The US Internal Revenue Service (IRS) has announced a temporary pause on its technology modernisation efforts to reassess the potential of AI technologies in enhancing its operations, it has emerged. According to Reuters which broke the story, the agency is set to review several modernisation projects that have been implemented in recent years. Among these projects is the Direct File system, a free tax return filing platform introduced under the Biden administration.
The reassessment comes as the Trump administration reportedly plans to significantly reduce federal workforce numbers, with the IRS potentially facing a 20-25% cut from its 100,000 employees. However, an IRS official speaking to Reuters who wished to remain anonymous clarified that no specific target for staff reductions has been established as a result of the pause in technology investments.
US Treasury Secretary Scott Bessent had previously stated that AI advancements could enhance tax collection and customer service, although he didn’t provide details on potential budget or staffing cuts. The official acknowledged that the IRS’s technology infrastructure has been developed over many decades, often involving numerous external contractors.
“Unfortunately, this often means that a large investment yields a small outcome,” the official stated. The review aims to “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.”
Despite the ongoing evaluation, the IRS official assured that the 2025 tax filing season remains unaffected, with IRS systems fully operational for processing tax returns and issuing refunds.
Shift in IRS modernisation funding
The reassessment marks a deviation from the initial $80bn earmarked for IRS investments over ten years, originally allocated in the 2022 Inflation Reduction Act. This funding was primarily intended for clean energy subsidies but also included allocations for modernisation, customer service, and tax collection improvements. However, Congressional Republicans have been critical of this funding, suggesting it could lead to unnecessary scrutiny of taxpayers. Subsequent government funding measures have since reduced the allocated amount by up to 50%.
The IRS’s technology upgrades in the past two years have included the introduction of new scanning technology to automate the processing of paper returns, the implementation of AI-powered customer assistance chatbots, and preliminary steps to replace outdated computer systems. The Treasury, under the previous administration, projected that the IRS funding, including technology advancements, would generate an additional $561bn in revenue over the next decade.
Recently, the White House directed federal agencies to exclude cybersecurity personnel from workforce reduction plans after US federal chief information officer Gregory Barbaccia emphasised cybersecurity’s role in national security.
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