Will budget, staff cuts impede IRS modernization? Former commissioner weighs in

Former Commissioner Danny Werfel wouldn’t predict failure for the IRS in its bid to modernize technology with less money and fewer experienced workers while preparing systems for massive changes in the new tax law. But, without seeing a plan, he said he’s dubious the agency will be successful.

Werfel, who resigned in January ahead of President Donald Trump’s inauguration after almost two years as commissioner, said during Thursday’s AICPA Town Hall webcast that the IRS has not released its modernization plan, so it’s hard to judge what it can do under new budgetary and staffing constraints.

“I don’t yet know how to take the smaller budgetary resources and see how (they’re) lining up against potentially an updated set of priorities,” Werfel said.

Werfel is now executive in residence at the newly established School of Government and Public Policy at Johns Hopkins University, a distinguished fellow at the Duke University Polis Center for Politics, and a member of Alliant’s strategic advisory board.

Neither the IRS nor Treasury responded before publication to an email about when a modernization plan for technology will be released.

Under the Inflation Reduction Act of 2022, P.L. 117-169, the IRS received $80 billion in funding over 10 years, but with just 6%, or $5 billion, allocated to business systems modernization. Most of the money, 57% or $46 billion, was allocated for enforcement.

Congress first decreased that funding to $60 billion, and as of March 2025, the amount dropped to $37.6 billion through Sept. 30, 2031, the Treasury Inspector General for Tax Administration (TIGTA) said in a report earlier this month.

Another TIGTA report, released in July, found that IRS actions have resulted in a workforce reduction of about 25%, with 25,386 employees leaving the agency as of May through some sort of incentive program such as deferred resignation. Another 294 employees received reduction-in-force notices but have not been terminated because of a court injunction, as is the case for about 3,000 probationary employees. These employees continue to work at the IRS unless they choose to separate or are terminated for other reasons, the report said.

“What worries me the most about the loss of IRS talent is that when you launch a new technology, especially in a high-stakes environment like the IRS, you’ve got to test it,” Werfel said. “And these people know where the potholes are. They know what to test for.

“They know what scenarios to present to the technology to see if it’s going to be more susceptible to a cyberattack, to see if it’s going to confuse a taxpayer, to see if it is going to create a mistake inadvertently that creates more ripple-effect mistakes.”

The IRS could bring in experts who know cutting-edge technology, he said, but “what I’m not convinced can happen is you can fly in a set of experts that know how to test the technology in that environment, that understand the unique risks that exist in launching technology on that older architecture in this space, and with the associated risks that exist in the tax space for confusion, cyber risk, data privacy, insider threats … “

On top of overall modernization efforts, the IRS is reengineering systems for widespread tax changes in H.R. 1, P.L. 119-21, commonly known as the One Big Beautiful Bill Act.

While Trump, the House, and the Senate disagree on the specifics of further IRS budget cuts, such as whether to hire thousands of new customer service representatives, all agree about further technology cuts, Werfel said.

“I suppose that with even on a smaller budget footprint, you could outfit some important and fundamental technology changes that will make up for lost staff and benefit all taxpayers with better service, better enforcement, and better data security, and other infrastructure needs,” he said. “But we haven’t seen that plan.”

The next webcast in the AICPA Town Hall Series is scheduled for Sept. 11 and is free for AICPA members.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.