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An IRS Navigates Tax Season with Fewer Workers, New GOP Tax Breaks, and Growing Reliance on AI
The U.S. Internal Revenue Service faces its latest challenge: navigating another tax season in a Republican-dominated Washington.
The IRS has cycled through seven agency heads in the year since President Donald Trump returned to the Oval Office last year. It has roughly 20% fewer employees than at the end of October 2024, a product of mass layoffs and resignations. Furthermore, the IRS is depleting a Biden-era cash infusion that once totaled $80 billion, which had allowed it to improve taxpayer services and pursue tax evasion cases.
“This entire year has been a stress test for the IRS,” said Andrew Lautz, director of tax policy at the Bipartisan Policy Center think tank.
One of the IRS's main tasks is implementing the slate of new tax policies Trump signed last year, such as no tax on tips and overtime pay, as well as an expanded standard deduction for seniors. Republicans hope the tax breaks will lead to bigger refunds reaching families and provide a political boost ahead of November's midterm elections.
Indeed, the White House on Monday staged a Doordash delivery in which Trump gave a $100 tip to a driver for a McDonald's order to highlight the no-tax-on-tips policy, which allows some workers in certain professions to exempt up to $25,000 in tip income.
That might not even be the most popular tax measure among Americans so far. More than one in five tax filers is claiming the no-tax-on-overtime deduction, according to the Wall Street Journal. Frank Bisignano, IRS commissioner, told Congress last month that over 40% of tax returns claimed at least one of the new GOP policies.
A Smaller IRS Leaning More on AI
If Trump gets his way, the IRS will continue to shrink in line with long-standing Republican goals to reduce its footprint. The White House's annual budget request to Congress would allot $9.8 billion for fiscal year 2027, a $1.4 billion cut from the $11.2 billion the IRS received for the current fiscal year.
The deep cuts also threaten the IRS's ability to leverage artificial intelligence in the years ahead, compounding the difficulties of modernizing tax administration in an agency that often relies on outdated technology.
Even so, AI is booming within the IRS. The Government Accountability Office reported last month that the IRS had logged 126 instances where AI was being used to fulfill its responsibilities—more than ten times the mere 10 instances in June 2022. The majority of these tasks focused on improving tax compliance and detecting fraud.
“Major staffing reductions at IRS in 2025 could greatly affect its ability to use AI,” the GAO said in its report. It noted that the IRS’s Research, Applied Analytics, and Statistics department reported losing 63 employees who worked full- or part-time on AI development.
An IRS official—not AI—still has the final say for audits. Early IRS data shows audits of tax filers with income of at least $10 million have been cut in half during fiscal 2025 compared to the prior year.
Bipartisan Support for Modernization Amid Cuts
Despite Republican attempts to slash IRS funding, there remains bipartisan support for strengthening the tax-collection agency's capacity to serve taxpayers. Senators Ron Wyden of Oregon and Mike Crapo of Idaho released a legislative package in late February to continue modernizing the agency.
“The process of filing your tax return and receiving your refund should be simple and fast,” Crapo said at the time. Part of the reforms focused on upgrading the IRS to allow taxpayers to pinpoint the exact date of their refunds.
"There are areas like taxpayer services and modernization where both parties have been willing to fund and even increase funding for the IRS in recent years," said Lautz. "Enforcement remains a big partisan divide in recent years."
Trump has left his mark on the U.S. tax-collection agency. Most Democrats still support a robust IRS, although lawmakers are rolling out proposals to eliminate the federal income tax entirely for low-income taxpayers.
Source: Read the original article | Published: April 17, 2026