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IRS suffers another $20B budget cut

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1 year ago

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The continuing resolution that the Senate narrowly approved last Friday and President Trump signed on Saturday included a $20.2 billion cut in the Internal Revenue Service’s budget, the third such cut since 2023, clawing back over three-fourths of the $80 billion that the IRS was supposed to receive over 10 years from the Inflation Reduction Act of 2022. The agency is now planning to pause its technology modernization efforts.

The budget reduction occurred as the Trump administration and the Elon Musk-led U.S. DOGE Service have already begun layoffs at the embattled agency, with between 6,000 and 7,000 employees cut from its ranks. According to CNN, 6,700 probationary employees at the IRS have been laid off, and 4,700 accepted the voluntary buyout offer from the Office of Personnel Management’s “Fork in the Road” memo, also known as the “deferred resignation program.” However, IRS employees who accepted the buyout offer have been told to continue working through May 15, a month after the April 15 tax filing date, unlike other federal employees, and the buyout program closed as of Feb. 12. 

After the resignations of former IRS commissioner Danny Werfel, who stepped down shortly before Trump’s inauguration, and the abrupt retirement of acting commissioner Doug O’Donnell, the new leadership at the IRS has reportedly been making plans for staff reduction of up to 50%. That percentage now seems to have been revised down to a reduction of about 20% of the agency’s workforce by May 15. However, it’s unclear what the final number will be in the staff reductions. In January, the IRS reportedly had over 100,000 employees, according to the Federal News Network.

“I’ve seen numbers of 20%, I’ve seen numbers of 30%, I’ve seen numbers of 50%,” said Tax Guard CEO Hansen Rada. “It’s really difficult to tell what is true, and I don’t think anybody knows, because the proposal has been private, so there is definitely a giant question mark as to how strong the IRS will be going forward.”

Treasury Secretary Scott Bessent disputed the numbers that have been reported in the news during an interview Sunday with Kristin Welker on NBC’s Meet the Press. “I will tell you that there were about 15,000 probationary employees that we could have let go,” he said. “We kept about 7,500, 8,500 because we view them as essential to the mission. And we will know once we get inside. But what I can tell you is that we are doing a big review. We’re not doing anything — right now it’s playoff season for us. April 15 is game day, and even employees who could take voluntary retirement — the rest of the federal workforce, their date was in February —our date for them is in May. So I have three priorities for the IRS — collections, privacy and customer service — and we’ll see what level is needed to prioritize all of those.”

Despite the cuts in the IRS budget and staffing levels, the agency has spent relatively little of the funding it was set to receive under the Inflation Reduction Act before and after it was reduced. According to a report released last week by the Treasury Inspector General for Tax Administration, as of Sept. 30, 2024, the IRS has spent approximately $9 billion (16%) of its $57.8 billion in Inflation Reduction Act funding. The biggest expenditure was $3.7 billion for employee compensation. “IRS officials indicated that approximately $2 billion has been used to supplement its annual appropriation because the amount the IRS received was insufficient to cover normal operating expenses,” said TIGTA.

The TIGTA report noted that the Further Consolidated Appropriation Act, 2024, provided annual appropriated funding of approximately $12.3 billion for three out of four IRS primary budget activities for fiscal year 2024. However, Congress provided no appropriated funding for business systems modernization, which normally funds upgrades to IRS information technology systems.  

The IRS originally received $79.4 billion in supplemental funding when President Biden signed the Inflation Reduction Act into law in August 2022, and the extra funding was supposed to be used for improving the IRS’s enforcement, taxpayer services and technology efforts. Congress subsequently rescinded approximately $21.6 billion in IRA funding, reducing the available IRA funding to approximately $57.8 billion. In addition to the rescissions, the American Relief Act, 2025, which provides appropriation funding to federal agencies through March 14, 2025, froze another $20.2 billion in IRA enforcement funds. The report said this supplemental funding is available through Sept. 30, 2031, but it was released before the latest cutback from the stopgap funding bill that passed over the weekend, clawing back another $20.2 billion.

Last week, a senior IRS official told reporters that the IRS would be pausing its technology modernization efforts and reevaluating its approach to leverage artificial intelligence, according to Reuters. The IRS is going to be reviewing a number of its recent initiatives during the “strategic pause,” including its Direct File program for free tax preparation, which expanded from 12 states during a pilot program last year to 25 states this tax season. 

The IRS has also been facing questions over the security and privacy over the data in its systems after DOGE employees demanded access to its systems, leading to the ouster of IRS acting chief counsel William Paul, who was replaced by Andrew de Mello. A court granted a preliminary injunction against DOGE getting access to taxpayer data held by the Treasury Department in response to a lawsuit from 19 states, led by New York.

“The preliminary injunction that’s in place in New York v Trump prohibits any access to IRS data systems by people at DOGE or employed by DOGE,” said Anne Gibson, a senior legal analyst at Wolters Kluwer. “For the moment, that seems like it would prevent their access to IRS data systems, and if they were to access it, it would be in violation of the preliminary injunction. That said, this preliminary injunction is on the basis that the training, vetting and credentialing of the DOGE employees who did have access to Treasury data briefly was inadequate and wasn’t done properly. And the government is given an opportunity to file a report with the court explaining how they would give DOGE employees proper training, proper oversight, proper vetting, and if they could do that, the preliminary injection would be reconsidered, and that process has actually already started.”

A key date in that process is today. “The government submitted a report,” said Gibson. “It seemed to be only in relation to only one employee, but the court, on the basis of them following that report, set up a new briefing schedule, the final pieces of which are due on the 17th of March, so an opportunity for the government to file their motion, and for the states to file their opposition motion, and then for replies. That’s all due by March 17, and then we could see further action from the court, so there’s a possibility that that preliminary injunction, if the court is happy with the government’s new process, could be lifted relatively soon.”

A lawsuit has also been filed by a pair of immigrant advocacy organizations over the Department of Homeland Security’s demands for information from taxpayers suspected of being in the U.S. illegally, specifically from holders of Individual Taxpayer Identification Numbers, also known as ITINs. This reportedly led to O’Donnell’s abrupt retirement, as such a demand could violate Section 6103 of the Tax Code, which provides civil and criminal penalties for improper disclosure of taxpayer information.

“In terms of Section 6103, I think that’s a bigger issue,” said Gibson. “The restrictions on both disclosure of tax return information, or even just accessing tax return information that’s not for one of the specified purposes that’s laid out in that section, it’s very stringent, very strict requirements there, and there are criminal and civil penalties for violating that, and it specifically references the strict requirements for giving tax return information to the executive branch and to the President, in particular the agencies under the president. However, if that section were violated, any criminal or civil penalties would need to come after the Attorney General brings a case. That’s a question if that would happen. On the other hand, taxpayers can bring a lawsuit for money damages if their data has been inappropriately accessed.”

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Accounting

Global ESG Reporting Standards and Double Materiality Compliance

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5 days ago

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August 9, 2026

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Corporate accounting departments face expanding reporting expectations as international sustainability disclosure standards achieve regulatory enforcement across major global jurisdictions. Chief Accounting Officers (CAOs) and corporate controllers are establishing rigorous internal accounting controls to treat Environmental, Social, and Governance (ESG) metrics with the same data precision, auditability, and governance as traditional financial statements.

Regulatory Harmonization Under Global Sustainability Frameworks
The implementation of standardized sustainability reporting frameworks—notably rules established by international sustainability accounting boards—has created unified expectations for public and large private enterprises. Corporations must report standardized metrics covering greenhouse gas emissions (Scope 1, 2, and material Scope 3), energy utilization, workforce demographics, and supply chain governance.

In Europe and other participating international jurisdictions, double materiality principles are mandatory. Under double materiality, organizations must report both how external sustainability risks impact corporate financial performance, and how internal corporate operations affect surrounding environmental and social structures.

Integrating Sustainability Metrics into Core ERP Systems
To provide auditable non-financial data, enterprise organizations are integrating specialized carbon accounting and ESG management platforms directly into core ERP systems. Automated data collectors capture energy utility invoices, logistics fuel consumption metrics, and vendor compliance records in real time.

Establishing automated, traceable data pipelines ensures that non-financial reporting is supported by clear audit trails. This structured approach allows external financial auditors to provide reasonable assurance on sustainability disclosures during annual corporate reporting cycles.

Financial Impacts and Capital Market Disclosure
Accurate ESG reporting directly influences corporate cost of capital and institutional credit ratings. Commercial lenders and institutional asset managers systematically incorporate sustainability metrics into risk pricing models. Companies that demonstrate transparent, verifiable progress in operational energy efficiency and climate risk mitigation benefit from expanded access to green bond markets and lower debt pricing.

Action Steps for Accounting Leadership
1. Implement Double Materiality Frameworks: Conduct comprehensive assessments to identify material financial and operational sustainability metrics.
2. Build Auditable Non-Financial Data Pipelines: Automate ESG data collection within core accounting software to ensure data integrity.
3. Align Sustainability with Annual Financial Filings: Prepare non-financial disclosures concurrently with financial statements to satisfy regulatory audit expectations.

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Accounting

Modernizing Internal Controls: Machine Learning and Continuous Monitoring in Auditing

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1 week ago

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August 5, 2026

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Internal audit departments and corporate risk managers are modernizing internal control frameworks by shifting from periodic sampling techniques to continuous monitoring and machine learning analytics. As operational data volumes increase across enterprise organizations, automated control testing ensures financial integrity, prevents corporate fraud, and streamlines annual audit engagements.

The Limitation of Periodic Audit Sampling
Historically, internal and external auditors evaluated internal controls by reviewing random samples of financial transactions—often analyzing less than five percent of total ledger entries. In complex enterprise environments, periodic sampling methods carry inherent risks of overlooking localized financial misstatements, unauthorized disbursements, or operational control breakdowns.

In 2026, progressive internal audit functions are utilizing automated continuous monitoring platforms that evaluate one hundred percent of financial transactions in real time. Continuous control auditing systems continuously monitor general ledger entries, procurement approvals, and expense reimbursements across all operating subsidiaries.

AI-Powered Fraud Detection and Anomaly Identification
Machine learning models trained on historical corporate financial data excel at identifying subtle transactional anomalies that indicate potential fraud or operational error. Automated systems instantly flag duplicate invoice payments, unapproved vendor creation, unusual journal entry timing, and unauthorized override of authority thresholds.

When an anomaly is detected, the automated auditing platform generates an instant risk alert, allowing internal audit teams to investigate root causes immediately. Early detection prevents minor operational errors from escalating into material weaknesses in financial reporting.

Streamlining External Audit Preparation
Continuous internal control monitoring delivers significant benefits during annual external financial audits. External audit firms can review continuous audit logs and automated control testing documentation, reducing the time required for manual field testing.

This integrated approach lowers overall audit compliance fees, reduces administrative burdens on corporate accounting staff, and provides senior management and audit committees with real-time visibility into the organization’s overall risk profile.

Core Implementation Guidelines
1. Transition to 100% Data Testing: Replace legacy sampling methods with automated continuous audit monitoring systems.
2. Deploy Anomaly Detection Algorithms: Implement machine learning models to identify unauthorized transactions and operational control overrides.
3. Align Internal and External Audit Workflows: Coordinate continuous control testing protocols with external auditors to optimize annual compliance cycles.

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Accounting

Automated Tax Compliance and Global Regulatory Harmonization in 2026

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1 week ago

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August 5, 2026

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Corporate tax accounting departments are navigating an era of unprecedented regulatory complexity as global tax harmonization frameworks take full effect alongside real-time digital tax reporting mandates. Tax directors and accounting teams are adopting cloud-based tax compliance automation tools to manage multi-jurisdictional tax liabilities and satisfy stringent reporting rules across international jurisdictions.

Implementation of Global Minimum Tax Provisions
The implementation of international tax reform agreements—notably the Pillar Two global minimum tax framework—has reshaped multinational corporate tax planning. Multinational enterprises with consolidated revenues exceeding established thresholds must ensure an effective tax rate of at least 15% across every jurisdiction in which they operate.

Accounting teams are implementing specialized tax calculation modules integrated directly into enterprise resource planning (ERP) platforms. These automated tools calculate effective tax rates per country, identify top-up tax liabilities, and generate standardized compliance documentation required by national tax authorities.

Real-Time Digital Invoicing and E-Reporting Mandates
Tax authorities across Europe, Latin America, and Asia-Pacific have enacted mandatory electronic invoicing (e-invoicing) and continuous transaction controls (CTC). Under these systems, corporate transaction data must be submitted electronically to government portals in real time at the point of sale or invoice issuance.

This shift toward continuous digital tax reporting eliminates traditional annual tax audits in favor of ongoing automated compliance monitoring. Accounting departments are upgrading invoicing software to ensure seamless XML data formatting, digital signature authentication, and real-time validation against tax authority databases.

Automation and Data Analytics in Corporate Tax Strategy
To keep pace with dynamic tax legislation, tax departments are transitioning from reactive compliance teams to proactive strategic advisors. Machine learning algorithms analyze corporate transactional data to identify tax credits, research and development (R&D) incentives, and cross-border transfer pricing adjustments.

By automating routine tax return filings and calculations, corporate tax directors can focus on long-term capital structuring, evaluating the tax implications of corporate mergers, and optimizing international supply chain networks.

Strategic Priorities for Tax Executives
1. ERP System Upgrades: Ensure enterprise software is capable of generating real-time, granular tax data required for global minimum tax compliance.
2. E-Invoicing Integration: Implement scalable e-invoicing platforms to satisfy regional continuous transaction control regulations.
3. Strategic Tax Analytics: Utilize predictive tax modeling tools to evaluate structural changes in corporate operations and cross-border trade.

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