Backlogs, Job Holes Plague IRS in Tax Season After DOGE Cuts

A year after Elon Musk set out to slash jobs in an attempt to make the IRS more efficient, the nation’s federal tax agency finds itself struggling to meet demands amid a busy filing season.

After an exodus of employees, IRS human resources and technology workers will process Americans’ tax returns.

A backlog of millions of tax returns that need revisions could exceed Covid-19 pandemic levels later this year.

Hundreds of new workers were undertrained when filing season started. And critical return filing technology wasn’t in place on time.

The IRS is undertaking its first full filing season since Musk’s Department of Government Efficiency slashed a quarter of the agency’s 100,000-person staff last year as part of President Donald Trump’s promise to reshape the federal workforce and root out waste.

But in the year since DOGE’s creation, its biggest impact at the IRS—reducing its workforce—has resulted in delays in tax season preparations and data security concerns, according to agency insiders and industry observers.

Trump’s promise to modernize the IRS hasn’t materialized. Instead, according to current and former employees, the agency is largely repackaging existing initiatives and remains in the early stages of new technology as millions of Americans are filing their taxes.

“We’re just not able to provide timely service to people,” said Angela Maier, an IRS union chapter president in Iowa.

Bloomberg Tax interviewed a dozen IRS employees who described DOGE’s efforts within the agency as causing mistrust among workers and delays internally.

Frank Bisignano, IRS chief executive officer and the commissioner of the Social Security Administration, said last year he supported DOGE. But in a March 4 hearing with the House Ways and Means Committee, he declined to comment on DOGE’s success within the IRS, saying, “I spend my time looking forward.”

Taxpayers ultimately will be the judge of DOGE’s year at the IRS, which is more than halfway through filing season and on track with previous years for processing returns, according to IRS filing season updates as of March 20.

“Remember, there was a lot of pundits out there saying IRS is going to fail,” Bisignano said at the hearing. “There’s a large implementation, there’s the Trump accounts, there’s less staffing and they have old technology. We’re 40% through the tax season, and we hear in every corner that it’s going well.”

The impact of DOGE’s cuts will become more obvious by the summer, as the IRS shifts to correcting tax returns with errors and processing returns before the Oct. 15 extension deadline. Typically, those with more complicated tax returns file for an extension.

The IRS said the CEO is “committed to having the right level of staffing to operate at peak efficiency and the IRS is currently delivering a very successful 2026 filing season for taxpayers,” noting that it is issuing 90% of tax return refunds within 21 days.

The agency didn’t respond to specific questions or make the CEO available for interview.

Filing Season Scramble

Before departing as head of DOGE last May, Musk claimed he’d remake the IRS using the Silicon Valley startup playbook: Cut workers to make it easier to change bureaucratic processes and update technology to reflect innovation already used in the private sector.

But when DOGE pressured workers to accept buyouts to leave the government, too many took up the offer. About a quarter of the IRS left last fall.

That meant the IRS had unanticipated holes to fill, even at the highest ranks. The agency began hiring customer service representatives, tax attorneys, and criminal investigators six months after offering the resignation incentive.

“Treasury leadership was responsible for both IT modernization and the reconciliation bill,” said Michael Faulkender, who served as acting IRS commissioner last year, referring to the GOP tax law passed last summer. “DOGE was responsible for only IT modernization, and that caused some misalignment.”

With a smaller workforce, the IRS reassigned about 1,500 human resources and information technology workers to process returns, according to the agency’s union. The reassigned workers must complete a roughly 12-week training for their new positions, according to an email reviewed by Bloomberg Tax. But that training won’t end until after April 15.

“It should send a red flag for everybody about what the status of this filing season is,” Doreen Greenwald, president of the National Treasury Employees Union, said during a press briefing earlier this month.

In the past, the IRS tapped workers who process tax returns to help with phone calls and vice versa. But cross-division moves—from IT and HR to taxpayer services—are unusual, current and former IRS workers said. A concern now permeating the agency is that highly paid workers could be permanently forced into lower-paying jobs. Processing positions can start at a salary of less than $50,000, according to Office of Personnel Management pay scales. Senior IT and HR workers can make as much as $195,000.

“My concern is that these people may not be motivated to learn,” said Sunita Lough, a former commissioner of the Tax-Exempt and Government Entities Division who is now retired. She said it could lead to errors downstream.

Treasury Assistant Secretary for Tax Policy Ken Kies said at a March 16 tax executive conference that the workers were moved because, he said, they “weren’t doing anything.”

‘Straight Up, We Have Less Staff’

The IRS typically hires temporary customer service workers to help with tax season by the end of August and has them fully trained by Jan. 1. This season, the IRS fell more than 1,000 people short of its 3,500-person hiring goal, continued hiring until December, and reduced the new hire training, according to Treasury Inspector General for Tax Administration.

“Things are definitely taking longer because just straight up, we have less staff. The institutional knowledge that was lost is for real,” said Matt Kirk, an IRS union chapter president in West Virginia.

DOGE also led the dismantling of Direct File, a free electronic filing tool started during the Biden administration aimed at reducing costs for low-income people to file taxes. Last February, Musk said that he gutted the group that created the project, which cost more than $40 million and had been a Republican target.

“That loss was heartbreaking,” said Robin McKinney, CEO of CASH Campaign of Maryland, which provides free tax preparation to low-income people. McKinney said as a result of Direct File’s elimination, her nonprofit receives double the demand it can accommodate among needy users.

Tax observers also say the exodus of seasoned IRS employees could cause taxpayer data leaks.

DOGE last year requested broad access to taxpayer data from the IRS, which former government officials warned against. Violations of taxpayer privacy laws can lead to criminal prosecution. The IRS denied the request.

But in April, the IRS signed an agreement with the Department of Homeland Security to use taxpayer data to help with criminal investigations into immigrants, now blocked by federal judges. While responding to the agreement, the IRS mistakenly broke privacy laws for tens of thousands of taxpayers in January.

“It’s important to ensure taxpayers that their data is safe and protected,” Greenwald, the union president, said in an interview. “DOGE blew a hole in that, and we don’t know what they took and we don’t know who has access to it, and that should concern every American.”

Bringing IRS Into the 21st Century

The IRS for decades had plans to modernize by updating archaic, internal coding, improving online offerings for taxpayers, and streamlining the way it processes paper returns.

For the 2025 filing season, about 6% of the tax returns were filed on paper, according to an IRS watchdog. The agency is trying to shrink that number as paper returns require more workers and often result in delays in refunds and correspondence for taxpayers.

The agency received nearly $80 billion from the Democrats’ 2022 tax-and-climate law to achieve that goal and other modernization efforts, though Republicans clawed back more than half of that funding over years of spending bills.

Some former DOGE members now hold senior positions with Treasury, including Sam Corcos, a former health tech executive.

In an October interview with podcaster Chris Williamson, Corcos said the job cuts were necessary to modernize the agency.

But the IRS has yet to publicize a new modernization plan. And agency oversight groups said DOGE’s workforce reduction has delayed some key modernization initiatives, such as updating paper processing and an artificial intelligence tool for customer service workers to help taxpayers faster.

Purging Paper

Treasury’s Zero Paper Initiative—championed by Corcos— is expected to phase out manually inputting paper returns with new scanning technology, which could improve the accuracy and timeliness of paper return processing and reduce the paper backlog.

The IRS could save $40 million in annual storage costs if it digitizes the 1 billion pages of documents in the backlog, according to TIGTA. Processing individual paper returns costs 43 times more than processing an electronically filed individual return, according to the IRS.

Corcos said in the podcast that hiring a new vendor was the least expensive and quickest way to implement the new initiative, rather than continuing previous plans. But the IRS had months of delays in awarding and starting a new contract.

TIGTA officials say taxpayer services leadership informed them they didn’t have enough staff to handle the Zero Paper Initiative, prepare for filing season, and scan the paper backlog.

Bisignano said at his March 4 congressional hearing he expects amended tax return processing, which is part of the initiative, will be reduced to one week, down from 16, he said.

AI: Help Wanted

DOGE pushed IRS workers to rely heavily on artificial intelligence as opposed to hiring new employees.

Corcos sent IT employees a memo last August requiring that all hiring requests include an explanation as to why the work couldn’t be completed through AI.

“There isn’t a whole lot that’s been rolled out,” said Barry Johnson, who oversaw AI at the IRS until retiring in January 2025. He added that the Treasury’s AI use cases published this past January reflect numerous projects already underway by prior administrations.

For example, the AI-powered Taxpayer 360 was meant to speed up IRS phone calls with taxpayers by allowing workers to use just one screen per caller instead of using several tabs. The technology also would allow the IRS to give the taxpayer more complete information.

However, implementing the AI tool has slowed because of “resource prioritization and realignment” and a government shutdown in the fall, according to TIGTA. The IRS in September launched a small pilot with about 300 employees.

“Could the IRS have been trimmed from its 100,000-plus level? The answer to that was clearly yes,” said Pete Sepp, president of the National Taxpayers Union, a conservative taxpayer advocacy nonprofit. “Were the strategic personnel shifts made seamlessly and flawlessly? The answer there is clearly no.”