The Internal Revenue Service (IRS), part of the Department of the Treasury, is the federal agency responsible for administering and enforcing federal tax laws. It is currently facing significant challenges due to budget cuts implemented by President Trump.
IRS Staffing Cuts Highlighted in Inspector General Report
The Treasury Inspector General for Tax Administration (TIGTA) publishes reports that provide insight into the operations of the IRS. On July 18, 2025, TIGTA released report number 2025-IE-R027.
The report reveals that the IRS employed 103,000 people at the beginning of 2025. By May, 26,000 of those employees had left or will soon leave, reducing the agency’s workforce to 77,000—an attrition that will take place over just seven months (IRS data table).
One Big Beautiful Bill Introduces Sweeping Tax Changes
Congress passed—and President Trump signed into law—One Big Beautiful Bill (OBBB), officially titled An Act to Provide for Reconciliation Pursuant to Title II of H. Con. Res. 14 (full bill text).
OBBB is a comprehensive tax overhaul passed solely with Republican votes through the Senate reconciliation process. It includes numerous complex tax and non-tax provisions, which will:
- Require the IRS to issue a large volume of guidance quickly
- Mandate the creation of new forms and instructions
- Challenge payroll providers, employers, and tax professionals with new rules on tips and overtime
- Demand significant time and expertise from tax professionals to learn the new rules and provide proactive tax planning for clients
The Legacy of the Inflation Reduction Act
On Aug. 16, 2022, President Biden and Congress passed the Inflation Reduction Act (IRA), which increased IRS funding by $80 billion over 10 years. Later acts of Congress reduced this amount to $38 billion.
TIGTA tracked the IRS’s use of these funds. As of Sept. 30, 2024, the IRS had spent only $9 billion. Of that amount, $2 billion went toward regular annual operating expenses due to shortfalls in its base budget (TIGTA March 2025 report).
The intent of this funding was to modernize the IRS and to increase enforcement on higher income taxpayers.
Treasury Requests Less IRS Funding in 2026
On May 30, 2025, the Department of the Treasury submitted its budget request for fiscal year 2026, calling for a 20% funding reduction compared to the prior year. Excluding IRA-related funds, the Treasury is requesting $12 billion for 2026, down from $13.2 billion in 2025.
Additionally, the department has asked Congress to rescind another $17 billion of the IRA funding, leaving just $21 billion available—more than half of which has already been spent (Treasury FY 2026 budget request).
Congress Proposes Even Deeper Cuts
House Republicans on the Appropriations Committee have introduced a proposal to cut another $2.8 billion from the IRS budget for 2026—above and beyond the Treasury’s request. If enacted, this would reduce the IRS budget to levels not seen since 2002 (Bloomberg report). The tax code the IRS is required to enforce is much larger and more complicated than it was in 2002.
Mounting Challenges for the IRS
The IRS faces several challenges heading into the next filing season:
- The current commissioner is the fifth person to hold the position this year
- A large number of experienced employees have left or will soon leave
- The agency’s budget is shrinking
- Most of the IRA funding has been rescinded
- Around 25% of the IRS workforce will be gone by Sept. 30, 2025
- OBBB’s complexity demands significant administrative effort in a short time
The new IRS commissioner recently stated that the 2026 tax filing season will likely begin around Feb. 16. This indicates the IRS realizes next filing season will be difficult.
What Taxpayers Can Do Now
The upcoming tax season will likely be difficult for the IRS, taxpayers, and tax professionals alike. Here are steps individuals and families can take to prepare:
- Use the IRS’s guide to choose a qualified tax preparer
- File electronically whenever possible
- Submit returns early if you’ve received all necessary documents
- File for an extension if needed—just ensure taxes are paid by April 15
- Hire a professional to assist with tax planning throughout the year to reduce income taxes and avoid surprises
Looking Ahead
President Trump and he Trump administration are implementing major changes to the IRS. The real impact of these shifts will become clearer in the year to come. Many tax professionals expect the next filing season to be quite challenging.