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IRS Faces Perfect Storm of Funding Cuts and Mass Exodus During Peak Tax Season

MarketDash Editorial Team
17 days ago
Former IRS commissioners are sounding the alarm about an agency in crisis mode—with over 25,000 employees gone, funding running dry, and another shutdown looming just as tax season hits full stride.

If you're planning to file your taxes soon, brace yourself. Former IRS commissioners are warning that the agency could be heading into one of its rockiest filing seasons yet—and it's not hard to see why.

Terrible Timing for Another Shutdown

The IRS barely recovered from 2025's longest government shutdown, but lawmakers only funded operations through January 30, 2026. That means another funding cliff is approaching right as tax season kicks into high gear. Former commissioner John Koskinen didn't mince words when speaking to the Journal of Accountancy, a publication from the Association of International Certified Professional Accountants.

"It would be, I think, disaster to do it again on Jan. 31," he said. "You can't imagine a worse time to have a shutdown than the end of January."

The timing really is brutal. The IRS opened the 2025 filing season on January 27 and expects more than 140 million returns by the April 15 deadline. A Treasury inspector general report showed the agency processed 144.8 million returns last season and even beat its 85% telephone service target—back when it actually had people answering phones.

Danny Werfel, who served as commissioner from 2023 to early 2025, emphasized that if the money runs out, the IRS needs to be crystal clear about which services remain available. "It will be important more than ever to have good transparency with all the stakeholders—obviously, the tax-filing public, the preparers, the lawyers, the accountants," Werfel said.

The Great IRS Exodus

Here's where things get really concerning. IRS records show approximately 25,386 employees left in 2025 through buyouts or other separations—that's more than a quarter of the entire workforce walking out the door. Former acting commissioner Doug O'Donnell pointed out that the Trump administration's One Big Beautiful Bill Act makes this year "particularly complicated" and "creates a lot of challenges for tens of millions of individuals." Translation: people are going to need more help from an agency that just lost a huge chunk of its staff.

Running on Empty

Werfel revealed that during the last shutdown, the IRS tapped Inflation Reduction Act funding to keep some operations limping along. But that safety net is shrinking fast. The Treasury Inspector General for Tax Administration reports that Congress has whittled that supplemental funding down to about $37.6 billion available through 2031.

Meanwhile, National Taxpayer Advocate Erin Collins said her office completely shut down during the funding lapse and came back to find a backlog that's growing by roughly 5,000 new cases every single week. Her message to practitioners and taxpayers? "Please be patient."

Patience might be in short supply this filing season, especially if Congress can't figure out how to keep the lights on past January 30.

Back to News

IRS Faces Perfect Storm of Funding Cuts and Mass Exodus During Peak Tax Season

MarketDash Editorial Team
17 days ago
Former IRS commissioners are sounding the alarm about an agency in crisis mode—with over 25,000 employees gone, funding running dry, and another shutdown looming just as tax season hits full stride.

If you're planning to file your taxes soon, brace yourself. Former IRS commissioners are warning that the agency could be heading into one of its rockiest filing seasons yet—and it's not hard to see why.

Terrible Timing for Another Shutdown

The IRS barely recovered from 2025's longest government shutdown, but lawmakers only funded operations through January 30, 2026. That means another funding cliff is approaching right as tax season kicks into high gear. Former commissioner John Koskinen didn't mince words when speaking to the Journal of Accountancy, a publication from the Association of International Certified Professional Accountants.

"It would be, I think, disaster to do it again on Jan. 31," he said. "You can't imagine a worse time to have a shutdown than the end of January."

The timing really is brutal. The IRS opened the 2025 filing season on January 27 and expects more than 140 million returns by the April 15 deadline. A Treasury inspector general report showed the agency processed 144.8 million returns last season and even beat its 85% telephone service target—back when it actually had people answering phones.

Danny Werfel, who served as commissioner from 2023 to early 2025, emphasized that if the money runs out, the IRS needs to be crystal clear about which services remain available. "It will be important more than ever to have good transparency with all the stakeholders—obviously, the tax-filing public, the preparers, the lawyers, the accountants," Werfel said.

The Great IRS Exodus

Here's where things get really concerning. IRS records show approximately 25,386 employees left in 2025 through buyouts or other separations—that's more than a quarter of the entire workforce walking out the door. Former acting commissioner Doug O'Donnell pointed out that the Trump administration's One Big Beautiful Bill Act makes this year "particularly complicated" and "creates a lot of challenges for tens of millions of individuals." Translation: people are going to need more help from an agency that just lost a huge chunk of its staff.

Running on Empty

Werfel revealed that during the last shutdown, the IRS tapped Inflation Reduction Act funding to keep some operations limping along. But that safety net is shrinking fast. The Treasury Inspector General for Tax Administration reports that Congress has whittled that supplemental funding down to about $37.6 billion available through 2031.

Meanwhile, National Taxpayer Advocate Erin Collins said her office completely shut down during the funding lapse and came back to find a backlog that's growing by roughly 5,000 new cases every single week. Her message to practitioners and taxpayers? "Please be patient."

Patience might be in short supply this filing season, especially if Congress can't figure out how to keep the lights on past January 30.