IRS Modernization at Risk as Funding Dries Up

The Internal Revenue Service has reported progress in modernizing its technology, but a funding shortage threatens to derail its efforts.

The IRS faces a funding shortfall as resources allocated by the Inflation Reduction Act for digital modernization initiatives are expected to run out in fiscal year 2026, FedScoop reported.

To maximize progress before the funding gap, the IRS plans to accelerate digitization efforts in fiscal year 2025, including modernizing core systems, expanding online services and making more forms accessible in mobile-friendly formats.

Despite the challenge, the agency highlighted achievements, including enhancing its online services such as the improved “Where’s My Refund?” tool, which reduced phone calls and paperwork, and the “Direct File” pilot, where over 140,000 tax returns were filed.

Additionally, the IRS leveraged artificial intelligence to identify complex collaborations for audits, which yielded audits of large corporations and partnerships across various industries.

However, the IRS emphasized the need for sustained funding to achieve its long-term goals. Without continued support from Congress, the agency warns of a return to past issues, including limited taxpayer service availability, outdated technology and potentially lower audit rates.