IRS Watchdog Highlights Challenges Ahead for Tax Season

The IRS Watchdog has issued a warning that taxpayers might encounter difficulties in the upcoming filing season.

Erin Collins, the national taxpayer advocate, noted in a recent report that this year’s application season was “largely successful.” Yet, she cautioned that delays could plague the 2026 filing season due to significant job cuts.

The report revealed that the IRS workforce was reduced by 26% during the Trump administration. With agencies currently adapting their IT systems for the next filing season, they may face increased workloads if Congress approves a budget adjustment that alters tax laws significantly.

“The 2025 filing season was one of the most successful in recent memory,” Collins commented. “However, given the workforce reduction and impending tax law changes, there’s a risk for next year. The IRS must prepare adequately.”

From January to June, the IRS’s staffing levels dropped from 102,000 employees to under 76,000, partly due to employees accepting postponed resignations.

Collins mentioned that this year’s application season has generally been smooth for taxpayers, thanks to the IRS’s prior preparations and its largest workforce in years. Additionally, agents had not to deal with any significant changes in tax laws during this season.

“Moving forward, taxpayers could see more challenges,” Collins wrote.

Former IRS commissioner Danny Werfel highlighted in a briefing that the increase in staffing during his tenure helped improve customer service metrics and clear much of the agency’s paper backlog.

He outlined strategic operational plans indicating that the IRS aims to keep its IT modernization projects on track utilizing substantial funding from inflation reduction methods.

The modernization plan includes implementing AI tools in call centers to further digitize processes that have been traditionally paper-based.

Werfel expressed concerns regarding the previous administration’s strategy to “hasten automation at the IRS while instituting immediate workforce cuts.”

He emphasized that the IT modernization plan does not include immediate staff reductions, proposing instead to allow new automation tools to take hold before considering cuts.

“If we cut staff concurrently, it doesn’t just slow down the pace of digital solutions,” he remarked. “For those needing help, it creates more stress and headaches.”

Treasury Secretary Scott Bescent informed the House Budget Committee that the incoming “AI boom” will assist the IRS in managing workloads amid significant cutbacks.

Former IRS Commissioner John Koskinen countered, saying it would be impossible to compensate for the loss of thousands of employees, especially in IT, by the next filing season.

“Despite the dedication of IRS employees in the next filing season, my concern is that taxpayer services, revenue collection, and trust in the agency could suffer significantly,” Koskinen stated.

On another note, Senate Republicans plan to pass a substantial bill by July 4, which would extend tax cuts and introduce further tax law changes. Although many changes won’t take effect until January 2026, Collins suggests that some provisions affecting millions could be enacted in 2025.

“This would introduce additional complexities for taxpayers during the 2025 returns filed in the 2026 season, further complicating future filings. A 25% reduction in IRS staffing could negatively impact taxpayer services,” Collins noted.

The report found that many experienced leaders at the IRS have left due to the resignation offers. Approximately 4,000 accepted the first, and over 23,000 applied for a second offer, with around 18,000 of those accepted.

Collins commented that this has left fewer frontline staff and managers, diminishing the agency’s effectiveness.

Nina Olson, a former national taxpayer advocate now leading the Centre for Taxpayer Rights, expressed that these layoffs could harm workforce morale and hinder taxpayers from getting timely help from government services.

“The frustration lies in the inability to provide urgent assistance to taxpayers,” Olson said, comparing this to viewing tax employee issues as part of fraud, waste, and abuse.

The IRS is seeking further workforce reductions in its upcoming budget request, aiming to decrease its staffing from about 97,000 to 78,000—around a 20% cut.

The budget is proposed to dip from over $22 billion to approximately $14 billion, a 37% decrease. A federal news network first revealed plans for a potential 40% staff reduction.

Collins remarked that such downsizing will likely impact taxpayers and revenue collection.

According to the Yale Budget Lab Project, these staff cuts could result in an estimated loss of $159 billion in revenue over the coming decade.

“It’s true that the smaller IRS will have fewer staff, but these savings pale in comparison to the tax revenue losses from a fully functioning IRS,” she added.

The 2026 budget plan suggests a 60% cut in IRS technology and operational support staffing, along with nearly 40% in spending reductions. As of June, IRS employees are already gearing up for the next filing season, which will only become more demanding if tax laws are modified by Congress.

Collins warned of “operational risks” looming over the next filing season, as her report noted that the IRS cut 27% of its IT staff and 22% of taxpayer service employees.

IRS Chief Information Officer Kaschit Pandya recently stated that his office requires a “reset and reassessment,” given that over 2,000 IT personnel have left since January. He mentioned informal restructuring plans in response to these staffing reductions.

Collins cautioned that delays in modernization projects could jeopardize the following year’s filing season.

“For taxpayers and the nation, it is crucial that the IRS avoids the mistakes of the 1985 filing season—an unfortunate episode of rushed implementation and inadequate IT capabilities leading to widespread service failures,” Collins highlighted. “That year the IRS hastily executed a technical plan, unraveling numerous complexities, which initiated cascading issues.”

She urged the IRS to hire and train thousands of new taxpayer service employees ahead of the 2026 application season.

The Treasury stated in its budget proposal for 2026 that more than 11,000 call center staff will need to be hired to maintain current telephone service levels for taxpayers.

The agency is requesting $852 million to support these hires and implement automation tools for better customer service.

“Given potential legal changes and existing staffing challenges, early preparation is vital to ensure effective taxpayer services and secure operations come the 2026 filing season,” Collins stated.

This filing season, the IRS managed to respond to about 87% of nearly 9 million incoming calls, with an average wait time of three minutes. Without the requested funds, the IRS warned that only 16% of calls might be answered during the next tax return season, dropping to just 11% for 2026.

Collins also pointed out that the IRS is dealing with cases of possible identity theft at a “glacial pace.” In some instances, fraudsters use someone else’s information to file returns, while the IRS flags millions of returns as potentially fraudulent, requiring taxpayers to verify their identities before receiving refunds.

Resolving these identity theft cases typically takes about 20 months.

“These delays impact vulnerable groups who depend on refunds for everyday necessities,” Collins noted, citing that in 2023, nearly 70% of flagged taxpayers fell below the federal poverty line.