The Treasury Inspector General for Tax Administration (TIGTA) has identified significant management and performance challenges facing the IRS in fiscal year 2026. In a report released Monday, TIGTA cited staffing shortages, budget constraints, data security, technology modernization, and the implementation of new tax laws as key areas of concern. 

Accounting Today reports that between January and May 2025, the IRS workforce declined by about 25%, from roughly 103,000 to 77,000 employees.

The report noted that the employees who departed represented all experience levels, and their departures affected each function within the IRS. It added that pending budget proposals could reduce annual funding by another 20%. 

“Completing IT modernization projects, providing quality services to taxpayers, and enforcing tax laws with a reduced workforce and budget will be challenging for the IRS,” the report stated. Despite automation initiatives, the agency “still needs skilled and experienced employees to interpret tax law changes, investigate criminal activity, prevent fraudulent refunds, and implement complex coding changes for its information systems.”

The report also pointed to operational hurdles, such as the ongoing transition away from paper refund checks and the rollout of new tax provisions under the One Big Beautiful Bill Act. “Taxpayer uncertainty around new tax law changes can affect voluntary compliance,” the report warned, noting that errors could delay refunds and generate incorrect taxpayer notices.