Core Summary

  • According to the IRS Advisory Council, cuts to the IRS budget and staffing could keep the tax gap—the difference between taxes owed and those paid on time—at nearly $700 billion in 2026.
  • Although Congress determines necessary spending each year, it has "not fully appropriated the funds needed to ensure efficient and full tax collection," the council said in its annual report released Wednesday.
  • The council said the 2026 IRS funding shortfall follows "an exceptionally difficult year marked by significant staff reductions, budget cuts, shelved projects, and frequent leadership changes."

In-Depth Analysis

According to private organizations that monitor the IRS, the agency may face severe challenges in tax enforcement and taxpayer services this year due to sweeping reforms pushed by the Trump administration, including a 25% reduction in staff and a massive rewrite of tax law under the One Big Beautiful Bill Act.

Last year, the IRS saw frequent leadership turnover, with seven people serving as commissioner or acting commissioner. Additionally, more than $40 billion in funding provided under the Inflation Reduction Act was cut, disrupting several plans aimed at upgrading operations.

"Taxpayers are stepping into uncertain territory in 2026," said Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, in a recent report. They "may need to lower expectations and prepare for unanswered IRS phone calls and delayed refunds, as these factors could lead to a problematic filing season."

Budget legislation currently under consideration in Congress would cut IRS funding and "deal another blow to a tax system already traumatized over the past year," Chye-Ching Huang, executive director of the Tax Law Center at New York University's law school, said in a blog post Monday.

She noted that planned cuts to IRS enforcement funding "would reward scammers and fraudsters who organize schemes to defraud the government and cheat law-abiding taxpayers."

According to the advisory council, illegal activities expanded the tax gap to $696 billion in 2022, a figure more than double the $326 billion spent on federal veterans' benefits last year.

The council said the tax gap "puts upward pressure on economy-wide borrowing costs as a result of government borrowing, thereby raising borrowing costs for all Americans. Ultimately, the tax gap shifts the burden of unpaid taxes onto compliant taxpayers."