December 17th, 2025
The IRS faced another challenging year with leadership changes, budget uncertainty, and new legislation; however, even when faced with these challenges, the IRS attempted to make as much progress as it could. The IRS strategically implemented tax law changes from the One Big Beautiful Bill Act (OBBBA), restructured modernization, and added a new leadership position. Just when it looked like the IRS may have made some progress, the IRS experienced significant delays due to the longest government shutdown in history. The IRS also ended the short-lived Direct File program and has unclear plans for future modernization and the IRS budget. These challenges leave the IRS heading into the next year a little bruised, a bit tired, and very much in need of a strong cup of coffee.
Leadership turnover was a major issue again. Several acting commissioners served before Billy Long took over midyear, and what looked like stability ended abruptly. Billy Long stepped down in less than two months, and once again, the IRS found itself in transition. In addition to Billy Long, additional senior staff left as the agency reorganized its principal divisions. These changes made it hard to keep essential projects on track and delayed both OBBBA guidance and planned modernization work.
To stabilize leadership, the Treasury approved Frank Bisignano as the first Chief Operating Executive (COE). The COE reports directly to the commissioner and will manage daily operations and keep programs aligned across taxpayer services, enforcement, and modernization. It’s an operational role meant to keep the IRS running smoothly even when leadership changes. The IRS is hopeful this new position will offer the stability they desperately need.
Staffing continued to be a problem. The Inflation Reduction Act brought some much-needed new employees to the agency; however, that increase quickly disappeared because of administrative staffing reductions, staff leaving the agency, and experienced employees retiring. Overall staffing dropped by about 26%, and service centers, call sites, and enforcement offices were short-staffed all year, leading to more delays and less outreach. By the end of the year, the agency was stretched so thin that even the break-room coffee seemed weak.
The October shutdown put the IRS staffing reductions on full display. Almost half the IRS workforce was furloughed, leaving only essential functions active. Refunds, audits, and most correspondence stopped cold. Even after Congress reached a deal and staff returned, significant reductions in IRS staffing continued, which slowed the IRS’s progress. The shutdown created additional backlogs that may persist through the new year. Despite these challenges, the IRS was able to maintain its basic service levels compared to last year and appears to be on track to bring operations back up to pre-shutdown levels.
An earlier in the year Government Accountability Office (GAO) report offered some promising findings, citing modest gains in phone service and paper return processing. But the GAO also noted that the IRS still doesn’t have a reliable way to measure taxpayer experience in a meaningful way. That continues to be a blind spot in how the agency defines success, one that makes taxpayers and practitioners skeptical of the reported gains.
After OBBBA was signed into law in July, the IRS shifted its focus to implementation but chose to proceed with caution. To reduce disruption and give the IRS time to provide guidance, the IRS announced that there would be no significant updates to withholding tables or information returns for tax year 2025. Taxpayers and practitioners know it’s far easier to adapt to steady change than to constant revisions midseason. Although the pace may be considerably slower than past implementations, the IRS focused its limited resources on clear communication and guidance, which was the right call, even though uncertainty can be stressful.
Progress toward IRS modernization in 2025 remained mixed. Due to staffing reductions, retirements, and personnel leaving the agency, the IRS has 27% fewer IT staff, which caused the IRS to once again refocus its modernization efforts. The IRS refocused its 2025 modernization efforts on achieving paperless processing, phasing out paper tax refunds in favor of electronic payments, and enhancing online services before moving on to its current modernization priorities.
As for additional modernization, the IRS once again shifted gears, and in March 2025, the IRS paused work on 23 existing modernization programs. After the IRS reevaluated its priorities, the IRS shifted its focus to a leaner, nine-initiative framework using advanced technology and AI to fill staffing gaps and target high-dollar non-compliance. While data-driven enforcement and AI appear here to stay, privacy concerns surfaced again. In the coming months, privacy will continue to be at the forefront, and questions will remain on whether personally identifying information (PII) is vulnerable to the new data-driven and AI efforts. Many wonder if the IRS’s plan has put enough measures in place to protect PII.
After promising a more direct way for taxpayers to file taxes, after just one season, the Department of the Treasury announced the end of the IRS Direct File. The IRS Direct file program was a free tax filing pilot program available to eligible taxpayers in 25 states with certain everyday tax situations, such as W-2 wage income, social security, and common credits and deductions. IRS Direct File was intended to allow taxpayers to file their taxes directly through the IRS, eliminating third-party offers and software.
Although the IRS Direct file program has ended, eligible taxpayers will continue to have the option to file for free through free file third-party offers or commercial software, just as they have in the past.
The challenges the IRS will face in 2026 will remain the same as in previous years. Understaffing, aging systems, and excessive turnover at the top will continue to plague the IRS. The OBBBA rollout will dominate 2026, and new reporting rules will take hold, which will take a lot of the IRS’s focus away from other areas. Whether 2026 turns out smoother depends on whether leadership and funding will stabilize long enough for the agency to catch its breath and staffing to increase to operational levels.
As for practitioners heading into filing season, expect IRS surprises, a steady streak of chaos, and enough caffeine to justify its own expense category.
By Kim Tipsord, EA
Tax Materials Specialist, U of I Tax School
Sources:
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University of Illinois Tax School is not responsible for any errors or omissions, or for the results obtained from the use of this information. All information in this site is provided “as is”, with no guarantee of completeness, accuracy, timeliness or of the results obtained from the use of this information. This blog and the information contained herein does not constitute tax client advice.
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