By David Lawder
WASHINGTON (Reuters) -The U.S. Internal Revenue Service is taking a “strategic pause” in its technology modernization investments to re-evaluate its operating approach in light of new artificial intelligence technologies, a senior IRS career technology official said on Friday.
The agency will review a number of technology modernization initiatives that have been taken in recent years, including the new Direct File free filing system for tax returns that was launched last year under the Biden administration, the official told reporters.
As the Trump administration prepares a second wave of mass firings at federal government agencies, a person familiar with IRS plans told Reuters that the tax collection agency was planning to eliminate 20% to 25% of its 100,000-strong workforce.
The IRS official said the agency did not have a specific number of staff cuts in mind as a result of the technology pause, but said there would be an opportunity to “realign the workforce to those new ways of doing business.”
U.S. Treasury Scott Bessent has said numerous times that the IRS will be able to rely on “the great AI revolution” to improve tax collections and customer service. He has not named a specific budget or staff reduction goal.
The official said IRS technology has been built over many decades, often with many external contractors.
“Unfortunately, this often means that a large investment yields a small outcome,” said the official, who spoke to reporters on condition of anonymity.
He added that the review “will help us overcome the challenges we’ve observed and experienced, untangle from multiple integrator solutions, situations and solutions, and realign us to achieve the technological modern state we’ve been pursuing for many years.”
The official added that the evaluation has not affected the 2025 tax filing season, with IRS systems continuing to accept tax returns and send out refund payments.
The pause marks another shift away from the original $80 billion in IRS investment funding over a decade that was included in the 2022 Inflation Reduction Act, mainly a clean energy subsidy law. Clawing back those investments in modernization, customer service and tax collections has been a target of Republicans in Congress, who argued that the funding was aimed at harassing taxpayers.
Subsequent stop-gap government funding measures have whittled that down by as much as half.
Technology upgrades over the past two years included new scanning technology to automate the processing of paper returns, AI customer assistance chatbots, and initial investments to replace aging computer systems based on 1960s-era technology architecture.
The Treasury under the Biden administration last year estimated that the IRS funding, including from technology improvements, would yield $561 billion new revenue over a decade.
(Reporting by David Lawder; Editing by Paul Simao and Chizu Nomiyama)
