IRS Job Cuts to Bring Delays in Legal Work, Curbs to Easy Filing

The Trump administration’s latest plan to pare back the IRS would slow the agency’s legal work and constrain taxpayers’ ability to file returns easily, practitioners and other observers say.

The proposal would cut IRS staff by 18%, cutting especially deeply in areas like the agency’s Taxpayer Advocate Service, the team handling the free Direct File tax-filing tool, the Office of Chief Counsel, and the IRS appeals office. Practitioners say the staff reductions would result in delays in the appeals process and longer waits for refunds and assistance.

Improving IRS technology would help the agency maintain its work and services even in the face of big job cuts, some observers said. But others wondered why the plan would reduce the support for a tech tool like Direct File, if that’s the case.

The reductions “will force the IRS to rethink, reprioritize, and redesign how it carries out its many responsibilities,” said David Kautter, federal specialty tax leader at RSM US LLP and a former Treasury Department tax official during the first Trump administration. With fewer people, “the IRS cannot do everything it is doing now in the same way it is doing it and expect to achieve the same results it is achieving today,” he said.

Confusing Priorities

The initial plan calls for staff reductions of more than 25% in the Taxpayer Advocate Service—the IRS’s in-house representative for taxpayers’ concerns. The team working on Direct File, a lightning rod for Republican criticism, would be cut by 30%. The IRS appeals office, which helps resolve taxpayer disputes without litigation, could be cut by 27%. The Office of Chief Counsel, the IRS’s legal arm, would be cut by 15%.

The reductions are planned by May 15, and include earlier layoffs of probationary employees and people who accepted the government’s deferred-resignation offer to leave. A court order has since required the IRS to reinstate the probationary employees, but they have been placed on administrative leave.

Efforts to improve taxpayers’ experience and increase compliance might be “stymied” by both the job cuts and by congressional Republicans’ clawbacks of some of the agency’s $80 billion in funding it got to modernize and improve its operations, said Janet Holtzblatt, senior fellow at the Urban-Brookings Tax Policy Center.

In particular, the plans to reduce the Direct File staff are “confusing,” Holtzblatt said. Given the interest of Elon Musk’s cost-cutting team in using technology to reduce the burden of filing tax returns, “it’s difficult to reconcile the layoffs in that group,” she said.

Effect on Shareholders

The staff reductions also will hamper the agency’s legal work, said Sharon Katz-Pearlman, a tax attorney and shareholder at Greenberg Traurig and a former Office of Chief Counsel attorney. A reduction in appeals-office resources might lead to more taxpayers choosing litigation to resolve disputes, which in turn would mean a heavier caseload for the US Tax Court, she said. Litigation that’s already in progress may be delayed as staff cuts force the reassignment of Chief Counsel attorneys, Katz-Pearlman said.

The legal slowdowns are going to mean uncertainty for taxpayers, she said, and that in turn will raise questions and concerns for investors about broader financial-reporting issues regarding those taxpayers. “Without clear guidance or timely resolution, shareholders may have less reliable information about the financial health of the entities in which they invest,” she said.

But RSM’s Kautter said fewer resources doesn’t have to mean less service, and he thinks a more efficient use of technology should help the agency do more. “If processes are thoughtfully redesigned and enhanced with technology, organizations like the IRS should be able to provide an enhanced level of service despite more limited resources,” he said.