IRS Commissioner John Koskinen, in an email sent to workers and obtained by Fox News, predicted a messy tax season on several fronts.
"The effect of these cuts will hurt taxpayers and our tax system," he wrote.
>>VIDEO: Could IRS budget cuts affect your tax refund?
He said the cuts could force the IRS to shut down operations for two days later this year, resulting in unpaid furloughs for employees and service cuts for taxpayers.
But in the near-term, the commissioner said cuts in overtime and temporary staff hours could cause delays in refunds.
"People who file paper tax returns could wait an extra week -- or possibly longer -- to see their refund," he wrote, adding: "Taxpayers with errors or questions on their returns that require additional manual review will also face delays."
He warned that IRS customer service, which already has faced heavy criticism, could be "diminished further." Koskinen set a low bar for what taxpayers can expect.
"We now anticipate an even lower level of telephone service than before, which raises the real possibility that fewer than half of taxpayers trying to call us will actually reach us. During Fiscal Year 2014, 64 percent were able to get through. Those who do reach us will face extended wait times that are unacceptable to all of us," Koskinen wrote.
Further, he warned of delays to IT investments of more than $200 million, predicting this would delay "new taxpayer protections against identity theft."
The IRS has faced tough congressional scrutiny over the last two years in large part over the scandal involving the targeting of conservative groups, and some lawmakers are reluctant to pour more funding into the agency.
But Koskinen says the agency's $10.9 billion budget is now the lowest level of funding since 2008. When adjusted for inflation, the budget hasn't been this low since 1998, he said.
He said a short-term shutdown may loom.
"Unfortunately, this means at this time we need to plan for the possibility of a shutdown of IRS operations for two days later this fiscal year, which will involve furloughing employees on those days," Koskinen wrote in the email. "Shutting down the IRS will be a last resort, but I want to be upfront with you about the problem."
Koskinen said the agency will extend a partial hiring freeze through the end of the budget year in September. He said fewer enforcement agents will cost the federal government at least $2 billion in lost tax revenue.
"IRS employees are doing their best to handle the rising demand for their services, but they will simply not be able to keep up," said Colleen M. Kelley, president of the National Treasury Employees Union. "I have urged the IRS not to make any decisions on furlough days this early in the fiscal year and to work with us to find other alternatives."
The Associated Press contributed to this report.
Read more: http://fxn.ws/1ykuM7F