EXECUTIVE SUMMARY
• The Trump administration furloughed almost half of Internal Revenue Services (IRS) employees and issued 1,300 layoffs during the October 2025 shutdown.
• The cuts have delayed implementation of the One Big Beautiful Bill (OBBB), making Republicans’ tax-simplification effort appear inefficient and disorganized.
• Businesses and individuals now face higher costs as they rely more on outside tax preparers, underscoring the need for a lean, tech-driven IRS that functions with fewer staff.

INTRODUCTION
The October 2025 government shutdown left the IRS with around half of its staff at work. Roughly 34,000 employees were furloughed and 1,300 others laid off, just as the agency was implementing the OBBB. The law, a flagship Republican reform, aimed to simplify compliance and reduce red tape through clearer deductions and phased-out credits.

Instead, the furlough and reductions have slowed that rollout. The IRS must issue updated regulations, revise forms, and clarify transitional rules. With fewer staff, deadlines have slipped, and filings have stalled. Each delay erodes the perception that the OBBB reforms can be delivered efficiently.

The broader consequence is a credibility problem. Republicans positioned OBBB as proof that lower complexity could coexist with fiscal restraint. A poorly executed implementation undermines that argument, raising doubts about whether simplification is achievable without adequate administrative capacity.

DELAYS IN IMPLEMENTING OBBB
The furlough halted guidance on key provisions: business deductions, depreciation schedules, and the temporary higher State and Local Tax (SALT) cap. Tax professionals report that the IRS has paused several draft regulations and postponed new form instructions. Companies planning investments based on updated depreciation timelines now face uncertainty. Accountants cannot advise clients with confidence because the agency has not finalized core rules.

The result is political as well as administrative. What was intended to showcase efficient Republican governance now appears bogged down. Without clear guidance, taxpayers view the system as more complicated, not less. A simplification bill that cannot be implemented efficiently risks being remembered as bureaucratic failure rather than reform success. Each week of delay makes the party’s signature achievement appear less efficient and more uncertain.

RISING COMPLIANCE COST AND SYSTEMIC STRAIN
According to internal IRS paperwork-data estimates provided, taxpayers collectively spend 3.5 billion hours and $139 billion each year on federal tax compliance, roughly 3 percent of total federal revenue. As the IRS struggles to process returns and publish guidance, those costs climb higher.

For individuals, professional tax preparation now averages $220 to $320 per return depending on filing complexity. For small businesses, the burden is far greater: a 2025 survey found that a Schedule C sole proprietor pays about $600, while S-Corporations and partnerships range between $800 and $1,200 per return. More complex entities such as C-Corporations can exceed $4,000 per filing (Bluegrass Professional Associates, 2025).
These expenses are magnified when taxpayers must rely more heavily on external preparers. Small firms divert cash from operations to consultants, while households face higher filing fees and longer refund delays. Instead of simplifying the process, the administrative slowdown has pushed more Americans toward paid help, contradicting the OBBB’s goal of reducing dependence on professional services.

Complexity has shifted from the statute to the filing desk. Each unresolved instruction or outdated form adds hours of labor that taxpayers must outsource, consuming the efficiency gains OBBB was meant to deliver. If this pattern continues, compliance will become a two-tier system, one for those who can afford expert assistance and another for those who cannot. That imbalance undermines both fairness and confidence in reform.

POLICY OUTLOOK
A lean IRS can still be an effective IRS, but it must operate smarter, not thinner. Congress and Treasury should stabilize core operations before pursuing additional cuts. Processing returns, issuing timely guidance, and maintaining enforcement should remain the agency’s priorities.

Modernization, not manpower, should drive future efficiency. While the One Big Beautiful Bill Act (OBBB) addresses tax policy and federal spending, it does not include a technological overhaul. The IRS’s automation and digital upgrades, automated form updates, expanded e-filing, and improved online self-service, stem from its separate Paperless Processing Initiative, an ongoing modernization plan launched before OBBB.

Under this initiative, the IRS continues to expand its Individual Online Account (IOLA) features to let taxpayers track amended returns, view payment history, and use secure messaging. It is also rolling out mobile-friendly, paperless forms and expanding Modernized e-File (MeF) capabilities to accept a broader range of filings. These improvements are independent of OBBB but essential to making its simplification provisions workable in practice.

Short-term furloughs from the shutdown are likely to create temporary backlogs and processing delays that can be resolved once staff return. The layoffs, however, represent a more lasting challenge if they survive legal scrutiny. Permanent reductions in workforce will strain the IRS’s capacity to administer OBBB effectively, particularly in issuing new regulations and maintaining taxpayer services.

A smaller workforce equipped with modern tools can process returns faster and reduce backlogs, but that transition must be deliberate. Gradual attrition and retraining should replace abrupt cuts that strip institutional knowledge. Building a lean IRS is less about reducing headcount and more about ensuring the agency can perform its essential functions through modernization and stable management.

CONCLUSION
The 2025 IRS furlough and layoffs have slowed OBBB’s rollout and made a Republican simplification effort look inefficient. Businesses and households now spend more time and money navigating a system that was supposed to be easier. The lesson is clear: simplification requires execution.

The bottom line: a lean IRS must also be a capable IRS. Without stable capacity and modern systems, even well-intentioned reforms turn into red tape. Restoring efficiency, not expanding bureaucracy, is the key to turning OBBB’s promise into a functional reality.