The Internal Revenue Service commemorated the 70th anniversary of the April 15 tax filing deadline on Tuesday, but this year the agency has also been suffering through layoffs, budget cutbacks and high-level departures, including its chief information officer.

The IRS noted on Tuesday that the tax-filing deadline moved from March 15 to April 15 in 1955 to give taxpayers and the IRS more time to prepare and process complex tax returns. However, with the budget cuts and the efforts of the Elon Musk-led Department of Government Efficiency, the IRS has also paused its technology modernization efforts.

IRS chief information officer Rajiv Uppal is reportedly the latest high-level official to announce his resignation, according to Reuters. He was overseeing the development and improvement of the agency’s computer and technology systems and is expected to depart later this month. Acting commissioner Melanie Krause also recently announced her intention to resign, following the abrupt retirement of former acting commissioner Douglas O’Donnell and the departure of the previous commissioner, Danny Werfel, in January.

Acting chief counsel William Paul was reportedly removed in March for resisting efforts to share taxpayer data with other agencies like the Department of Homeland Security and its Immigration and Customs Enforcement unit. Chief privacy officer Kathleen Walters also reportedly plans to step down by opting for the Trump administration’s deferred resignation program. 

The high-profile departures come after the approximately 7,000 IRS probationary employees were put on paid administrative leave this year, with plans to cut up to 50% of the IRS workforce after tax season. The National Treasury Employees Union has been warning of the impact of the cutbacks.

“NTEU is incredibly proud of the IRS employees who persevered despite attacks on their jobs and their agency and helped deliver a smooth filing season for millions of taxpayers and business owners,” said the NTEU’s national president, Doreen Greenwald, in a statement. “But the success feels precarious as the administration plans a forthcoming firing spree that will cripple the agency’s ability to serve the American people, before, during and after the filing season.”
 

The NTEU noted that the Trump administration has already removed about 7,000 probationary IRS workers, and the Treasury has announced plans for a broader reduction in force that could impact thousands more IRS employees across the country.

“It is not speculation to say that a gutted IRS helps fewer taxpayers file their returns, slows their refunds, and allows tax cheats to thrive, because we saw all three of those things the last time Congress eviscerated the IRS budget and shrunk the workforce,” Greenwald said. “This administration is intentionally rolling back the recent progress and returning the IRS to the days of long wait times on the phone, case backlogs and uncollected taxes. Administering the Tax Code is a labor-intensive process, and indiscriminately firing thousands of IRS employees will weaken the system that is responsible for 96% of the government’s revenue.”

The smaller the IRS workforce, the less tax revenue is collected, according to a new analysis by the nonpartisan Budget Lab at Yale University. The Treasury has not announced specific figures for the reduction in force, but if the agency were to lose 18,200 employees, the government would save $1.4 billion in salaries in 2026, but collect $8.3 billion less in taxes, for a net revenue loss of $6.8 billion. Over 10 years, if the job cuts are maintained, the net lost revenue would amount to $159 billion.

Inside the shaky state of the IRS

The Urban-Brookings Tax Policy Center held a webinar Tuesday to discuss how the large reductions in the IRS’s funding and staffing would affect taxpayers, as well as the successive buyout offers under the Deferred Resignation Program. 

“What we do know before we get into potential future layoffs is that 11,000 IRS employees out of about 100,000 had initially taken the buyout or been laid off in February, and now another 20,000 we’ve been told this morning are taking another buyout, so a total reduction so far of 30,000 employees out of 100,000,” said Tracy Gordon, vice president for tax policy, codirector and acting Robert C. Pozen Director at the Urban-Brookings Tax Policy Center, citing recent articles from Bloomberg and the Washington Post.

Barry Johnson, a former chief data and analytics officer at the IRS who is now a nonresident fellow at the tax policy center, discussed the advances that the IRS had been making in its technology efforts before the cutbacks. They included:

• Introducing interactive chatbots that used artificial intelligence to interpret taxpayer questions and link them to the appropriate content on its website;
• Expanding online account capabilities for individuals, businesses and tax professionals;
• Introducing the Direct File system for free online tax filing; and,
• Improving the IS’s enterprise case management system. 

“One of the big goals we were working on was to make our data more interoperable and accessible to support modernization, while greatly improving the security of all of our data systems,” said Johnson. “We were making progress in releasing statistics in closer to real time and to automate some of our statistical processes. And we were laying the groundwork to support evidence-based policy-making and program evaluation at all levels of government — again, while ensuring the protection of individually identifiable tax data.”

Much of the extra funding for IRS enforcement, taxpayer service and IT modernization has already been cut by Congress or is in the process of being zeroed out, but the plans are unclear.

“There are many unknowns for personnel, for funding, which according to your charts, may actually be close to zero for modernization right now,” said Pete Sepp, president of the National Taxpayers Union. “The [Inflation Reduction Act] funds may have run out by about out for modernization, and we have zero in appropriations. How in the world is anything going to press forward in that environment? Maybe it can, but we want to see the plan.”

Technology can only go so far in helping taxpayers navigate the IRS.

“What we don’t see now is what’s going to be happening going forward,” said Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS. “How do they propose to improve taxpayer service? Are they going to use AI to eliminate calls? Everybody’s been trying to eliminate the calls since the phone system was set up, and all it does is increase. Maybe you can eliminate some of the repeat callers, the more that you do chatbots and things. But as I keep saying to people, the IRS isn’t like Amazon or your bank. It has enforcement powers that no bank has. And if you’ve ever tried to get a problem resolved with Amazon or any one of these online deliveries, good luck with that. The chat system doesn’t really work really well, and that’s what drives people to the phones. They want to hear from somebody that their issue has been resolved.”

IRS happenings; minimal talk of de minimis; new blog on the block; and other highlights from our favorite tax bloggers.

Lotus operandi

Welcome to the dance

Opportunities and complications

• Taxpayer Advocate Service (https://www.taxpayeradvocate.irs.gov/taxnews-information/blogs-nta/): Proposed voluntary withholding agreements in the Taxpayer Assistance and Service Act could change the game for independent contractors. 
• Tax Notes (https://www.taxnotes.com/procedurally-taxing): In United States v. Schaedler-Moore,  a tenant who became an owner of a property contested the foreclosure action brought by the IRS. How the reason for contesting makes sense given the tenant’s financial outlay even if her legal arguments fail.
• Meyers Brothers Kalicka (https://www.mbkcpa.com/insights): Remind them that transfers of business interests or other assets to family members opens a three-year window where the IRS can challenge the values for gift tax purposes but that the statute of limitations doesn’t kick in until one “adequately” discloses the transfers to the IRS.
• Virginia – U.S. Tax Talk (https://us-tax.org/about-this-us-tax-blog/): Stock options have become a key part of the expat executive’s compensation package, especially when working for foreign employers. How these opportunities come with complex U.S. tax implications.
• Canopy (https://www.getcanopy.com/blog): Professional proposals are key to winning new clients and long-term relationships. What are the benefits of proposal software for accountants?
• TaxProCenter (https://accountants.intuit.com/taxprocenter/): When you’re a tech-savvy tax pro, everything starts to look like it can be automated. Can and should it be?

Lens is more

New to us

• Wiss & Company (https://wiss.com/insights/read/): This accounting and advisory firm, around for more than five decades, has a blog with great categories, including tax and AI — and lately, a robust selection on tariffs. Welcome!

The federal government’s financial condition worsened by $4.7 trillion in the past year, according to a new report released to coincide with Tax Day.

The annual Financial State of the Union report from Truth in Accounting, a nonprofit government finance watchdog, pointed out that according to the most recent audited Financial Report of the U.S. Government, the U.S.’s true debt has climbed to $158.6 trillion, burdening each federal taxpayer with $974,000. Much of this debt can be traced to obligations the government has committed to, such as $67.1 trillion in Social Security and $51.6 trillion in Medicare, but hasn’t properly accounted for on its balance sheet.

“Our country’s financial condition continues to spiral out of control, and taxpayers are left holding the bag,” said TIA CEO Sheila Weinberg in a statement Tuesday. “On a day when Americans are asked to be transparent and accurate with their finances, their government fails to do the same.”

Despite the enormous size of its commitments to Social Security and Medicare, the U.S. Treasury Department only reported $241 billion of them on the official balance sheet because, according to government documents, recipients aren’t legally entitled to benefits beyond the current month, allowing future payments to be reduced or eliminated by law.

The report’s release comes amid efforts by the Elon Musk-led Department of Government Efficiency to slash the size of the federal government, virtually eliminating entire agencies while threatening cutbacks in Social Security, Medicare and Medicaid offices and personnel to aid seniors.

The report warned that due to inaccurate and nontransparent budgeting practices, Congress and the American people lack the information needed to make informed decisions about taxes, spending, and long-term policy. Weinberg is advocating for full accrual budgeting and accounting, which would include the true cost and projected growth of government programs. “This kind of transparency would be the first step in regaining control of our nation’s finances,” she said.

The Financial State of the Union report gives the federal government an ‘F’ grade for its fiscal health and asks Congress to adopt honest accounting standards to provide long-term financial sustainability. Truth in Accounting is also encouraging citizens to sign a petition asking Congress to mandate that the Federal Accounting Standards Advisory Board adopt the best practices of full accrual accounting in reporting Social Security and Medicare.