When you lose a quarter of your workforce in four months, you have two choices: admit defeat or get creative. The IRS is choosing option two, and the solution involves a lot of artificial intelligence.
According to an October report from the Treasury Inspector General for Tax Administration, the IRS workforce dropped from 103,000 employees to roughly 77,000 between January and May. That's a staggering 25% reduction in headcount, and now the agency is turning to AI to plug the holes left behind.
The report notes that the IRS has "used AI to improve the efficiency and effectiveness of audits. For example, the IRS integrated statistical and machine-learning techniques into the process used to select tax returns for audit." In other words, algorithms are now helping decide who gets audited.
AI Agents Join the Team
Beyond audit selection, the IRS is deploying Salesforce (CRM)'s Agentforce AI agent platform across several critical divisions, including the Office of Chief Counsel, Taxpayer Advocate Services, and the Office of Appeals, according to Axios. These aren't back-office filing departments. They handle complex casework, taxpayer disputes, and assistance services where human judgment typically matters most.
"The aim of the tech is to help overworked IRS agents get through customer requests more quickly and efficiently," Salesforce Executive Vice President of Global Public Sector Solutions Paul Tatum told Axios. But he was quick to add guardrails: the AI won't make final decisions or handle taxpayer money. "There's a lot of guardrails put in ... [they're not] allowed to make final decisions, they're not allowed to disperse funds."
Tatum emphasized that Salesforce "doesn't advocate for a blind AI processing tax returns without a human being involved in reviewing and supplementing it." The technology's role is more supportive: summarizing cases, searching through documents, and streamlining tasks that eat up employee time.
The Cost of Cuts
The workforce reductions were driven by Tesla (TSLA) CEO Elon Musk, who led the now-disbanded Department of Government Efficiency earlier this year. The agency faced not just layoffs but also furloughs during a government shutdown and had taxpayer data pulled.
The damage to enforcement capacity is significant. The IRS has reportedly lost one-third of its tax auditors compared to last year. That's a problem when you consider that auditing the top 0.1% of earners can return up to $26 for every $1 spent, according to an analysis by Better IRS. Fewer auditors means less revenue recovery, which means a bigger deficit.
Embrace It or Leave
Not everyone at the IRS was initially thrilled about AI. Rob Fitzpatrick, a senior-level counsel for technology in the Office of Chief Counsel and a 38-year IRS veteran, told Axios he resisted the technology at first. But he changed his tune.
"It would be negligence if I didn't start now using those AI tools to take our automation and now go head-to-head with some of the law firms," Fitzpatrick said. His concern: without AI, the IRS simply can't compete with the sophisticated legal teams representing wealthy taxpayers.
Fitzpatrick sees AI adoption as inevitable and believes the real question is whether to get on board or get left behind. "I think all of us have to realize that the change is coming," he told Axios. "You either have to adopt the change and make yourself more efficient so that you can produce more work, or you don't, and you leave."
Whether AI can truly compensate for thousands of lost employees or whether taxpayers will face new frustrations dealing with automated systems remains an open question. But for an agency that just lost a quarter of its people, doing nothing wasn't an option.