The IRS graded itself on the one thing DOGE tried not to cut

Processing returns is the part of tax administration that runs on a statutory calendar and mostly on software: 140.2 million individual returns in, more than 90.4 million refunds out ^[2]. Audits and collections have no April date. That asymmetry carries O'Donnell's argument. He told Fortune that DOGE's cutting appeared concentrated in the enforcement and technology space while service levels were held as intact as possible, and that no strategic document exists explaining the objective ^[8]. If that reading is right, the filing season is the metric the cuts were designed not to disturb, and the agency is quoting it as proof ^[3].

The other number the IRS offers is an 11 percent rise in the average refund, which its own spokesperson attributes to the President's Working Families Tax Cuts ^[4]. That is a function of tax law, not of operating capacity. Note also that the count of refunds slipped while the average rose, so more money went out the door across fewer payments ^[4].

Then the headcount. The agency expects to end 2026 with about 74,000 employees and calls that relatively stable against the end of 2025 ^[5]. Against the 100,000 it had before DOGE took more than a quarter of the workforce ^[1], it is roughly 26,000 positions and about 26 percent short ^[1]. Stability here describes the floor.

The paper file is where the cost of the sequencing shows. A February report from the Treasury Inspector General for Tax Administration found paper returns are 6 percent of all returns but 72 percent of processing costs ^[9]. Per return, that is paper costing something like 40 times what an electronic return costs to handle ^[2]. The IRS wants paper processing down from $450 million to under $20 million by 2029 ^[10], a cut of at least $430 million, about 96 percent ^[3]. That is the cheapest money in the building, and O'Donnell's point is that you have to spend labour to collect it: automation raises demand for workers first, because people have to smooth out the kinks and because productivity gains expand operations ^[12]. Meanwhile Bisignano told the Senate Finance Committee in April that the agency cut $2 billion from its IT budget by renegotiating, scaling back and eliminating contracts, without operational disruption ^[11].

O'Donnell is careful about where the blame sits. He says the problems predate DOGE and the current administration, with underinvestment across multiple administrations ^[13]; the agency has been trying to go paperless for nearly four decades ^[14]; the 2022 Inflation Reduction Act attached $80 billion and a modernization plan to fix exactly this ^[15]. His claim about the last eighteen months is narrower and harder: after the first wave of reductions in February of last year, progress did not stall, it reversed ^[16].

Weigh the messenger. O'Donnell worked at the IRS from 1986 to 2025 and was acting commissioner twice ^[6], and he now sits in KPMG's Washington National Tax practice ^[7], advising the sort of taxpayers who deal with the enforcement function he says is thinning. That is a reason to check his arithmetic, not to skip it. The arithmetic holds: an agency down 26,000 people ^[1] that has also cut its technology spend ^[11] has removed both routes to the paperless savings it has been chasing since the 1980s ^[14].