A report dated May 2, 2025, from the Treasury Inspector General for Tax Administration (TIGTA) examined the impact of IRS workforce reductions, primarily attributed to initiatives led by the Department of Government Efficiency (DOGE). About 7,300 probationary employees were terminated. The IRS had hired most of these people from an increase in funding under the Biden administration’s Inflation Reduction Act of 2022. An additional 4,128 IRS employees were approved for a deferred resignation program (DRP). The DRP allowed federal employees to voluntarily resign with pay through Sept. 30, 2025. More than 3,600 revenue agents were among those leaving, leading to concerns about tax compliance in the future. A May 22, 2025, article at accountingtoday.com wryly surmised that this must be the best time in the history of the income tax and the IRS for tax cheats.
TIGTA subsequently reported that because critical filing season positions were exempt from the cuts through June 30, 2025, there was no significant impact on the 2025 filing season. However, concern was expressed about how further reductions in processing and customer service positions would impact the 2026 filing season. Similarly, Erin Collins, the National Taxpayer Advocate, in her midyear report to Congress said the 2025 filing season generally went smoothly for taxpayers. Collins attributed this to the IRS doing extensive work in advance and having had its largest workforce in recent years. She added, however, that the agency did not have to implement any significant tax law changes during the filing season.
In an Oct. 15, 2025, report, TIGTA detailed that the number of IRS employees decreased from about 103,000 to 77,000, a reduction of over 25%. The employees represented all experience levels, and their departures affected every function within the IRS. With respect to IRS funding, the Inflation Reduction Act provided nearly $80 billion in supplemental funding over a 10-year period. Congress subsequently reduced the agency’s funding to $37.6 billion. As of March 2025, the IRS had spent $13.8 billion of the remaining funds.
Danny Werfel was the IRS commissioner from March 13, 2023, until the end of the Biden administration. He has been recognized for his effective management of the extra Inflation Reduction Act funding, which helped restore strong taxpayer service and clear most of the agency’s backlog of paper documents. In addition, he spearheaded the effort to modernize the agency's aging technological infrastructure using the additional funding. Under his plan, the IRS anticipated rolling out artificial intelligence tools at call centers and digitizing more paper-based processes. Werfel hoped to give new automation tools time to operate effectively before considering staff reductions. However, the agency’s IT workforce has since been reduced by 27%, and he believes progress has stalled. This is a significant concern given the IRS relies on IT staff to reprogram systems for changes in the tax law, causing further delays in the so-called Zero Paper Initiative.
Throughout 2025, the IRS has had a revolving door of leadership, with current acting commissioner (and Treasury Secretary) Scott Bessent being the seventh person to lead the agency since the start of the year. This turnover at the top likely will not help the quality of tax administration and certainly hinders consistency and strategic planning. For fiscal year 2026, the Trump administration proposed an IRS budget of $9.8 billion – a roughly 20% cut to its discretionary funding – while also proposing to significantly reduce or eliminate remaining funds from the Inflation Reduction Act. The House proposed a slightly deeper cut, advancing a bill for a $9.5 billion budget, and rejected the administration’s request for additional funding for taxpayer services.
Then came the government shutdown. In an Oct. 9 memorandum to Acting IRS Commissioner Bessent, the AICPA provided several recommendations and urged him to retain 100% of IRS employees during the shutdown. The memo concluded by noting that the IRS must keep all IRS positions working during the shutdown to help make the 2025 extended filing season operate as efficiently as possible and to allow for a smooth start to the 2026 filing season. In the end, the IRS provided limited services during the shutdown. Just under 40,000 employees worked during this period but essential staff remained on duty.
The One Big Beautiful Bill Act (OBBBA) was signed into law on July 4, 2025, and it is a massive piece of legislation. In addition to making many provisions of the 2017 Tax Cuts and Jobs Act permanent, it has created many new and complex tax provisions. Although several of the changes are effective in 2026, a significant number are effective for 2025. For individual taxpayers these include an additional deduction for those age 65 and older, the deduction for qualified tips and overtime pay, and the deduction for interest on loans for new, U.S.-assembled vehicles used for personal purposes. Each of these provisions has eligibility requirements, a ceiling on how much can be deducted, and phase-out requirements. Furthermore, because the 2025 Form W-2 and Form 1099 lack specific fields for reporting qualified tips and overtime, employers and payors were uncertain how to meet information reporting requirements. In October, the AICPA recommended that the Treasury and IRS provide immediate guidance and penalty relief, including safe harbors for the 2025 tax year, that allow for alternative reporting methods and documentation. To their credit, the Treasury and IRS responded by issuing Notice 2025-62 in November 2025, which provides penalty relief to employers and other payors for the 2025 tax year. This is just one issue that the OBBBA presents to a downsized IRS and does not consider all the business tax provisions that go into effect in 2025.
CPAs, other tax professionals, businesses, and individual taxpayers have endured several painful tax-filing seasons in recent years. The 2018 season (for 2017 filings) was notable because the Tax Cuts and Jobs Act passed on Dec. 22, 2017. The pandemic years of 2020-2022 were made more complicated by the passage of The American Rescue Plan, changing rules with little advance notice, and the IRS experiencing processing backlogs and staff shortages. Those shortages, however, may pale in comparison to what may be experienced in the upcoming busy season. Recognizing that the cuts in personnel may have been too drastic, the IRS reportedly has taken steps to reverse course, though on a rather small scale.
One event that could create a perfect storm among all the IRS difficulties is if Congress fails to pass a fiscal year 2026 budget by Jan. 30, 2026, and another government shutdown results. Perhaps this will not happen, but plan accordingly!
David D. Wagaman, CPA, is professor emeritus in accounting at Kutztown University and a member of the Pennsylvania CPA Journal Editorial Board. He can be reached at dwagaman@kutztown.edu.
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Statements of fact and opinion are the author's responsibility alone and do not imply an opinion on the part of the PICPA's officers or members. The information contained herein does not constitute accounting, legal, or professional advice. For actionable advice, you must engage or consult with a qualified professional.