The US Internal Revenue Service (IRS) is pausing its technology modernisation efforts to evaluate the impact of AI on tax collection and operations, a senior official announced.

The review will include recent initiatives such as the Direct File system, which allows US taxpayers to submit returns for free. AI-driven advancements in customer service and data processing have raised questions about the agency's long-term strategy.

As the Trump administration prepares for widespread staff reductions in federal agencies, a source familiar with IRS plans indicated that up to a quarter of the agency's workforce could be cut.

The IRS has not confirmed specific numbers but acknowledged that changes in technology could lead to a realignment of staff. Treasury Secretary Scott Bessent has expressed confidence that AI will improve tax collection efficiency, though no official budget or workforce reduction targets have been set.

The pause reflects shifting priorities in IRS funding, which was originally bolstered by the 2022 Inflation Reduction Act. Republican lawmakers have pushed to reduce the agency's modernisation budget, arguing that enhanced funding could lead to unnecessary audits.

Despite the pause, the IRS has assured taxpayers that the 2025 filing season will not be affected, with tax returns and refunds continuing as usual.