Top Treasury officials are telling Congress that the IRS pulled off a remarkable feat — carrying out a busier-than-usual filing season with a much smaller workforce.
But the Trump administration is still pursuing further workforce and budget cuts for the IRS next year.
Officials overseeing the IRS say the agency’s long-anticipated investments in technology are paying off, and its adoption of artificial intelligence and automation tools means the agency can do more with less.
So far, Republicans on the House Appropriations Committee are on board with additional cuts to the IRS budget. Congress is still in the early stages of drafting a spending plan for next year.
The Treasury Department’s budget request for fiscal 2027 calls for a $1.4 billion budget from the current IRS budget and eliminating nearly 2,000 positions from its total headcount. IRS enforcement would bear the brunt of these spending and job cuts.
Treasury Secretary Scott Bessent told members of the Senate Appropriations Committee that the IRS can still meet the needs of taxpayers with more spending and staffing cuts because long-anticipated technology improvements are making the agency more efficient.
“Although the request for IRS represents a modest decrease, we are still able to maintain current services and implement new initiatives aimed at improving customer experience and making tax compliance easier,” Bessent told the Financial Services and General Government Subcommittee on Wednesday.
IRS Chief Executive Officer Frank Bisignano told the Senate Finance Committee last week that this was the “most successful filing season in IRS history.” Despite losing 27% of its workforce last year and falling short of hiring goals for the filing season, Bisignano told senators that the agency demonstrated that it could have both “less people and better results.”
“Democrats said that the filing season was going to be a disaster. It’s been a home run,” Bessent said.
Bessent said the IRS had to rehire some employees who left the agency last year, but stressed that artificial intelligence and automation tools are making its workforce more productive.
“We hired some people back in specific areas,” he said. “It was not a bunch of them, and we have made very large gains in technology.”
Bessent said that with new tools in place, the IRS is flagging potential errors or omissions on tax returns and giving taxpayers an opportunity to correct them.
“Using electronic filing, [we] can go back to a taxpayer and say that, ‘You will likely be audited if you submit this tax return. Would you like to redo it in advance?’ And it comes back in a much more satisfactory status and prevents audit increases, increases revenues,” he said.
Bessent said the IRS is close to achieving some of the long-term goals of its IT modernization efforts.
The IRS is working on Taxpayer 360, a long-awaited project that would allow employees to pull up a complete record of a taxpayer’s interactions with the IRS when they call the agency looking for help.
Bessent said this project addresses about a dozen legacy systems that “were not able to talk to each other.” Modernized systems at the IRS, he added, “will result in better collections, better privacy … and a much better taxpayer experience.”
“Our increased focus on digital-first taxpayer experience has resulted in lower call volumes as taxpayers increasingly find the information they need online,” he said.
The IRS received a nearly $80 billion windfall of multi-year modernization funds in the 2022 Inflation Reduction Act. But those funds have been nearly exhausted, after being repeatedly cut by Republican lawmakers. The Treasury Department estimates that the Inflation Reduction Act funds will be depleted in FY 2028.
Back in the 1990s, the IRS asked Congress for long-term IT modernization funding but those efforts fell short of expectations.
“I think that $50 billion has gone down the drain in terms of overspending in technology at the IRS. The upgrade program has been going on since the 90s. I think we finally have a handle on it,” Bessent said.
Subcommittee Chairman Bill Hagerty (R-Tenn.) applauded the IRS for its performance during this year’s filing season, which required the agency to create new guidance, update its IT systems, and ensure that taxpayers comply with these changes.
“I was pleased to see that this budget does not focus on maintaining the status quo. Rather, it addresses the department’s responsibility to implement these major policy reforms, and it ensures that Treasury has the tools needed to carry them out efficiently.”
Subcommittee Ranking Member Jack Reed (D-R.I.) said that cutting IRS enforcement staffing and funding “costs American taxpayers and helps tax dodgers.”
“You come from the business world, and no successful company would underinvest in its revenue collection mechanism,” Reed said.
House Republicans are proposing a billion-dollar cut to IRS funding next year. A fiscal 2027 spending bill introduced by members of the House Appropriations Committee would give the IRS a $10.2 billion budget. The IRS currently has a $11.2 billion budget.
Funding for public-facing taxpayer services would remain untouched, but IRS enforcement would seek the deepest cuts under the plan from House Republicans.
During the markup hearing of this spending bill on Tuesday, Rep. Steny Hoyer (D-Md.) said Treasury and IRS officials are counting too much on AI to carry out work that used to be done by IRS employees.
“Maybe we’ll get AI to a place where they can do it. The current IRS commissioner will say, ‘Well, we’re going to get there.’ But they haven’t gotten there yet. You should not cut accounts receivable until you get to a place where it is an effective collection for monies owed,” Hoyer said.
Rep. David Joyce (R-Ohio) said the draft spending bill continues to give the IRS broad transfer authority to use its Inflation Reduction Act funds to cover shortfalls in its annual budget.
“If the IRS needs it, it can use the remaining IRA money to support its activities,” Joyce said.
The Treasury Inspector General for Tax Administration recently reported that the IRS has spent $15.7 billion, or about 60% of the $26 billion in remaining IRA funding.
According to the Treasury’s budget justification, the IRS is currently using the Inflation Reduction Fund to pay more than 7,500 employees, but expects those modernization funds would only cover the salaries of about 1,600 employees in FY 2027.
Former IRS Commissioner Danny Werfel told reporters in May 2024 that if the IRS ran out of Inflation Reduction Act funds, the agency would have to consider layoffs or reducing its headcount through attrition.
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