The IRS Is Imploding

Seven commissioners. 25,000 staff gone. An 800-page overhaul. If you pay taxes, you’re in the blast zone.

Last week’s headline that President Trump asked Billy Long to resign—making him the seventh IRS commissioner to leave this year—masked a much deeper crisis. The Internal Revenue Service is facing its worst operational breakdown in modern history just as it must implement one of the most sweeping tax code overhauls in a generation. Charged with collecting $5 trillion a year, the agency has endured leadership turmoil, lost a quarter of its workforce, and now confronts budget cuts that could slash enforcement by half.

The timing could not be worse.

The Trump administration's “One Big Beautiful Bill”—an 800-page behemoth that promised tax simplification—has instead added over 100 new provisions to an already labyrinthine tax code. Some of the provisions include temporary measures, phase-outs, narrowly targeted exemptions, and complex calculations that will challenge even seasoned tax professionals. Yet, the agency responsible for making sense of it all is in disarray.

Chaos in the C-Suite

The leadership bedlam began immediately after President Trump's inauguration when Danny Werfel, a respected career public servant who had successfully navigated the agency through both Republican and Democratic administrations, submitted his resignation. What followed is administrative whiplash.

Doug O'Donnell, a 35-year IRS veteran, lasted just 33 days as acting commissioner. His departure was followed by Melanie Krause, whose tenure ended abruptly when she refused to comply with a directive to share taxpayer information with Immigration and Customs Enforcement—a move she argued violated taxpayer privacy laws and would destroy public trust in the agency.

In April, Elon Musk, leveraged his influence within the administration, and successfully pushed for the appointment of Gary Shapley, a former IRS criminal investigator who had gained prominence as a whistleblower in politically charged investigations. That move reportedly blindsided Treasury Secretary Scott Bessent, who traditionally oversees IRS appointments. The resulting power struggle created such dysfunction that Shapley resigned after just 48 hours—the shortest tenure of any IRS commissioner in history.

“It was amateur hour,” says a senior Treasury official who requested anonymity to discuss internal deliberations. “You had Musk making promises he couldn't keep, Bessent in a fury, and meanwhile, no one was actually running the IRS during tax season.”

Michael Faulkender attempted to stabilize the situation by serving dual roles as both Deputy Treasury Secretary and acting IRS Commissioner, but the arrangement proved untenable. It appeared that everything at the top post had settled in July when the Senate confirmed former Missouri Congressman Billy Long as Commissioner. The White House surprised almost everyone on August 8 when it confirmed Long had been asked to submit his resignation and that Treasury Secretary Bessent would act as the interim commissioner until a new replacement was named (Long is slated to be named as ambassador to Iceland).

The Great Resignation, IRS Edition

While leadership played musical chairs, rank-and-file employees headed for the exits. The numbers are staggering: 25,000 employees—representing nearly a quarter of the agency's workforce—are expected to leave by September 30. This is not natural attrition; it's an exodus accelerated by a voluntary deferred resignation program and targeted layoffs.

The brain drain is particularly acute in critical areas. The Office of Chief Counsel has lost 40% of its senior attorneys. The Large Business and International division, responsible for auditing corporations with assets over $10 million, has seen departures of 60% of its most experienced revenue agents. Criminal Investigations, the arm that pursues tax fraud and money laundering, is operating at 50% capacity.

These are not just employees—they're walking encyclopedias of tax law, audit techniques, and institutional knowledge that cannot be replaced by hiring fresh college graduates.

The telephone assistance division, often taxpayers' first point of contact with the agency, has been decimated. Over 9,000 customer service representatives have been let go or reassigned. During the 2024 filing season, average wait times exceeded two hours, with only 11% of calls being answered—the worst performance in IRS history. The agency's plan to hire temporary workers for the 2026 filing season is widely seen as inadequate.

“The most serious problem facing taxpayers today is the complexity of the Internal Revenue Code,” according to Nina Olson, who served as National Taxpayer Advocate for 18 years. She made that observation in 2006, when the tax code was simple in comparison to today’s version. Insiders acknowledge it will be impossible to train temporary workers on 800 pages of new tax law in a few weeks. They will be overwhelmed, taxpayers will be frustrated, and errors will multiply exponentially.

Technology: Running on Digital Fumes

Perhaps nowhere is the IRS crisis more acute than in its technology infrastructure. The agency still relies on systems dating back to the 1960s, including master files written in COBOL—a programming language so outdated that finding programmers who understand it has become increasingly difficult and expensive.

The Biden administration's Inflation Reduction Act had allocated $80 billion over 10 years for IRS modernization, with $15 billion specifically earmarked for technology upgrades. Those plans are now in jeopardy. The Department of Government Efficiency (DOGE), established by executive order to oversee federal spending, has frozen all modernization funds pending a “comprehensive strategic review.”

“The review is supposed to take six months,” says a senior IRS technology official who requested anonymity. “But we don't have six months. We need to program the new tax law changes now. Every day of delay means more manual processing, more errors, and longer delays for taxpayers.”

The technology freeze has halted critical projects, including a new taxpayer portal that would allow real-time status updates on refunds and correspondence; artificial intelligence tools to identify fraudulent returns and suspicious claims; modernization of the Individual Master File, the core system that processes individual tax returns; and enhanced cybersecurity measures to protect against increasingly sophisticated attacks on taxpayer data.

“We're asking a Model T to perform like a Tesla,” the technology official adds. “It's not just inefficient—it's dangerous. We're one major system failure away from being unable to process returns at all.”

The New Tax Law: Complexity Masquerading as Simplification

The “One Big Beautiful Bill” promised tax simplification. But it has made the tax code exponentially more complex. That is compounded by the IRS's inability to provide guidance. Typically, major tax legislation is followed by thousands of pages of regulations, revenue rulings, and procedures that explain how the law should be interpreted and applied. With the exodus of experienced attorneys from the Chief Counsel's office, that guidance is unlikely to materialize in time for the 2026 filing season.

Budget Cuts: The Final Blow

As if leadership chaos, staff departures, and technological paralysis were not enough, the IRS now faces the prospect of devastating budget cuts. The House Appropriations Committee has proposed reducing the agency's budget from $12.3 billion to $9.5 billion—a 23% cut that would be the largest in IRS history.

The cuts specifically target enforcement, with a proposed 48% reduction in funding for audits and collections. This comes at a time when the “tax gap” —the difference between taxes owed and taxes paid—has reached a record $688 billion annually, according to the latest IRS estimates.

Instead of saving money, cutting enforcement costs money. The IRS could return about $5 to $7 of increased tax collection for every additional dollar of enforcement funding, Charles Rettig, who served as IRS Commissioner, told Congress in 2021.

The practical implications are stark: audit rates for millionaires will fall below 1%, down from 8% a decade ago; corporate audits would essentially cease for all but the largest multinational corporations; criminal prosecutions for tax evasion would decline by an estimated 75%; identity theft and refund fraud investigations would be dramatically curtailed (there are 387,000 unresolved cases of identity theft as of June 2025, with an average resolution time of 20 months).

“Underfunding the IRS is like underfunding your accounts receivable department,” Mark Mazur, Treasury’s Assistant Secretary for Tax Policy, warned Congress in 2017. “No rational business would do that.”

The Hidden Costs of Collapse

The immediate effects of the IRS crisis are already visible: longer wait times, delayed refunds, and reduced enforcement. But tax experts warn that the long-term consequences could fundamentally alter America's tax system.

“Tax evasion is widespread, always has been, and probably always will be,” said Joel Slemrod, an economist at the University of Michigan who studies tax administration. In a system built on voluntary compliance, once taxpayers lose faith that everyone is paying their fair share, compliance rates drop.

“If Visa sent you a blank piece of paper each month instead of a bill, you’d say, ‘This is crazy,’” says Joseph Bankman, a Stanford professor of tax law.

International comparisons are sobering. Greece's tax collection system collapsed in the 2000s due to weak enforcement and low public trust, contributing to its debt crisis. Italy loses an estimated €100 billion annually to tax evasion, partly due to inadequate tax administration. Argentina's tax gap exceeds 30% of potential revenue.

The U.S. is not yet Greece or Italy. Yet, as opposed to corruption or incompetence that have crippled the foreign systems, the U.S. is heading in that direction from deliberate policy.

The business community is increasingly concerned. The Tax Executives Institute, representing corporate tax departments, warns that uncertainty around tax law interpretation and enforcement could impact investment decisions and financial planning. Corporations need predictability and uncertainty can adversely affect everything from quarterly earnings to long-term planning.

The Clock Is Ticking

The 2026 filing season begins in less than six months. By then, taxpayers will need to navigate new tax laws with less help from an agency in crisis. The delayed start date—pushed to mid-February—is just the beginning of what promises to be the most chaotic tax season in memory.

An administration that promised to drain the swamp and make government work better has instead created a crisis that threatens the basic functioning of federal revenue collection. The “One Big Beautiful Bill” may end up being remembered not for its tax cuts but for breaking the agency responsible for implementing it.

As one senior IRS official put it, speaking on condition of anonymity: “We're not just watching the IRS collapse. We're watching the collapse of the basic compact between citizens and their government. And once that's gone, it's almost impossible to get back.”

Preventing the dismantling of the American tax administration would seem to be a nonpartisan issue. Yet, there is no sign the IRS has any influential supporters in the Trump administration. Most inside the agency pin their hope on Treasury Secretary Bessent, who at least understands that the fallout from failure would extend far beyond this administration.

“Aggressive reductions in the I.R.S.’s resources will only render our government less effective and less efficient in collecting the taxes Congress has imposed,” seven former IRS commissioners wrote in a New York Times OpEd this past February. “It will shift the burden of funding the government from people who shirk their taxes to the honest people who pay them, and it will impede efforts by the I.R.S. to modernize customer service and simplify the tax filing process for everyone. . . . our country needs a fully functioning tax system.”

No one likes paying taxes, so it is hardly shocking that the IRS is very unpopular. Some may cheer a smaller, less capable agency. However, if it has trouble fulfilling its core mission—collecting the revenue that keeps the government running—Americans will pay the ultimate cost for any shortfall.