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, a member in Caplin & Drysdale’s Washington, D.C.-based office who has represented clients in tax matters for 26 years, he said. Despite as yet unknown answers to questions about the extent of cuts and availability of taxpayer information to outside parties, a “conservative and cautious tax advisor” should counsel clients to “strive to meet their tax compliance obligations,” Elber said in an interview. 

“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.”

READ MORE: Wealthy tax cheats set to benefit from Trump plans to halve IRS

Tax Day uncertainty

Clients may be forgiven for thinking otherwise, considering that the Trump administration plans to lay off as much as a quarter or even a half of the roughly 100,000 IRS employees by the end of 2025. The agency’s acting commissioner, its chief financial officer, chief of staff, acting chief risk officer and chief privacy officer reportedly plan to resign after the IRS and the Department of Homeland Security agreed to share private taxpayer information in order to ramp up immigration enforcement. An initial wave of terminations of about 7,000 so-called probationary employees with short tenures who are now stuck on paid administrative leave pending a lawsuit drew condemnation from a bipartisan group of former IRS commissioners pleading with Trump, Musk and the rest of the administration not to fire thousands of employees during tax season.

“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 The New York Times. “Yet the private sector leaders advising President Trump on ways to increase government efficiency are deploying this exact approach by targeting the Internal Revenue Service, which collects virtually all the receipts of the U.S. government — our nation’s accounts receivable division.”

News reports suggest that buyouts and layoffs at the agency could hit 18% of the IRS workforce by the middle of next month, according to an analysis last week by Janet Holtzblatt, a senior fellow at the nonprofit, nonpartisan Urban-Brookings Tax Policy Center. Regardless of the ultimate level of staff and budget cuts to IRS enforcement and customer service from the Inflation Reduction Act passed by Congress and signed by President Biden in 2022, the previous administration’s programs left the building at the end of Biden’s term.

“In the two years since IRA’s passage, the IRS made significant improvements to taxpayer services and enforcement,” Holtzblatt wrote. “More taxpayers had their phone calls promptly answered or received help in person at a Taxpayer Assistance Center, and the agency developed a simpler, online, and free method for filing tax returns (Direct File). The IRS increased collections of taxes owed by higher-income taxpayers, began audits of some of the largest partnerships, and moved to strengthen IT security.  With the rollbacks of funding and staff, those improvements may not be sustainable, and the many other initiatives described in the IRS’s strategic plan are probably not achievable. The IRS may yet undergo transformational change, but starkly different than the intent of the IRA.”

READ MORE: Yellen, IRS trumpet crackdown on wealthy tax cheats

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 “Meet the Press” last month, Bessent accused “some very large print media” of “throwing out big numbers” that don’t reflect the reality of staffing levels at the IRS.

“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 of the Tax Cuts and Jobs Act, as well as new methods of raising revenue to pay for lower taxes in other areas.

“We’re pushing to get the tax bill done so we can guarantee low taxes, full depreciation within the first year,” Bessent said in an interview with conservative journalist Tucker Carlson last week. “We’ve taken in about $35 billion a year just on the old tariffs — not the new ones. In the CBO [Congressional Budget Office] window, that’s about $350 billion, which pays for a lot of the president’s promises: no tax on tips, no tax on Social Security, no tax on overtime, and making interest deductibility available on autos made in the U.S. Think what the president is doing here: He is backing into an affordability solution for the bottom 50% of wage earners. They are the ones who will benefit from all four of those programs.”

READ MORE: Tax Cuts and Jobs Act expiration: A guide for financial advisors

Taxpayers still under microscope

The economic volatility around tariff policy, though, may affect congressional negotiations on the legislation, and advisors and their clients are trying to prepare much more for any direct ramifications of IRS scrutiny of their returns. 

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 $696 billion in 2022 — could grow wider still.

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 International Auditing and Assurance Standards Board released a revised global standard on how auditors should evaluate a business’s prospects as a going concern.

International Standard on Auditing 570 (Revised 2024), Going Concern comes in response to corporate failures that have raised questions about auditors’ responsibilities, significantly enhancing the auditor’s work in evaluating management’s assessment of an entity’s ability to continue as a going concern. 

The standard will take effect for audits of financial statements for periods starting on or after Dec. 15, 2026, aiming to increase consistency in auditing practices and bolster transparency through communications and auditor reporting on matters related to going concern in a consistent manner.

Some of the main changes in ISA 570 (Revised 2024) include requirements for a more robust risk assessment. Auditors need to conduct, in a more timely manner, thorough risk assessments to determine whether events or conditions are identified that can cast significant doubt on the entity’s ability to continue as a going concern.

Auditors will need to evaluate management’s assessment of going concern regardless of whether events or conditions are identified. In doing so, auditors have to weigh the potential for management bias and evaluate the underlying method, significant assumptions, and data used when management formed its assessment. In addition, auditors will need to evaluate whether management’s judgements and decisions indicate potential bias.

The standard includes a more extended evaluation period. The auditor’s evaluation period for going concern will now extend at least 12 months from the date of approval of the financial statements, allowing auditors to assess more relevant, useful information.

The revised standard also mandates clearer communication in the auditor’s report about their responsibilities and work related to going concern and strengthened communications with those charged with governance and external parties.

“This milestone addresses calls from investors, regulators, and other stakeholders for more robust audit procedures related to going concern. It provides decision-useful, entity-specific information in the auditor’s report regarding the auditor’s work and responsibilities for going concern,” said IAASB chair Tom Seidenstein in a statement Wednesday. “The changes in the standard further advance high-quality audits and help narrow the expectation gap, thereby supporting users’ interests and broader financial stability.”

To help auditors implement the revised standard, the IAASB has written a fact sheet and Basis for Conclusions, both posted on the IAASB’s website. The IAASB also plans to offer a frequently asked questions document and technical overview video to support the revised standard’s implementation.

President Donald Trump’s so-called reciprocal tariffs are now in place, dealing a thunderous blow to the world economy as he pushes forward efforts to drastically reorder global trade.

Trump’s latest tariffs push levies imposed on China this year to as high as 104%, along with import taxes on roughly 60 trading partners that run trade surpluses with the U.S. That comes after a 10% baseline tariff for most US trading partners took effect Saturday.

The moves raise tariffs to their highest level in more than a century.

China announced retaliatory measures at 7 p.m. Beijing time, raising tariffs on U.S. goods from 34% to 84% from April 10, according to a statement.  

Treasuries extended their selloff, with 30-year yields soaring briefly above 5%, and Asian shares and European shares fell in Wednesday trading. U.S. futures fell sharply after China announced retaliation. Markets had remained volatile throughout the US day Tuesday, rallying as Trump previewed negotiations with South Korea, then reversing as the administration affirmed plans to move ahead with its massive China tariffs.

Asian countries are bearing the brunt of the measures, with Cambodia facing 49% and Vietnam 46%. Imports from the European Union will be taxed at a 20% rate.

“The tariffs are on and the money is pouring in at a level that we’ve never seen before, and it’s going to be great for us. It’s going to be great for other countries. We’ve been ripped off and abused by countries for many years,” Trump said Tuesday at a White House event. 

In the hours before implementation — at 12:01 a.m. Wednesday in Washington — the White House insisted the duties were indeed coming, squelching market speculation for any last-minute reprieve. 

U.S. levies on China now include previous 20% levies tied to fentanyl trafficking, a 34% “reciprocal” tariff derived from a calculation based on the bilateral trade balance, and an additional 50% duty Trump announced after Beijing said it would respond by taxing U.S. exports to China. 

The president welcomed appeals from U.S. allies who want him to lower their rates, saying Tuesday that teams from Japan and South Korea were en route to hammer out agreements. Trump hosted Israeli Prime Minister Benjamin Netanyahu earlier this week for talks, while Italian Prime Minister Giorgia Meloni will travel to Washington next week. 

“We’re doing very well in making, I call them tailored deals, not off-the-rack,” Trump said. “It’s been amazing what’s happened. Sometimes you have to mix it up a little bit.”

Still, risks to the world economy abound with Trump’s approach.

China has been defiant in the face of Trump’s tariffs, declaring plans to “fight to the end.” The escalation in tensions makes any imminent call between Trump and Chinese President Xi Jinping less likely and the latest comments raised the risk of a prolonged trade war between the world’s two largest economies.

Xi’s No. 2, Li Qiang, said his country has ample policy tools to “fully offset” any negative external shocks in the wake of Trump’s tariffs.  

Other economic powers are striking back as well. In Canada, a 25% counter-tariff to the auto tariffs Trump imposed on his northern neighbor last week also took effect a minute after midnight. In Europe, both France and Germany are pushing for a tougher response. 

The White House has been on defense since last week when Trump unveiled his latest tariff plan. Trump argues that the taxes will boost U.S. prosperity and revive domestic manufacturing, but his approach has drawn criticism from Wall Street, economists and some in Trump’s own party, who have questioned the administration’s methodology and warned of an economic fallout that could include higher consumer prices and slower growth, if not a recession.

“Whose throat do I get to choke if this proves to be wrong?” Senator Thom Tillis, a North Carolina Republican facing a competitive reelection race next year, asked during a congressional hearing Tuesday. He was one of a number of lawmakers voicing anxiety as constituents see their retirement funds fluctuate.

Speaking to U.S. Trade Representative Jamieson Greer, Tillis also asked if voters will feel results from the tariffs in about a year. “I wish you well, but I am skeptical,” he said.

Greer told lawmakers: “We will have the president’s plan going into effect and we’re coupling that with immediate negotiations with our partners.”

Since Trump’s announcement, the administration has offered mixed messages on the path forward. Some have said the tariffs will unlock talks that see other countries lower barriers on U.S. exports, and perhaps result in Trump reducing his rates as well. But White House trade advisor Peter Navarro has repeatedly pushed back on the notion Trump is merely using tariffs as a negotiating tool. 

For Trump, who has long argued for tariffs as a solution for his trade grievances, this plan will reassert U.S. power, revive domestic manufacturing and extract geopolitical concessions.

Urgent diplomacy

Affected nations were rushing to win better terms and weighing their responses ahead of the April 9 deadline, while grappling with a process that many described as chaotic and opaque.

A top Vietnamese official visited Washington for last-minute meetings seeking to blunt one of the highest tariff rates applied on any U.S. partner. The nation has been engaging in urgent diplomacy and its representatives have conveyed to Trump administration officials that it is working to address a trade imbalance.

Trump said Tuesday he spoke with the South Korean interim leader Han Duck-soo “about their tremendous and unsustainable Surplus, Tariffs, Shipbuilding” and “large scale purchase” of U.S. liquid natural gas. He also discussed “their joint venture in an Alaska Pipeline, and payment for the big time Military Protection we provide to South Korea.” 

The U.S. president described the discussion as a “great call” and posted on social media that “things are looking good.” South Korea said it’s seeking to cut a “big” trade deal with Washington, and that top commerce officials from both sides will handle detailed negotiations.

Japan sent senior officials to Washington to lay the groundwork for tariff negotiations, following a call on Monday between Trump and Japanese Prime Minister Shigeru Ishiba. On Wednesday, ministers kept urging the U.S. to review its tariffs while a plunge in stocks and bonds prompted officials from the central bank and the finance ministry to hold a meeting to soothe frayed nerves.

EU officials were working on next steps after the U.S. president rejected a proposal to drop tariffs on bilateral trade in industrial goods, saying Monday that it was not enough to reset the trading relationship. 

Wall Street

A series of Wall Street executives criticized the plan this week, including JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon, who in his annual shareholder letter Monday called for a quick resolution to trade policy uncertainty and warned against a potentially “disastrous” fragmentation of America’s long-term economic alliances.

Also expressing concerns in a litany of social media posts was Bill Ackman, the founder of Pershing Square Capital Management and a Trump supporter. He later said he was supportive of the tariff strategy, but called for a pause before the reciprocal duties took effect.

While Trump’s aides have offered a chorus of support for the tariffs, some tensions among his team have started to show. Tesla Inc. CEO Elon Musk, who advises Trump, called Navarro a “moron” in a social media post after Navarro called him a “car assembler” rather than a car manufacturer. White House Press Secretary Karoline Leavitt dismissed the clash, saying “boys will be boys.”

Trump, undaunted, is planning more. 

Long-promised tariffs on pharmaceutical drugs will be announced “very shortly,” he told Republicans in Washington Tuesday. Other threatened sectoral tariffs include on lumber and semiconductor chips. 

And Trump is set to further escalate his trade war with China in the coming months, with the White House announcing late Tuesday a plan to increase planned tariffs even further on small parcels from mainland China and Hong Kong that had previously been exempt from taxes.

All of this, the president and his administration have repeatedly promised, will lead to a future boom, both economically for the U.S. and politically for his party.

“We’re going to win the midterm elections, and we’re going to have a tremendous, thundering landslide,” Trump told Republican lawmakers and donors Tuesday. “I really believe that.”