Any want for human intervention will delay the processing and any refund.
It’s attainable that IRS on-line accounts could not proceed to be accessible in the course of the shutdown. Taxpayers ought to create documentation for all communications and submissions to ascertain well timed compliance.
If taxpayers want motion taken by the IRS, akin to transcripts and powers of legal professional, they need to make these requests as quickly as attainable in anticipation of attainable additional deterioration of IRS assist.
They need to attempt to construction any direct deposit installment agreements on-line with out the necessity for IRS approval.
Taxpayers and tax professionals ought to count on extra delayed responses to notices, refund processing, and audit resolutions.
Taxpayers ought to attempt to make any required statutory funds on-line. They could want to contemplate making different tax funds as properly, even for objects in dispute, to chop off the continued accumulation of curiosity and penalties ought to the IRS in the end win on the disputed points.
Ought to the shutdown proceed for a while — as appeared attainable as we went to press — it is usually probably that the problems mentioned above will proceed for some time frame after the shutdown ends. Following the COVID shutdown, the IRS required many months to get by way of the stacks of correspondence that had collected unread. Particularly with a decreased employees, taxpayers ought to anticipate the likelihood that these slowdowns will proceed for a time frame considerably in proportion to the interval of the shutdown.
Abstract
Hopefully, by the point that this column is being learn, the shutdown shall be over and lots of the furloughed IRS workers could have returned to work.
It’s nonetheless probably, nonetheless, that the consequences of the decreased employees, decreased funding, and the shutdown shall be felt in the course of the 2026 tax submitting season and maybe past.
