Amid IRS Staffing Cuts, Case Timelines Impacted

As the IRS wades through staffing cuts and changes at the leadership level, one practitioner sees a “silver lining” for case resolution timelines.

Staffing cuts.

After the Trump administration’s initial move to freeze hiring at the IRS, the agency has been hit with staffing cuts that show no signs of slowing. IRS staffing cuts may total 25,000 workers in the near future, according to Reuters, representing 25% of the agency’s workforce.

While the true extent of staffing cuts is not yet clear, KPMG’s Mary Slonina said the estimates are that 4,000 to 5,000 IRS workers took the “fork-in-the-road” deferred resignation offer. Slonina, speaking on a March 26 KPMG webinar, said that’s on top of the 6,000 to 7,000 probationary employees who were let go via a reduction-in-force. Though a Maryland federal district court judge ordered the reinstatement of those recently hired workers, who typically had been in their roles for less than two years, Slonina explained that most of them were put on administrative leave immediately after being reinstated.

And there are “other shoes that may be dropping” said KPMG’s Aaron Vaughan, referring to staffing losses that may not come officially from the Trump administration. “A lot of people have left either under the fork-in-the-road email nor under the RIF,” Vaughan noted. He’s seen an uptick in IRS retirements unrelated to those two staffing measures, adding “I do think there’s more to come.”

And the staffing cuts follow what Slonina called “quite a bit of attrition” in the IRS workforce over the last 10 to 15 years. Inflation Reduction Act funding had just recently enabled the agency to “start filling back in positions into examination, into the IRS service centers,” she explained.

Leadership changes.

Amid the cuts, leadership has also been in flux at the IRS. That’s not just at the commissioner level, said Slonina, where we’ve seen former Commissioner Danny Werfel and Acting Commissioner Doug O’Donnell resign. “We’ve also seen, over the last several weeks, other executive level front office IRS personnel leave,” she explained.

Slonina noted that Chief of Tax Compliance Heather Maloy, tasked with overseeing IRS examination functions, left the service last week. And Chief Transformation and Strategy Officer David Padrino and Chief Implementation Officer Jonathan Warsh also reportedly left in the last month.

Impacts of the cuts.

NYU’s Tax Law Center has warned that “massive layoffs of IRS staff, including those who audit wealthy and large business filers and bring in significant revenue” will be “costly.” The Tax Law Center cites as costs both “the permanent loss of skilled personnel unwilling to have their livelihoods caught up in legal disputes” and “the lost time on work recovering unpaid taxes from tax evaders and other non-payers.”

And Yale’s Budget Lab estimates cutting the IRS workforce by 50% — as some have predicted — would lead to $395 billion in forgone revenue over 10 years. Beyond impacting the IRS’ capacity to collect revenues, there’s also an indirect effect of the cuts.

“When taxpayers know there’s a higher chance of audit, voluntary compliance tends to improve,” says the Budget Lab. “If the lack of IRS resources leads to a substantial increase in noncompliance, net forgone revenue could rise by $2.4 trillion over 10-years.”

Lawmakers, including Senate Finance Committee Ranking member Ron Wyden (D-OR), are concerned that the cuts “will hobble tax enforcement.”

With the initial influx of Inflation Reduction Act funding, Slonina saw “clients getting picked up for audit more,” “shorter wait times on hotlines,” and “items being picked up and reviewed at the service.” And while at first the new hires “didn’t necessarily have all the prowess that the folks who had been there for the longest time,” Vaughan said that by last December he felt people were “trained up and capable of navigating the IRS systems.”

From a practitioner perspective, the impacts of the cuts and resignations has been “huge,” said Vaughan. “The immediate impact that we’re seeing is a reallocation of resources in ways that we haven’t seen in a very, very long time,” he explained.

In cases where “the audit was languishing” before the cuts, now there may not even be a person to fill a “particular role,” Vaughan explained. Alternatively, the person assigned to a role “is now picking up 18 new cases” to fill in for staff who’ve been cut.

A ‘silver lining’ for audits?

With staff resources stretched thin, Vaughan’s also seeing impacts on case timelines — which he didn’t view as a complete negative. Cases with probationary employees are closing, he explained, but even in cases where the main agent is not a probationary employee, Vaughan’s seeing “an ability to narrow issues.”

Specialists like engineers and economists have, in recent years, “hijack[ed]” case timelines, contended Vaughan. “If I were to put a silver lining on it,” he said, it’s “the first time in a long time that I have seen the domestic and the team leader and team manager functions stand up and tell the specialists, look, we’re cutting bait on this.”

“There’s been a lot of opportunity for narrowing and closure that we haven’t seen in a while,” Vaughan added.

He hopes that a “lasting effect” of the current situation at the IRS will be a “return to sticking to a case plan, sticking to a case timeline, and the people who are responsible for that actually having agency over requiring it” versus “being beholden to specialists.”