Ex-IRS leader warns Musk-run DOGE cuts will strain tax agency for years

Douglas O’Donnell, former acting commissioner of the IRS and current senior managing director at KPMG’s Washington National Tax practice, warned that the more than 25 % reduction in the agency’s 100,000-person workforce, ordered by Elon Musk’s Department of Government Efficiency, will likely impair the IRS’s ability to fulfill its mission in the coming years. The IRS processed 140.2 million individual returns and issued 90.4 million refunds in 2026, a modest decline, and described the season as successful, citing higher average refunds thanks to recent tax cuts.

O’Donnell emphasized that the cuts exacerbate long-standing underinvestment in modernization, noting that paper returns constitute only 6 % of filings but 72 % of processing costs, and the agency aims to cut paper-related expenses dramatically by 2029. He also highlighted that the 2022 Inflation Reduction Act’s $80 billion modernization plan has stalled, and budget reductions—from $12.2 billion in FY 2025 to $11.2 billion in FY 2026 and projected $9.8 billion in FY 2027—threaten enforcement and programs like Direct File. IRS CEO Frank Bisignano points to recent IT savings, but O’Donnell argues that without staffing replacements and sustained funding, service quality and audit coverage will erode, especially as the agency seeks to adopt AI and digital tools.