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 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
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
Acting chief counsel William Paul was reportedly
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
The smaller the IRS workforce, the less tax revenue is collected, according to a
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
“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
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.”
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
“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
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