IRS canceled $225M in taxpayer-facing contracts

The Internal Revenue Service canceled contracts as part of the federal effort to reduce overall spending — but the effect it will have on taxpayer services is yet to be seen.

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The Treasury Inspector General for Tax Administration identified in a report that out of those contracts, the IRS canceled 115 of the 146 contracts that included taxpayer-facing services (79%), potentially saving $170 million in avoided costs and over $85 million in open obligations, as of July 2025. The remaining 31 contracts were either descoped, retained, ended or suspended. 

Canceling these contracts — which included taxpayer-facing services such as updates to tax filing systems, interpreter support and expert witness testimony — may create service gaps, delay assistance and require the IRS to adjust its resources, according to TIGTA. The report only provided information, so it did not make any recommendations to the IRS. 

The IRS OCPO Procurement Hub user guide included factors the agency should consider when cancelling contracts, including whether the contract will impact taxpayer support. 

Of its over 3,000 active contracts, the IRS identified 501 contracts for potential cancelation. It canceled 344 of those contracts (69%), potentially saving a total $605 million, comprising $440 million in avoided costs and $205 million in open obligations. (An open obligation is the difference between how much the IRS has committed to spending and how much has been spent to date.)

By category, canceled contracts that avoided the highest costs were funded by multiple categories (45 contracts totaling $295 million), followed by operations support (110 contracts, $210 million), enforcement (111 contracts, $43.5 million), business systems modernizations (32 contracts, $77 million) and taxpayer services (12, $9 million).

Canceled contracts that avoided the highest costs included e-file updates ($119 million), information returns updates ($21 million), Taxpayer 180 support services ($18 million) and Taxpayer First Act initiative support ($14 million).

Small business vendors were party to 251 (87%) of the 322 cancelled contracts, with $234 million in avoided costs and $147 million in open obligations. Small disadvantaged businesses had the most canceled contracts (113 contracts totaling $271 million), followed by women owned (69 contracts, $104 million), HUBZone (34 contracts, $96 million), veteran owned (33 contracts, $48 million) and service-disabled veteran owned (28 contracts, $40 million).

It is important to note that cost savings could only be estimated on 322 of the 344 canceled contracts because of their contract type. The remaining 22 contracts make up 89% of the total value of cancelled contracts, representing a potential $11 billion, according to TIGTA.