Politics 4 min read By Alice Ashford
Former IRS chief warns DOGE cuts will strain tax agency for years
Douglas O'Donnell, former acting IRS commissioner, warns that Elon Musk's DOGE cuts to the tax agency's workforce and budget will create long-term problems, despite a successful 2026 filing season.
The former acting commissioner of the US Internal Revenue Service has warned that deep cuts to the agency's workforce and budget under Elon Musk's Department of Government Efficiency will be felt for years, even though the 2026 tax filing season was completed without major disruption.
Douglas O'Donnell, who served at the IRS from 1986 until 2025 and led the agency twice as acting commissioner, said the reduction of more than a quarter of the 100,000-person workforce has left him concerned about the agency's ability to carry out its core mission. Speaking to Fortune, he said the cuts risk undermining both taxpayer services and enforcement, and questioned whether the IRS can remain a fully functioning federal agency going forward.
The IRS received 140.2 million individual returns and issued more than 90.4 million refunds during the 2026 season, slightly fewer than the previous year. The agency described the season as successful, and a spokesperson said average refunds were 11 percent higher than last year, citing the President's Working Families Tax Cuts. The IRS expects to end 2026 with around 74,000 employees, roughly the same level as at the end of 2025.
O'Donnell, now a senior managing director at KPMG's Washington National Tax practice, was careful to note that the agency's problems did not begin with DOGE or the Trump administration. He pointed to decades of underinvestment in modernisation across multiple administrations. The IRS has tried to go paperless for nearly four decades, and paper tax returns still account for just 6 percent of all returns but 72 percent of processing costs, according to a February report from the Treasury Inspector General for Tax Administration. The agency plans to cut the cost of paper processing from $450 million to less than $20 million by 2029.
The 2022 Inflation Reduction Act provided an $80 billion infusion intended to transform the IRS into a modern tax administration, with plans to upgrade technology, improve data access, and hire more skilled workers. But O'Donnell said that after the first wave of DOGE personnel reductions began in February of last year, progress did not just stall, it reversed.
IRS Chief Executive Officer Frank Bisignano has defended the changes. In testimony before the Senate Finance Committee in April, he said the agency had cut $2 billion from its information technology budget without operational disruptions, achieved by renegotiating, scaling back, and in some cases eliminating wasteful IT and professional services contracts.
O'Donnell said it remains unclear what DOGE originally intended with the cuts. He noted there is no strategic document explaining the objective, and that the focus appeared to be on cutting enforcement and technology spending while trying to maintain service levels. He argued that the long-standing goal of using technology to reduce the workforce was initially hurt by having fewer workers, since automation typically increases demand for labour in the short term as human workers smooth out problems with new systems.
He warned that the IRS managed to maintain services this year, but that trend may not continue. With fewer employees, the agency's ability to audit and verify taxpayer compliance will diminish over time, particularly in the large corporate space. This, he said, reduces confidence that taxpayers are filing correctly and weakens the overall integrity of the tax administration system.
