How IRS Attorney Departures Will Prolong Cases, Spur Settlements

Big job cuts and reductions in resources at the IRS are liable to prolong disputes over tax bills and force the agency to leave money on the table when cases are finally resolved.

More than 170 attorneys have withdrawn from representing the IRS in cases in US Tax Court since Donald Trump became president in January, according to a Bloomberg Tax analysis. Many have quit the IRS altogether amid a major exodus of employees. Some Justice Department attorneys who represented the IRS in tax disputes in federal appeals courts have also left, moves that could impact some of the biggest, most prominent tax-related cases in the courts.

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The diminished resources suggest it’ll take longer to resolve cases, former attorneys and former IRS and DOJ officials say. The IRS may also be pushed into considering settlements in some cases where perhaps it wouldn’t otherwise. That would mean settling cases on less favorable terms for the agency, and potentially give taxpayers a leg up in dealing with the IRS.

In this episode of Talking Tax, Bloomberg Tax senior reporter Michael Rapoport discusses the attorney departures and their implications, as well as attorneys’ frustrations about their jobs and fears about the future that prompted some to leave the IRS.

Do you have feedback on this episode of Talking Tax? Give us a call and leave a voicemail at 703-341-3690.

This transcript was produced by Bloomberg Law Automation.

David Schultz (Host):

From Washington, I’m David Schultz, and this is Talking Tax.

If you’ve been even casually following the news recently, you’re aware that there are many fewer federal employees now than there were at the start of the year, and that’s having effects across the government. But today, we’re going to look at how this reduction in staff is affecting ongoing tax litigation.

Bloomberg tax reporter Michael Rapoport just wrote a story about the tax lawyers who left the IRS and the Justice Department since Donald Trump retook office in January. And he found this is already having a real, tangible effect on litigation in which the government is trying to collect revenue from taxpayers.

Rapoport got this data from various sources, but one of them was by combing through court dockets and finding cases where attorneys withdrew from representing the government, often because they quit their jobs or were reassigned. In a bit, he’ll talk about what some attorneys who withdrew and left their jobs told him about why they left.

But first, I asked him where he got the idea to go docket diving to report this story…

Michael Rapoport (Guest):

We started looking at this several weeks ago. There was one of the major tax-related court cases that we’ve been following, and we noticed that the government’s lead attorney was withdrawing because she was about to leave her job. And that got us to wondering, given everything we’ve seen in the last several months, the major job reductions at the IRS, the plan to split up the Justice Department’s Tax Division, we were wondering if this was happening in other cases as well.

So we started looking at it by, as you say, reviewing and analyzing court dockets and other information. And we did, in fact, find a great number of instances in which attorneys withdrawn since Trump took office, and many of them had left their jobs altogether. So then the question became, well, what kind of effects is this likely to have on the actual cases? And we talked to people who have left the IRS and the DOJ. That ultimately led to these stories.

Host:

Yeah. I really like this approach because on the one hand, you could have talked to the IRS, or you could have talked to DOJ and asked them how many attorneys have left, but then you’d kind of be taking their word for it. Whereas looking at these court filings, it seems like you get a much more objective picture, an objective count of who has actually left.

Guest:

Yeah. What we found was more than 170 attorneys from the IRS Office of Chief Counsel, which represents the government in cases against taxpayers in US Tax Court , had withdrawn from these cases since January. And many of those attorneys withdrew from multiple cases. So the number of cases affected is certainly in the hundreds.

There are also attorneys who have left the DOJ Tax Division, which represents the government when tax court rulings are appealed to federal field circuit courts. And of those 170, we documented that at least 60 of them had just left the IRS altogether. There are others who are still at the IRS and maybe have been reassigned.

Now, to be clear, government attorneys withdraw from court cases all the time. What’s happening is that this is going on a lot more frequently this year. Both of those numbers from this year, the 170 who withdrew and the 60 who left are much higher than in the past. And that intuitively makes sense because you had many attorneys who left this year because of the deferred resignation plans that the IRS offered to employees and other attempts to reduce the IRS workforce.

According to the IRS’s Taxpayer Advocate, the Office of Chief Counsel has lost more than 350 employees, about 13% of its total, between January and early June of this year, and others have left since then. And to give you a sense of comparison, we did the same analysis for attorney withdrawals for the comparable period last year, and we found only about 65 attorneys who withdrew from cases in that period, and about 20 or so who left their jobs, both much lower than this year.

Host:

Now, you showed that this is having a tangible effect on ongoing tax litigation, like really important cases that are ongoing against pretty big companies. Can you get into some of the cases that are affected by this and tell me about who’s involved in them?

Guest:

Sure. The cases that have seen withdrawals include some of the biggest and most prominent tax cases that are in the courts right now. Some have had billions of dollars in disputed taxes and penalties and interest at stake.

Some of the Tax Court cases that saw withdrawals involve cases against companies like Amgen, Meta, Abbott Laboratories. In the appeals courts, you had DOJ attorneys who have withdrawn from cases involving companies like Coca-Cola, 3M, Liberty Global.

In terms of tangible impact thus far, we know of at least two cases in which the government has requested more time to file its briefs because it’s dealing with a diminished workforce, and its attorneys are strapped. One of them said in a court motion in August that the appellate section of the DOJ’s Tax Division has 40% fewer attorneys because people have left or been reassigned.

Now, to be sure, the IRS and DOJ have substituted in new attorneys for those who withdraw from cases. And in fact, some of those cases, especially the big ones, often have multiple government attorneys working on them. So that should mitigate the impact of any individual attorneys’ withdrawal. But sometimes you’ll see multiple attorneys withdrawing from a case as well, and it takes new attorneys time to get up to speed. And it’s still true that the IRS is having to address the same caseload with fewer attorneys that it had.

Host:

Right. So we know that this is causing these cases to go longer than they would have otherwise, that it’s sort of prolonging the litigation here. But you talked to some other folks who said that it might not just be a time issue, it might actually result in fewer funds collected by the government, that at a certain point, if you don’t have the manpower, the government, the IRS will have to settle these cases in positions that are not necessarily as favorable as they would be if they did have the manpower. Can you explain that?

Guest:

That’s a hard thing to pin down specifically. I mean, obviously, we’re not privy to the internal deliberations at the IRS about whether or when to pursue a settlement in a given case, except to the extent that they would talk about it in public court documents. But there’s a lot of concern out there among former officials and attorneys who are familiar with the process, that the lower number of attorneys and the diminished resources is going to force the IRS to pick its spots. They’ll be less able to handle the caseload than they were when they had more attorneys.

And so one way they might choose to deal with that is try to settle some cases and get them off the docket. And that may mean choosing to do so on terms that will be less favorable to the government and more favorable to the taxpayers than would be the case otherwise.

Now, those effects might not necessarily show up in the biggest, most prominent cases. The IRS and the DOJ know that those are a priority. And so even when you have attorneys withdraw from those cases and leave their jobs, the IRS is still going to make sure those cases get the resources they need. But that’s going to mean diverting resources from somewhere else. And so those cases are going to suffer.

And taxpayers can see this as well as anybody. They know the IRS has fewer attorneys. They know the IRS has diminished resources. And so some people we spoke to think that it’s likely the taxpayers contesting IRS orders in court are going to try to take advantage of that. They’re going to try to take more aggressive stances, knowing that the IRS may be less able to push back. And so to the extent the IRS is going to be at a disadvantage here, that may lead to them leaving money on the table and settling on less favorable terms than they would otherwise.

Host:

Yeah. You spoke to a tax attorney who represents taxpayers. And he said exactly that, that like he knows, you know, everyone knows what’s going on with the IRS and with DOGE sort of cutting staffing. You know, that’s going to be a part of his strategy now that, you know, it’s not a secret, right?

Guest:

Right. In terms of the extent to which this is actually happening, we won’t have any concrete documentation for a while. I mean, the IRS issues numbers for cases handled and cases closed by the Office of Chief Counsel, but those are released only on an annual basis. But a lot of people familiar with the process are concerned that all this is going to lead to more settlements for the IRS on terms less favorable than they might get otherwise.

And then you’re right. Some of the IRS attorneys who are left have essentially, they’ve gone to the private sector. They’re working for private law firms now representing taxpayers against the IRS. And they certainly see this also.

Host:

I want to get into what those IRS expatriates told you when you spoke to them in a little bit. But first, I just briefly want to ask you about conservation easements because that’s something that you brought up in your stories. It seems like this is an area that could really suffer because it’s a labor intensive area for the IRS to investigate. Tell me about why conservation easements is an area that could really suffer with a diminished IRS.

Guest:

This is an area that led to hundreds of tax court cases. It’s been a priority for the IRS. A lot of concern about, as you say, taxpayers are potentially abusing the process by taking deductions on donations of real estate that they might not be entitled to. We don’t know if the IRS is targeting the conservation easement cases specifically, but as I said, that’s a very significant part of the IRS’s overall caseload. And a couple of the former IRS attorneys we spoke to for our stories cited those cases as an area that might be affected by the diminished resources.

One of the attorneys who left the IRS earlier this year said that before he left, he and his colleagues were being told that large volumes of cases needed to be, and these are his words, managed and reduced, which he took as a suggestion that IRS leadership would start directing attorneys to stop contesting such cases.

Host:

Now, let’s get into the attorneys themselves. You spoke with several of them on background. I think that if you’re just hearing about this story, you might assume that a lot of the attorneys who left did so because they just didn’t agree with the Trump administration’s values or there were political reasons for why they left the government. And that is the case, it sounds like, for some of them. But there are a lot of other reasons that go way beyond politics. Can you get into some of the things that they told you?

Guest:

Well, it’s really a combination of things for a lot of people. All these things taken together that prompted some of them to leave. It’s both concerns about what the future might hold and concerns that the Trump administration is politicizing government agencies. But it’s also more basic things that they perceive as just making it harder for them to do their jobs.

The single biggest thing that a lot of people cited, the IRS’s directive back in March that all its employees return to working in the office full time. A lot of people did not want to give up working from home They had long commutes or other situations that made them really not want to go back to the office.

They were also concerned about being able to spend money on basic things they needed to do their jobs. At one point, back in February or March, Elon Musk’s Department of Government Efficiency, which was spearheading the cuts, essentially froze spending at government agencies, which forced attorneys to have to fight to get authorization to pay for travel, for expert witnesses, even for parking. So that kind of thing wore on people. And it was very frustrating.

For many people who work for the federal government, it’s driven, at least in part, by a sense of mission, that they’re serving their country, that they’re making sure the machinery of democracy runs properly. And that gets them to work for an agency like the IRS, even when they could probably make a lot more money working elsewhere. But all the changes have damaged that sense of mission

And then you combine that, but with, as I said, the fear of politicization. A lot of them fear that sooner or later, they’d be directed to do something they couldn’t live with. And so all that taken together was enough to make some people start looking for other opportunities.

Host:

Finally, I’m wondering if there is a plan to replace some or all the people who left.

Guest:

The IRS appears to be doing at least some hiring. They do have job listings for open positions in the Office of Chief Counsel. We don’t know how much hiring they’re going to do. We don’t know how quickly they can bring new attorneys on. We don’t know how long it’s going to take new attorneys to get up to speed in terms of representing the IRS in these court cases.

Host:

Right. And just to clarify, you mentioned that the IRS is hiring some new attorneys, but we saw staffing cuts well into the double-digit percentages. So the staffing levels aren’t going to get back to where they were anytime soon, even if they are sort of hiring some new people.

Guest:

I suspect that’s probably right. I mean, again, we won’t know for sure until everything plays itself out, but I think it’s a fair statement.

Host:

All right. That was Michael Rapoport talking with me about tax attorneys and where they’re heading. Michael, thank you so much for talking.

Guest:

Thank you for having me.

Host:

And that’s it for today’s podcast. You can find up to the minute news on the latest tax and accounting developments at our website, news.bloombergtax.com. That website once again is news.bloombergtax.com.

Today’s episode was produced by myself, David Schultz, and our editor was Martha Mueller Neff. From Washington, I’m David Schultz. Thanks for listening.