IRS Pivots to Fill Holes in Tax Filing Season After DOGE Cuts

Time is running out to file your taxes to the IRS as the April 15 deadline approaches.

But for the IRS, the work is only just beginning and it’s off to a rocky start.

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Elon Musk’s Department Government Efficiency in 2025 pressured about a quarter of the IRS’s workforce to leave, and the agency is on its seventh leader in the span of a little over a year. The agency also managed during one of the longest shutdowns in US history and a presidential-mandated hiring freeze.

That meant the IRS had to change direction for the 2026 filing season.

IRS workers from the human resources and technology divisions were told they’d be helping out process tax returns—an unusual move for the agency. Customer service workers at the start of the season weren’t fully trained and critical tax season tech also wasn’t ready.

Bloomberg Tax’s Erin Schilling and Erin Slowey spoke with David Schultz about the implications of the decisions of DOGE and what that means for taxpayers.

Do you have feedback on this episode of Talking Tax? Give us a call and leave a voicemail at 703-341-3690.

This transcript was produced by Bloomberg Law Automation.

David Schultz:

From Washington, I’m David Schultz, and this is Talking Tax.

Hey, remember DOGE? The folks at the IRS certainly do, at least the ones who remain. And if you’re a taxpayer, the short-lived Department of Government Efficiency may soon affect you as well. It’s been about a year since this Trump administration initiative led by Elon Musk started slashing budgets and payrolls across the government. Bloomberg tax reporters Erin Schilling and Erin Slowey just published a story looking at all the ways DOGE transformed the IRS and how it may affect this tax filing season. If not right now, then maybe in a couple months.

I started off by asking Erin Schilling to summarize the wild fiscal ups and downs of the IRS from the Biden years through today.

Erin Schilling:

Well, in terms of the funding that has been sort of years in the making of Republicans in Congress clawing that back, they started with $80 billion that was earmarked for the IRS to modernize and improve enforcement. And as of earlier this year, that funding was reduced to $26 billion, and the IRS has already spent $15.7 billion. So they have about 40% of $26 billion left for improvements, which is a far cry from the $80 that they started with.

David Schultz:

But they’re not where they were before they got the money, but they don’t have nearly as much money as they thought they would have in 2022.

Erin Schilling:

Yeah. And then in combination with that extra funding being reduced, their annual budget has also been reduced. So sometimes they’ve had to use that money that was supposed to be for long-term improvements just for like keeping the lights on, typical operations, making sure filing season goes okay.

David Schultz:

And you guys had a really interesting graphic in your story that quantified how many people the IRS has lost since DOGE kind of ramped up. How many people has the IRS lost, Erin Slowey?

Erin Slowey:

So the IRS has lost about 25% of its 100,000 workforce that it had at the start of 2025. A lot of that was built up using the funding that Erin just talked about. Now it’s kind of back at the levels before the funding, 2021 post-pandemic levels. But a big portion of who had left was a lot of people from taxpayer services, about 20%, and a big chunk of people in the audit and compliance side of things. So we’re just starting to now see the impacts of those losses.

David Schultz:

The CEO of the IRS says everything is going fine. Is it? Does he have a point? Or is it a little misleading, Erin Slowey?

Erin Slowey:

So the public filing season statistics kind of show right now everything is similar to last year. Big thing for Republicans right now is that they’re looking at the refund number. That was something they promised really big on from the law from the summer, hoping to be over $1,000 more than the average was last year. Is it that much right now? No. But another thing that we’re thinking about, maybe not in the numbers, is as we get towards the summer, how long is it going to take to process some of these returns? If you had an error on your return or it was more complicated, I think you’re not going to see that right now. But it’s going to be towards the summer and into the fall that we’ll really see the true impacts of what’s been going on here.

David Schultz:

So it might be a situation where everything is going fine, but that’s because the problems are probably going to crop up later this year.

Erin Slowey:

Yes. And we’re getting some glimpses of employees getting moved around too. So that’s kind of signaling with the shortage of employees that there’s holes to fill and maybe things aren’t going as they planned.

David Schultz:

Yeah. Let’s get into that. So your story talked about how IT and HR staffers at the agency are now processing tax returns. How does that work? Can anyone at the IRS just step in and process a tax return, like a janitor or a security guard? What?

Erin Slowey:

So it’s about 1,500, according to the union, 1,500 IRS, IT, and HR people are going to help out processing returns, like you said. They’re really not going to start processing the returns until after filing season started. So they’re in the training right now. Maybe they’ll do some sample processing returns, but a big part of their job won’t start until after the filing season ends, which I think is really interesting. Our understanding is that they are getting moved because Ken Kies, a senior treasury official, had said these employees weren’t really doing much in their old jobs. So that was a big part of why they were getting moved over. I think time will tell as to whether they’re getting moved over permanently or what kind of offerings will be left once this involuntary detail does end. And something we heard a lot about from doing reporting in our story was these people are getting moved involuntarily. What is their motivation to actually learn something new and process these tax returns accurately? This is relatively unusual, getting people moved over from other divisions. A lot of times they’ll see people who answer phones, also process paper, and they’ll surge in that way. But this is relatively unusual. So again, during the summer into the fall will be a big way to be watching to see how this eventual surging goes.

David Schultz:

But just to clarify, this is not a typical filing season thing where every March and April IRS brings in people from other divisions to process returns.

Erin Slowey:

No, this is not.

David Schultz:

Okay. Erin Schilling, I want to get to you to talk about privacy because this isn’t something else that was affected by DOGE. We’ve talked on the podcast before about the plan to share taxpayer data with immigration services and how controversial that was. It sounds like some of those concerns were justified because there were privacy issues with what DOGE was doing. Tell me about that.

Erin Schilling:

Yeah. So when DOGE entered the IRS, they sort of immediately set off alarm bells with former IRS officials because one of the members requested very broad access to taxpayer data, which is very unusual. These former government officials warned against it. We have very strict taxpayer privacy laws and violations can lead to criminal prosecution. So the IRS takes this very seriously and they denied that initial request. But in April, a few months later, the IRS did sign an agreement with the Department of Homeland Security to use taxpayer data to help with criminal investigations into immigrants, which was almost immediately blocked by federal judges. So the IRS wasn’t supposed to be fulfilling that agreement. But in the limbo of like a little bit before it was blocked, they mistakenly broke privacy laws for tens of thousands of taxpayers, a very serious offense. It was like 42,000, I believe. And again, sort of set off alarm bells and you can sort of see that mistake traced back to sort of that early request from DOGE that the IRS was going to broaden access to data in a way that hasn’t been done before.

David Schultz:

And let’s talk about the implications of that. Not just that taxpayers had their privacy violated, but this really discourages people in the future from filing their taxes, even though they have a legal duty to do that or just sort of engaging with the IRS at all, right?

Erin Schilling:

Yeah. Yeah. You definitely see that in the immigrant community who previously may have had the understanding that, you know, it’s only the IRS that’s looking at their information. It’s not going to go to immigration and customs enforcement. And now, you know, that promise seems to be breaking in some respects, which will likely lead to less tax revenue from immigrant communities.

David Schultz:

And what’s going to happen to the people either who were at DOGE or who are at IRS who mishandled this data?

Erin Schilling:

So while the new IRS CEO was testifying in front of lawmakers, he said that no one had been fired and there were no sort of employee consequences for this breach. The taxpayers who had their privacy violated may not even know that they’re sort of part of that tranche and they have, you know, sort of few legal actions that they could take to remedy the situation because they have to sort of prove damages, which is very difficult. So the taxpayers themselves don’t really have a lot of agency to rectify the situation. And it doesn’t look like the IRS CEO is planning to make any internal changes because of the mistake.

David Schultz:

And then finally, let’s get into this Treasury Department push away from paper. We’ve been talking about that on the podcast a lot, too, that they’re trying to move away from paper and go all digital. It sounds like DOGE impacted this as well. How did this initiative get sort of derailed by DOGE?

Erin Schilling:

Yeah. So the IRS has long had a paper problem. Processing individual paper returns costs 43 times more than processing electronically filed returns. So it makes sense why the IRS would want to move away from paper. And the move away from paper was already underway during the Biden administration, using some of the money from the Democrats, $80 billion that they gave to the IRS. DOGE, with the Trump administration, decided to go a different direction. So they sort of stopped everything that was already underway. And they did a zero paper initiative. And the big change with that was that they were going to start this paper processing change with a contractor rather than IRS employees. And they said that would be faster, that it would be cheaper.

David Schultz:

Which, to be fair, I mean, in some cases, that is the case. Outsourcing government functions to the private sector can be faster and cheaper. But in this case, it didn’t really work out that way, right?

Erin Schilling:

Yeah, and I think part of it was the people who were in DOGE and at the IRS didn’t have government experience. So Sam Corcos was, and still is, the Treasury official. And he was helping to sort of spearhead IRS modernization. And he’s coming from a health technology startup. So the government contracting space is obviously very different from what you have to do in the private sector. So almost immediately, they came into a bunch of contracting delays. They couldn’t get people trained fast enough. They couldn’t get a contractor quick enough. And you sort of saw the paper backlog continuing to increase and increase and increase in the year when they had all of these delays.

David Schultz:

Finally, Erin Slowey, I want to give you the last word. You mentioned this earlier, that in the summer and fall is when we could really start to see things kind of go off the rails with the tax filing season, because it does go past April 15, as a lot of our listeners know. What are the big red flags that we should be looking for, that if we start to see some things happen this summer, that that’s a sign that things are really, really troubled at the IRS?

Erin Slowey:

I mean, it’s going to be delays, delays in like getting on the phone with the IRS, because some of their staffing will be, some of their seasonal staffing, I think, will be starting to phase out towards the summer and into the fall. And then delays, if you have questions about your returns, either online or trying to call, that’s another big thing that you’ll be wanting to look out for. And then also any type of correspondence that you get from the IRS, if you get it and you think it’s not for you, like that is something I would also be watching for, is getting any mistake, mistakenly getting letters from the IRS or making sure that information on there is accurate as possible. I think those are the two big ones. And then as people who filed extensions, kind of what is their experience like as they get into October and are trying to really file their returns right before the deadline?

David Schultz:

What about refunds? I wonder if we could start to see widespread delays in people getting their refunds. And the reason I ask about that is because that could have economic implications. And also, as you mentioned, the Trump administration was really counting on a lot of taxpayers getting bigger refunds this year as a result of the last year’s tax bill. Do you think that that’s a possibility, that refunds are going to be slower in going out?

Erin Slowey:

I think it’s definitely a possibility. I think right now, the average refunds getting sent back to taxpayers is, I think, a little bit quicker than it has been in the past. At this point in the filing season, obviously, there’s still a couple weeks left. And I think it may be different for people who file returns on paper. That’s an area where we could potentially see delays as we get into the summer.

David Schultz:

All right. Well, that was Erin Slowey and Erin Schilling talking with us about the impact of DOGE on IRS and tax filing season. Thank you guys so much for talking.

Erin Schilling:

Thank you.

Erin Slowey:

Thank you.

David Schultz:

And that’s it for today’s podcast. You can find up-to-the-minute news on the latest tax and accounting developments at our website, news.bloombergtax.com. That website, once again, is news.bloombergtax.com.

Today’s episode was produced by myself, David Schultz, and our editor was Kim Dixon. From Washington, I’m David Schultz. Thanks for listening.