IRS Lost 30% of Its Workforce in a Year as Exams Fell and Overtime Costs Rose, Treasury Inspector General Says

The Internal Revenue Service's workforce fell by about 30 percent in one year, from roughly 103,000 employees in January 2025 to 74,000 in January 2026, while its annual funding was cut by about 20 percent, the Treasury Inspector General for Tax Administration (TIGTA) said in its yearly list of the agency's biggest problems.

The memo, addressed to Treasury Secretary Scott Bessent and signed by Principal Deputy Inspector General Heather M. Hill, is dated Oct. 15 and was posted on the federal inspectors general site Oversight.gov on Oct. 26. It names seven challenges for fiscal 2027: managing resources, improving operational efficiency, protecting taxpayer data, implementing tax law changes, taxpayer service and rights, modernizing technology and ensuring compliance.

IRS Workforce Fell From 103,000 to 74,000

The inspector general wrote that the IRS started 30 percent fewer taxpayer examinations in fiscal 2025 than in fiscal 2024, and that exam closures and proposed additional tax assessments in its Small Business/Self-Employed Division "notably declined during the period that coincided with workforce reductions."

Hiring for the 2026 filing season was delayed by a new hiring process, the memo says. As of Feb. 27, 2026, the office that processes tax returns had not hired about 58 percent of its approved positions (1,100 of 1,900), and the office that handles taxpayer contacts had not hired 34 percent (1,200 of 3,500).

To make up for the losses, the IRS required overtime in some divisions. Paid overtime hours rose 12 percent from January through September 2025 compared with the same months of 2024, about $27 million more in overtime costs, according to the memo.

The memo also notes that Congress cut the IRS's Inflation Reduction Act money from nearly $80 billion to $26 billion. As of March 31, 2026, the agency had spent $16.5 billion of it, or 64 percent.

Departing Employees Kept Access

Under taxpayer data, the inspector general said some IRS employees on administrative leave after accepting the Deferred Resignation Program kept access to the IRS network or sensitive systems, did not return equipment, or entered an IRS facility. More than half of the nearly 1,200 employees and contractors hired from January to August 2025 did not complete security awareness training before getting access to sensitive systems, it said.

Identity theft cases take nearly two years on average to close, the memo says, and those delays cost the IRS more than $124 million in refund interest over a two-year period. It says the IRS lost nearly 300 trained identity theft assistors to the Deferred Resignation Program.

On the 2025 tax law the memo calls the Working Families Tax Cuts Act, the inspector general said the IRS generally carried out selected new provisions successfully but had "significant limitations" in controls for the new car loan interest deduction. It said the IRS accepted more than 470,000 returns claiming $977 million in questionable deductions, with an estimated tax effect of $122 million.

Audit Rates and Phone Service

The memo says the exam rate for partnerships with at least $10 million in assets fell from 2.7 percent in 2011 to less than 0.1 percent in 2023, and that 92 percent of closed exams in the IRS's Large Partnership Compliance Program produced no changes. Based on a review of 200 call recordings, the inspector general estimated that about 1 million taxpayers who called certain IRS phone lines from February to May 2025 did not receive quality service.

The memo also credits progress. It says the IRS reported 175 projects using artificial intelligence as of November 2025 and expanded technology to process returns faster during the 2026 filing season, including converting paper returns to digital format.

Oversight.gov lists the memo with no new recommendations; it summarizes the inspector general's earlier audits and planned work.

Sources: Treasury Inspector General for Tax Administration, "Management and Performance Challenges Facing the Internal Revenue Service for Fiscal Year 2027," memorandum to Treasury Secretary Scott Bessent dated Oct. 15, 2026 (PDF): https://www.oversight.gov/sites/default/files/documents/reports/2026-10/FY_2027_MMC_FINAL.pdf ; Oversight.gov report page (posted Oct. 26, 2026): https://www.oversight.gov/reports/management-and-performance-challenges-facing-internal-revenue-service-fiscal-year-2027 ; Cover photo: Internal Revenue Service Building, Washington, D.C. (Carol M. Highsmith, Library of Congress, public domain, via Wikimedia Commons)