Accounting
What does IRS flux mean for financial advisors
Financial advisors, tax professionals and their clients are facing an IRS that is moving in a polar opposite direction from the agency that was bulking up on enforcement only a few months ago.
In the first few months of President Donald Trump’s second term, Treasury Secretary Scott Bessent and Elon Musk’s Department of Government Efficiency have presided over a halting series of mass staff layoffs that could eventually reach as many as tens of thousands of employees and the abandonment of a crackdown on wealthy tax dodgers under President Joe Biden’s team. Court cases may block some of the actions, but they’re already having an impact.
The budget- and staff-cutting efforts thus far certainly amount to “a shock to the system” of a size unmatched over the career of Niles Elber,
“You don’t want the system turning on you, if, for some reason, you thought you could get away with it,” he said. “Now is not the time to be lax in your tax compliance efforts.”
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Tax Day uncertainty
Clients may be forgiven for thinking otherwise, considering that the Trump administration plans
“If you were to ask the top chief executives in the world to name the best strategy to attack waste in their organizations and balance the books, there is one answer you would be very, very unlikely to hear: Take an ax to accounts receivable, the part of an organization responsible for collecting revenue,” the seven ex-commissioners wrote in a February essay in
News reports suggest that buyouts and layoffs at the agency could hit 18% of the IRS workforce by the middle of next month,
“In the two years since IRA’s passage, the IRS made significant improvements to taxpayer services and enforcement,” Holtzblatt wrote. “More taxpayers had their
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Bessent cites ongoing review, tariffs
Representatives for the Treasury Department and the IRS didn’t respond to inquiries about the potential impact of the cuts to customer service and enforcement. In an interview on NBC’s “
“I will tell you that there were about 15,000 probationary employees that we could have let go,” Bessent said. “We kept about 7,500, 8,500 because we viewed them as essential to the mission. And, you know, we will know once we get inside. But what I can tell you is that we are doing a big review. We’re not doing anything. Right now is playoff season for us. April 15th is game day. And even employees who could take voluntary retirement, the rest of the federal workforce, their date was in February. Our date for them is in May. So I have three priorities for the IRS: collections, privacy, and customer service. And we’ll see what level is needed to prioritize all those.”
In other forums, Bessent has also pointed to the importance of Congress passing a bill to extend expiring provisions
“We’re pushing to get the tax bill done so we can guarantee low taxes, full depreciation within the first year,” Bessent
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Taxpayers still under microscope
The
At a basic level, dialing the number of IRS enforcement personnel “back to more traditional levels” will mean that fewer people “are going to fall under the microscope” of an examination or audit, Elber said. The so-called tax gap between the estimated liability and the amount collected each year — a yawning
The “ability to create a real deterrent” will “substantially go by the wayside when people realize that there’s very little out there to keep people honest,” Elber said.
“The way that you reduce the tax gap is by enforcement,” he added. “It’s boots on the ground who are working with the data analytics that the IRS has used as a mainstay of enforcement activity at least for the last decade or so. You’re losing a substantial portion of the boots on the ground. … I don’t think anyone knows the extent to which tariffs will potentially fill some of the basket that will be left unfilled.”
Axing 20% of the IRS workforce would be “catastrophic to the enforcement function,” Elber said. At a 50% level, then “I’m not sure what function the IRS is serving anymore” besides processing returns and checks, he said.
“I cannot recall a comparable situation during my career,” Elber said. “I can’t comprehend how the IRS functions with half the staff they’ve got.”
That doesn’t mean that advisors and their clients should stop being vigilant about their taxes, however. The thinned IRS ranks of audit and enforcement teams will likely exercise the same types of probes as they have over the past decade or so, Elber said.
“You can expect a rather grueling examination,” he said. “That comes down to, basically, the audit lottery. You don’t know at the end of the day how you’re going to fare. Your chances are better than a year ago, but it’s certainly not a situation where there’s no risk.”
The Senate Finance Committee questioned Billy Young, President Trump’s nominee for Internal Revenue Service commissioner, about his plans for the beleaguered agency and promotion of dubious “tribal tax credits” and Employee Retention Tax Credits during a long-awaited confirmation hearing Tuesday after a series of acting commissioners temporarily held the role.
Trump
Long insisted during the confirmation hearing that he would defend the integrity of the IRS and maintain an open door policy, emulating the example of former commissioner Charles Rossotti, who served from 1997 to 2002.
“If confirmed, I will implement a comprehensive plan aimed at enhancing the IRS, but also one that develops a new culture at the agency,” he said in his opening statement. “I am eager to implement the necessary changes to maximize our effectiveness, while also remaining transparent with both Congress and taxpayers. It is important to also recognize the dedicated professionals currently at the IRS whose hard work too often goes unnoticed. It is my pledge that we will invest in retaining skilled members of the team. This does not mean a bloated agency, but an efficient one where employees have the tools they need to succeed.”
Committee chairman Mike Crapo, R-Idaho, expects to see changes at the agency. “Congressman Long is very clear that he will make himself available to all IRS employees, no matter their seniority,” Crapo said in his opening statement. “Moreover, he wants to implement a top-down culture change at the agency. This sea change will benefit American taxpayers, who too often view the IRS as foe, rather than friend. Congressman Long knows, from years of experience in the House, that to be a successful Commissioner, he must be a valuable partner in Congress’ efforts to ensure that new tax legislation is implemented and administered as Congress intends it to be. I am also confident that he will be fully transparent and responsive to Congress and the American people.”
Sen. Ron Wyden, D-Oregon, the top Democrat on the committee, questioned Long about his promotion of “tribal tax credits” and the fraud-plagued ERTC. “Most of Congressman Long’s experience with tax issues came after he left Congress, when he dove headlong into the tax scam industry,” he said in his opening statement. “Cashing in on the credibility of his election certificates, he raked in referral fees steering clients to firms that sold faked tax shelters and pushing small businesses to unknowingly commit tax fraud.”
Wyden asked Long about the $65,000 he earned from referring friends to tax promoters who claimed they had acquired income tax credits issued to a Native American tribe and then sold the tax credits to investors. “There’s a problem. The IRS said in March that the credits do not exist. They’re fake. They are a scam. Now you’re asking to be put in charge of the IRS, and the IRS confirms that these aren’t real. Tell the committee, do you believe these so-called tribal tax credits actually exist?”
Long insisted his only involvement with the credit was to connect interested friends and offer to put them on a Zoom call with someone, but he was not on the Zoom calls himself. Wyden pressed him on whether the tax credits actually exist.
“I think the jury’s still out on that,” Long admitted. “I know since 2022 they’ve been accepting them, so now they claim that they’re not. I think that all this is going to play out, and I want to have it investigated, just as you do. I know you’re very interested in this subject. I am too.”
Wyden also asked about
Wyden then asked him about his work with promoters of the Employee Retention Tax Credit. “You stated on a YouTube video that everybody qualifies for the Employee Retention Tax Credit, and you urge listeners to ignore CPAs that said they didn’t qualify. Do you really think everybody qualifies?”
“If you listen to that video, I hate to correct you, but I didn’t say everyone qualifies,” Long responded. “I said virtually everyone qualifies, meaning most people.”
Sen. Elizabeth Warren, D-Massachusetts, and other Democrats also questioned Long about whether he would follow Trump’s orders to audit certain taxpayers or remove the tax-exempt status of organizations, even if it violated the law. Long insisted he would follow the law but declined to explicitly say whether he would defy an order from Trump.
“I don’t intend to let anybody direct me to start an audit for political reasons,” he said.
Minnesota approved a bill on Monday night to create additional pathways to CPA licensure, and it awaits the signature of Gov. Tim Walz.
As part of an omnibus bill,
The bill sunsets the current 150-hour credit rule after June 30, 2030, and establishes automatic mobility and practice privileges one day following the bill’s ratification. All candidates must still pass all parts of the CPA exam.
Jill Clardy/stock.adobe.com
“It’s a step forward in the right direction,” said Geno Fragnito, government relations director at the Minnesota Society of CPAs. “It allows some flexibility to hopefully bring in people who are on the fence about whether they could afford the extra year of education and whether the accounting profession fit into their long-term goals because of that.”
Generally, the governor has 14 days to act on the presented bill. Otherwise, without any action, the bill becomes law. Minnesota is one of
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Minnesota was the first state to propose licensing changes in December 2022.
“Initial strong opposition eventually turned into support as more professionals, state societies, universities, government entities and businesses rallied behind broadening pathways to CPA licensure with the first state, Ohio, passing its law in January,” said an MNCPA
“There were a lot of people — chairs ahead of me and other people on the board and at the Minnesota society — that have done a ton of work on this and really deserve a lot of credit for all of the conversations they had and the testifying they did,” said MNCPA chair Eric O’Link. “We’re very appreciative of our legislative sponsors and everybody who helped make it a reality.”
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