The Internal Revenue Service reportedly intends to reinstate thousands of probationary employees who were fired after two courts ordered it to do so.

IRS acting commissioner Melanie Krause announced in a conference call Wednesday that approximately 7,0000 fired employees would be able to return to work by April 14, a day before the end of tax season, according to the Federal News Network. The IRS also sent out an email to the employees, who the Trump administration began firing in February.

“You are receiving this email as one of approximately 7,000 probationary employees who were separated from service and have been reinstated in compliance with recent court orders,” said the email. “At this time, while you remain on administrative leave, you will soon receive instructions for how to return on full-time duty by April 14.”

The employees will be able to get back their identity badges, computer equipment and workspace assignments and will be allowed to temporarily take advantage of telework if office space isn’t available for them. However, employees are also being given the option to not return to work at all.

“If you wish to not return and voluntarily resign from federal service, you should send an email to [email protected] as soon as possible,” said the email. Please know that outside employment does not necessarily prevent you from returning to work. If you have secured outside employment and wish to continue with the outside employment while re-employed with the IRS, you must submit an outside employment request to your manager.”

The IRS had placed many of the fired employees on paid administrative leave in order to comply with a federal judge’s order in California requiring employees at the Treasury Department and five other government agencies to be reinstated. However, the judge later ruled that putting the fired employees on paid administrative leave wasn’t enough to comply with his preliminary injunction. Another judge in Maryland on Tuesday ordered 18 federal agencies to reinstate workers in 19 states and the District of Columbia. The National Treasury Employees Union and other unions have filed lawsuits against the Trump administration over the firings and an executive order eliminating collective bargaining rights.

Some IRS employees have reportedly been using the time on paid administrative leave to search for other jobs, which could help fill the ranks of accounting firms and other businesses searching for talent.

Joseph Perry, national tax leader and managing director at the accounting and professional services firm CBIZ, has been seeing more resumes coming in from IRS employees.

“We actually have an uptick in resumes,” he recently told Accounting Today. “In fact, I was connected by a business leader to somebody that is still working for the IRS, but is not going to be there too much longer, and he’s exploring other options. So there is going to be, I think, an uptick in many companies. The IRS has really good, talented people that are going to come back into industry, that are going to be very useful to firms like our firm, CBIZ, to bolster our ability to service our clients in an effective way and be able to do that. It’s pretty interesting, right? We’re one of the top 10 firms. As it relates to firms that may be in the top 25, I would tend to think it’s a unique opportunity for them to pick up somebody that they otherwise wouldn’t have been able to pick up, somebody with talent and experience, and that probably would lead to them providing services that they otherwise wouldn’t have.”

Staffing companies have seen some interest, but the uncertain state of the various federal court cases may have been keeping people on the sidelines. “It’s still a bit early to tell if there’s been a significant increase in interest from former federal employees in the private sector accounting and tax space,” said Brandi Britton, executive director of finance and accounting practice at the staffing company Robert Half. “While we do see candidates with federal experience, it’s difficult to immediately distinguish between those transitioning directly from federal roles and those who have federal experience as part of their broader career background. What we do know is that finance and accounting leaders are facing ongoing skills gaps and are actively seeking candidates to fill in-demand roles. A few notable skills gaps include finance and FP&A, financial reporting and tax expertise.” 

The requirements for the Clean Vehicle Credit seemed a little complicated when they were introduced in the Inflation Reduction Act in 2022, and they are proving to be a little difficult in practice. 

There were restrictions based on where the vehicle was assembled and where the critical minerals and battery components originated. Then there were limits on the manufacturer’s suggested retail price for the vehicle and the income of the purchaser. The manufacturer was required to have vehicles pre-approved for a given level of credit and the dealer was required to be registered.

Some provisions were phased in over time, including the option to transfer the credit to the dealer, which became effective for 2024. The Internal Revenue Service then added certain compliance requirements, including filing a time of sale report (the Clean Vehicle Seller Report (Form 15400)) within 72 hours of the vehicle being placed in service and submitting information through an Energy Credits Online portal.

Some of these provisions were designed to simplify the process. When a potential purchaser entered the showroom, the purchaser would be able to find out in real time what amount of credit was associated with a particular vehicle. A time-of-sale report could be filed with the IRS electronically via the portal to determine even before the sale was finalized if the vehicle qualified for the credit. 

Unfortunately, things have not worked out quite so well in practice. 

The more simplified requirements in place for purchases in 2023 appear to have lulled dealers into the belief that the same practices would be fine for 2024. Some dealers, far from using the time-of-sale reports to make sure the credit was cleared for approval at the time of sale, failed even to prepare the reports. Purchasers, unaware of the new requirement, failed to demand a copy at the time of sale. In those instances where the purchaser retained entitlement to the credit, rather than transferring it to the dealer, the purchaser found that, when they filed their 2024 tax return in 2025, the IRS rejected the claim for the credit. When the purchaser contacted the dealer about the problem, the dealer found they were unable to correct the issue because the time-of-sale report had not been filed within the required 72-hour period and any late submission was rejected as untimely. 

Only 7% of purchasers in 2024 retained their entitlement to the credit. The rest of the purchasers transferred entitlement to the credit to the dealer, resulting in a price rebate on the vehicle purchase. However, again, when the dealer sought to claim the credit transferred from the purchaser, the dealer encountered the same problem of an untimely time-of-sale report, which could not be corrected because the 72-hour time period had expired.

This glitch in the system impacted dealers even more than purchasers and got the attention of the National Automobile Dealers Association, which immediately started pressuring the IRS and Congress to find a solution to the problem. In response, the IRS has informed NADA that it is waiving the 72-hour requirement and is accepting late time-of-sale reports into the Energy Credits Online portal. The IRS has set no time limits so far on the submission of late reports.

Corrective action

Dealers will want to refile all rejected time-of-sale reports that had been rejected as untimely. Dealers will also want to make sure they are registered with the IRS and notify any purchasers that the credit has now been approved. 

Purchasers will want to contact the dealer for a copy of the time-of-sale report and make sure the dealer is resubmitting the report or submitting it for the first time. Purchasers will need to file a Form 8936, “Clean Vehicle Credits,” to be used for the Clean Vehicle Credit, the Previously Owned Clean Vehicle Credit and the Qualified Commercial Clean Vehicle Credit. Form 8936 is required to be filed either when the purchaser is claiming the credit on the purchaser’s tax return or when the purchaser has transferred the credit to the dealer. 

In some cases, where the purchaser had already filed a tax return where the credit was rejected by the IRS, the purchaser will be required to file an amended tax return to claim the credit once the time-of-sale report has been accepted.

Termination of the Clean Vehicle Credit

While under current law, the Clean Vehicle Credit is scheduled to continue until 2032, Congress is working on tax legislation expected to be enacted this year that might repeal the credit. President Trump has expressed his opposition to many of the clean energy credits included in the Inflation Reduction Act enacted in 2022, and in particular opposition to the Clean Vehicle Credit. 

Congress is still in the early stages of working on this legislation, and it is not clear to what extent this provision might be included in the final legislation. If enacted at all, it is likely that the legislation would not be enacted until later in 2025. This makes it unlikely that any repeal of the Clean Vehicle Credit would be made retroactive to the beginning of 2025. However, it is possible repeal could be effective as of the enactment date of the legislation. 

Taxpayers considering the purchase of an electric vehicle in 2025 may want to monitor the progress of this tax legislation through Congress and whether a repeal of the clean vehicle credit appears to be included. Purchase of the vehicle before enactment of the legislation may preserve the credit for the taxpayer. 

Tariffs

The limit on the manufacturer’s suggested retail price for electric vehicles could become more difficult for manufacturers and dealers to stay under if the tariffs on imported automobiles and auto parts force manufacturers to raise prices. The MSRP limit for vans, SUVs and pick-ups is $80,000 and for other vehicles $55,000. If the electric vehicle currently under consideration for purchase is close to these price limits, a taxpayer might want to consider purchasing the vehicle sooner, before these tariffs achieve their full impact.

An aggressive suite of tariffs announced Wednesday by President Donald Trump will significantly complicate the Federal Reserve’s job as it struggles to quash inflation and avoid an economic downturn, likely keeping officials in wait-and-see mode.

“They’re basically our worst-case scenario,” said Diane Swonk, chief economist at KPMG, who said the tariffs raised the likelihood of an economic slowdown in the U.S.

But Swonk and other economists said Fed officials will likely hold off on lowering rates to cushion the economy while they assess the potential impact of the tariffs on inflation.

The levies, which are harsher than many analysts were anticipating, are expected to raise prices on trillions of dollars in goods imported each year if left in place. A full blown trade war, with escalating retaliatory tariffs between the U.S. and other countries, could disrupt supply chains, reignite inflation and worsen a souring economic outlook.

Trump said Wednesday the U.S. would apply a minimum 10% levy on all imports to the U.S., but tariffs on many countries will far exceed that. China’s cumulative effective rate is estimated to exceed 50%. The European Union will have a 20% levy and Vietnam is seeing a 46% tariff.

Bloomberg Economics estimated the new levies could lift the average effective tariff rate in the U.S. to around 22%, from 2.3% in 2024. Omair Sharif, president of Inflation Insights LLC, calculated a level of 25% to 30%.

For Fed officials still working to rein in the price gains that spiked during the pandemic, however, the inflationary fallout from the president’s actions may limit policymakers’ ability to step in and bolster the economy. 

Fed Chair Jerome Powell is scheduled to speak at a conference Friday in Arlington Virginia.

“It puts the Fed between a rock and a hard place,” said Jay Bryson, chief economist for Wells Fargo & Co. “On the one hand, if growth slows and the unemployment rate comes up, they want to be more accommodative, they want to be cutting rates. On the other hand, if inflation goes up from here, they kind of want to be raising rates. So it really puts them in a tough spot.”

Joseph Brusuelas, chief economist at RSM US LLP, agreed the new regime was far tougher than many analysts expected and will raise the probability of a US recession.

“I expect inflation into 3% to 4% range by the end of the year,” he said, adding the Fed isn’t likely to provide a cushion to the economy with rate cuts in the near to medium term. “The act taken today by the White House puts the Fed in much more difficult position, given the pressure on both sides of its mandate.”

By Thursday morning, some economists had lowered their projections for the number of interest-rate cuts they see in 2025. Morgan Stanley said they now expect no cuts this year, down from one.

Investors, however, tilted the other way. Fed funds futures, possibly reflecting higher recession fears, implied the outlook for rate reductions had increased. That market now points to three to four cuts this year. 

The Fed left borrowing costs unchanged last month. Policymakers have emphasized the labor market is healthy and the economy is solid overall. But the uncertainty caused by Trump’s rapidly-evolving trade policies had stoked fears of higher inflation and tanked sentiment among consumers and businesses even before Wednesday’s announcement.

A closely watched survey from the University of Michigan showed consumers’ outlook for inflation over the next 5 to 10 years rose in March to its highest level in more than three decades. The outlook for personal finances declined to a record low.

Many business leaders are in wait-and-see mode, putting investment plans on hold until there is more clarity in the outlook for tariff policy and tax legislation. Forecasters have also downgraded their growth outlook for the year, according to the latest Bloomberg survey of economists.

A substantial escalation in tariff tensions with back-and-forth retaliatory levies against major trading partners could slow economic activity in the U.S. and globally, economists said.

“If you get that escalation scenario, then you’re just talking about fundamentally less productive economies around the world,” Seth Carpenter, chief global economist at Morgan Stanley, said Wednesday morning on Bloomberg TV ahead of the tariff announcement. “It’s not a zero-sum game. It could actually be a net loss for the whole global order.”