IRS Advisory Council blasts defunding of agency

The Internal Revenue Service Advisory Council issued its annual report Wednesday after a turbulent year at the agency, criticizing the repeated funding cuts and staffing cuts at the agency, amid a revolving door of commissioners at the top.

"After years of inadequate funding that resulted in an IRS constrained by budget issues, unable to reliably answer telephone calls, process tax returns in a timely fashion, update technology, or even open their mail, in 2022 Congress passed the Inflation Reduction Act (IRA, P.L. 117-169), providing an $80 billion infusion of funding to bring the IRS' technology and processes into the 21st Century," said the report, but then citing the roughly $42 billion in funding that has been rescinded since 2023.

"In total, more than half of the Inflation Reduction Act funding has been rescinded, including nearly all funding for enforcement," the report continued. "The cumulative effect of these rescissions has significantly impacted the IRS' ability to conduct many of the improvements that were outlined in the Strategic Operating Plan (SOP) developed to guide the use of the $80 billion funding infusion from the IRA. The SOP, which has been paused in the face of funding rescissions and workforce reductions, targeted investments to the highest-priority areas for transformational change for taxpayers."

The report noted that the increased funding from the Inflation Reduction Act of 2022 provided a temporary morale boost and hiring spree before the extensive cutbacks in the following years.

"The new face of the IRS helped to attract a new set of highly-skilled workers that were better able to deliver services to taxpayers," the report said. "The IRS subsequently was ordered to dismiss its newest workers still in their probationary period, and the Department of Government Efficiency (DOGE) implemented several workforce reduction programs, such as the Voluntary Early Retirement Authority (VERA), reductions in force (RIFs), and deferred resignation programs for federal employees broadly and for Treasury Department employees specifically. Overall, the IRS has lost more than 25% of its workforce in addition to the funding rescissions."

IRS employees will be needed to help implement the various provisions of the One Big Beautiful Bill Act that was passed last year, the report noted.

"The legislation includes more than 100 tax law changes," said the report. "Almost all changes to the tax code require the IRS to issue guidance, prepare its workforce, and modify its technology systems and processes to accommodate the changes. All of this must be done in an era of budget cuts, suspended investments in planned technology due to rescissions, and a massive loss of workers, including the departure of more than 2,000 IT workers since January 2025."

The report recommended better funding for IRS operations, along with suggestions for educating the public about the IRS mission, updating and improving IRS websites, accounting method change requests, simplification of online tax services, and processing of Form 730 and excise tax payments.

It noted that fiscal year 2026 appropriations had not been finalized at the time when the report was being written, but further cuts to IRS funding are under consideration. Under the bipartisan funding legislation that was released Sunday, the IRS would receive $11.2 billion, a 9% decrease from last year's $12.3 billion, according to CNBC, but a less draconian cut than was originally proposed by House Republicans or the 20% funding cut proposed by the Trump administration. For taxpayer service, the $3 billion allocated would actually include an increase of $256 million. However, the budget would reduce IRS enforcement funding by $439 million to just under $5 billion.

The IRSAC report noted that tax professionals consistently face prolonged wait times and service delays when contacting the IRS Practitioner Priority Service, particularly during peak filing seasons. 

This past summer, IRSAC conducted a survey asking about a live chat option for tax professionals. Its subcommittee received feedback from over 115 tax professionals, including tax attorneys, CPAs, Enrolled Agents and unenrolled preparers. Over 60% of the survey respondents said they wait more than 30 minutes to speak with a customer service agent during tax season. 

"These delays not only reduce practitioner efficiency but also increase the likelihood of abandoned or disconnected calls, ultimately compromising client service, resolution timelines and producing frustration on behalf of the tax professional, and ultimately also their clients," said the report. "To address these issues, tax professionals overwhelmingly support the implementation of a live chat feature within the IRS Practitioner Priority Service (PPS). This recommendation is rooted in the need to modernize service delivery and reduce strain on call centers. Live chat allows for the 'one-to-many' communication approach."

The report noted that IRS tax assistors could eventually handle multiple practitioner inquiries simultaneously if taxpayer data were systematically protected appropriately to mitigate inadvertent disclosures. Such a model could increase capacity without proportionally increasing staff, offering a cost-effective solution, improving responsiveness and reducing abandoned or disconnected calls.  

The report includes recommendations on dozens of other issues and topics. 

"IRSAC members have devoted significant time and expertise to analyzing complex tax administration and the transformation work underway across the IRS," said IRS CEO and Social Security Administration commissioner Frank Bisignano in a statement. "We appreciate their thoughtful recommendations, and we look forward to reviewing the insights provided in the 2025 report."