We report on an annealing-induced "gate sinking" effect in a 2-nm-thin In0.17Al0.83N/AlN barrier high electron mobility transistor with Ir gate. Investigations by transmission electron microscopy linked the effect to an oxygen containing interlayer between the gate metal and the InAlN layer and revealed diffusion of oxygen into iridium during annealing. Below 700 degrees C the diffusion is inhomogeneous and seems to occur along grain boundaries, which is consistent with the capacitance-voltage analysis. Annealing at 700 degrees C increased the gate capacitance over a factor 2, shifted the threshold voltage from +0.3 to +1 V and increased the transconductance from 400 to 640 mS/mm. (C) 2010 American Institute of Physics. [doi: 10.1063/1.3458700]