The Internal Revenue Service’s acting chief counsel, William Paul, has been reportedly removed from his role at the agency and replaced by Andrew De Mello, an attorney in the chief counsel’s office who is deemed supportive of Elon Musk’s Department of Government Efficiency.

News reports said Paul, who had a long history with the IRS and was named acting chief counsel two months ago, was demoted because he clashed with the DOGE’s alleged push to share tax information with multiple agencies.

This as DOGE moves ahead with plans to cut tens of thousands of employees from the IRS in the middle of tax season, citing savings for the federal government, as well as a hunt for fraud and abuse. Some 7,000 probationary IRS employees with roughly one year or less of service have been laid off from the agency; as much as half of the 90,000 in the IRS workforce could be let go.

The Washington Post has reported that checking federal benefits spending against tax records could help Musk’s team pinpoint duplicative or erroneous payments.

An immigration angle

A recent lawsuit filed in the U.S. District for D.C., says the reason for the demotion has more to do with the Trump administration’s immigrant crackdown.

Centro de Trabajadores Unidos and Immigrant Solidarity Dupage, two Illinois-based nonprofits that deal with advocacy for the immigrant and Latino communities, filed the lawsuit against Treasury Secretary Scott Bessent, the IRS and it’s acting commissioner, Melanie Krauss, to prevent the agency from unlawfully disclosing return information to immigration enforcement authorities.

“Congress enacted taxpayer privacy laws in response to the Nixon administration’s abuse of the IRS tax records for political purposes,” Nandan Joshi, co-counsel for the plaintiffs, said in a statement.

“The Trump administration is setting a dangerous precedent that puts every taxpayer at risk,” added co-counsel Kevin Herrera. “The IRS should never be commandeered as a tool for surveillance and immigration enforcement.”

The suit claims that IRC Subsection (g) of Sec. 6103 authorizes the president to obtain return and return information via signed, written request that identifies the taxpayer’s name and address. “It does not authorize the president to obtain returns or return information in bulk for purposes of identifying targets for immigration enforcement,” the suit reads.

Although Sec. 6103 includes no language authorizing disclosure of return and return information for immigration enforcement, it does authorize such disclosure for certain criminal investigations, the suit claims. But “the administration has incorrectly characterized all individuals not authorized to remain in the U.S. as criminals,” circumventing 6103’s narrow exceptions to confidentiality of tax records — “the largest source of the names and current addresses of non-citizens within the federal government.”

Under the leadership of its previous acting commissioner, Douglas O’Donnell — who retired approximately a month after taking on the role — the IRS had refused to provide the requested information, the suit says, adding, “The statements and activities of the Trump administration have made clear their intention to use mass collection of taxpayer information to advance civil immigration enforcement, in contravention of the plain language of the Tax Code.”

The threat of a government shutdown appears to be receding Friday, but the IRS would nevertheless still operate during tax season, even at lower capacity, in the event of a shutdown.

“During a shutdown, the IRS operates with a limited workforce,” said Misty Erickson, a tax content program manager at the National Association of Tax Professionals. “While e-filed returns may continue to be processed, paper returns and those requiring manual intervention could face delays.​If there is a shutdown, filing electronically can help ensure there is no delay in return processing.”

IRS acting commissioner Melanie Krause sent an email to employees on Thursday telling them they would be exempt from furloughs “due to existing appropriations,” which apparently come from the Inflation Reduction Act, according to a newly updated contingency plan from the Treasury Department. The IRS would be able to operate fully staffed for at least five days. However, the continuing resolution that was largely passed by House Republicans and that the Senate needs to pass by Friday night with the help of some Senate Democrats would cut another $20.2 billion in funding from the IRS funding under the Inflation Reduction Act, after two successive cuts of over $20 billion in the past two years. 

Amid the uncertainty, the Treasury released a reassuring statement. “The Treasury put out a statement that if there were a shutdown, they were going to fund the IRS through April 30, with all of it 100% open, which means it would not cause a problem for the filing season. But then after April 30, the IRS would go to zero,” said Tax Guard CEO Hansen Rada. 

Erickson believes that tax refunds would continue to be processed, even if there were a shutdown. “In prior shutdowns, for example, the 2019 shutdown, the IRS announced it would process tax returns and provide refunds as scheduled, even amidst the funding lapse,” she said. “Congress directed the payment of all tax refunds through a permanent, indefinite appropriation (31 U.S.C. 1324), and the IRS has consistently believed that it has the authority to pay refunds despite a lapse in annual appropriations. Assuming Congress follows suit, there should be minimal impact as long as a return does not stop for review.”

However, with all the staffing cutbacks in recent weeks at the IRS, taxpayers and tax professionals are feeling worried. The IRS is said to be planning to lay off up to half its workforce and has already cut between 6,000 and 7,000 employees. However, on Thursday,a federal judge ordered the Trump administration to reinstate employees at the Treasury Department and five other departments.

“There’s certainly a lot of uncertainty and a lot of anxiety about whether the Service is going to have the manpower to provide the kind of customer service that they have in recent years,” said Anne Gibson, a senior legal analyst at Wolters Kluwer. “There’s an order saying to reverse some of those firings. On the other hand, a lot of people have already been gone for quite a while from the office, and the ruling did say this doesn’t mean there can’t be reductions in force if they’re done properly. So the firings that have already happened that violated the terms that they were supposed to have, those need to be reversed. But we’ve seen that there’s already plans being talked about for further layoffs at the IRS. I’ve seen people saying they’ve heard 50% being let go at some point in the future.”

Tax professionals are trying to reassure the public about filing their tax returns, despite the turmoil this tax season. “So far, it’s going smoothly,” said Alison Flores, a manager with the Tax Institute of H&R Block. “What we do want to encourage everyone to do is file on time. So if you need to file a return, you want to try to file by April 15. Most people are owed refunds from the IRS. Go ahead and get that return in. If you’re a person who owes taxes, you also want to file. The penalty for failure to file is actually larger than the penalty for failure to pay.”

In case there are service disruptions, the NATP has some advice for taxpayers. “If they plan to file a return on paper, consider using a software service or tax professional to file it,” said Erickson. “E-filed returns should be processed as usual. Take time to compare last year’s return and informational documents to what you have this year. This allows you to double-check that you have everything before you file. We know there are delays with some forms this year, so filing early without that information will cause a problem.”

More than 1.1 million taxpayers nationwide are still owed unclaimed refunds for tax year 2021, but they only have another month to submit that year’s returns.

The Internal Revenue Service estimates that $1,025,336,800 in refunds remain unclaimed by 1,142,000 taxpayers who have not filed their 1040 for the 2021 tax year. The deadline for filing to claim these refunds is Tax Day, April 15.

The median refund is an estimated $781, which does not include the Recovery Rebate Credit or other credits. California and Texas have the most taxpayers still owed a 2021 refund, followed by New York and Florida. Median unclaimed returns are highest in New York ($995), Pennsylvania ($993), Rhode Island ($946) and Massachusetts ($936).

Current and prior-year tax forms are on the IRS.gov Forms and Instructions page or can be obtained by calling (800) 829-3676.