Ensuring the shrinking Internal Revenue Service successfully implements the substantial legislation, the 'Grand, Attractive Act' recently passed by Congress.
The recently passed "One Big Beautiful Bill" has introduced significant tax changes, including extensions and expansions of the 2017 Trump tax cuts, which are expected to reduce federal revenues by approximately $4.4 trillion over the next decade. While this legislation impacts tax policy broadly, its direct effect on the Internal Revenue Service (IRS) workforce and operational capacity is a cause for concern.
The IRS has been grappling with a severe staffing decline, losing more than a quarter of its employees since the start of 2025. The agency is also facing a $20 billion reduction in special funding and a proposed $2.2 billion annual budget cut, threatening its ability to maintain services, process tax refunds timely, and implement modernization efforts.
The staffing cuts and reduced budget undermine the IRS's capacity to handle the upcoming tax filing season effectively. The bill's complexity, including numerous changes to tax provisions, requires the IRS to adapt its systems and provide updated guidance to taxpayers and tax professionals. Given these changes, the IRS will face increased burdens in taxpayer assistance and compliance enforcement while simultaneously contending with diminished human and financial resources.
Without additional funding or staffing restoration, the IRS may struggle with customer service responsiveness, timely processing of returns and refunds, and managing the implementation of the tax code changes embedded in the reconciliation bill. This scenario raises concerns about potential delays and reduced quality of taxpayer support during the next filing season.
In an effort to address these challenges, the Treasury Department needs to hire more than 11,000 call center representatives to maintain current phone service to taxpayers. The IRS will also need to rapidly hire and train thousands of new taxpayer services employees before the 2026 filing season. However, the IRS has already lost more than 2,000 IT employees since January, and Acting IRS Chief Information Officer Kaschit Pandya is planning an informal reorganization of IRS operations due to staffing cuts.
The budget reconciliation bill also directs the Treasury Department to launch a task force focused on finding a replacement for Direct File, a free, online tax filing platform. The department will determine whether taxpayers prefer a taxpayer-funded, government-run service or a free service provided by the private sector. The final bill gives the Treasury Department $15 million to research alternatives to Direct File that would allow up to 70% of all taxpayers to file their tax returns for free.
Former IRS Commissioners Larry Gibbs and John Koskinen have expressed concern about the increased workload due to the changes in the tax code. National Taxpayer Advocate Erin Collins warned about potential delays during next year's filing season due to major staffing cuts and tax law changes. Collins also warned that if IT modernization projects fall behind schedule, IRS staffing cuts could jeopardize the success of next year's filing season.
In conclusion, the budget reconciliation bill’s tax changes add complexity to the IRS’s workload just as the agency is coping with significant workforce reductions and budget cuts. These factors collectively impair the IRS's ability to efficiently manage the next tax filing season, posing risks of service disruptions and processing delays.
The budget reconciliation bill's implications extend to the finance sector, as the Internal Revenue Service (IRS) is faced with an increased workload due to tax changes, while simultaneously dealing with a staffing decline of more than a quarter since 2025. Furthermore, the IRS is confronted with a $20 billion special funding reduction and a proposed $2.2 billion annual budget cut, which threatens its ability to maintain services, process tax refunds in a timely manner, and implement modernization efforts during the upcoming business season.
