What Taxpayers Can Expect This Year From IRS Staffing Losses

If we had a crystal ball to predict the future of the IRS, the view would be murky at best. IRS staffing cuts earlier this year are creating headwinds for the agency and causing tax practitioners to adjust their preconceived notions of how long it takes the IRS to respond to inquiries.

Well over 160 million people file individual tax returns in the US each year, with over 90% using the standard deduction since 2020. The good news is that the vast majority of taxpayers using IRS core functions can expect their filing transactions to occur with minimal delays.

The big question is what happens to people who fall outside of the normal procedures, and how large that group could be.

Technological advancements may reduce the number of taxpayers who need to contact the IRS. If these improvements fail to deliver, we could find ourselves facing frustrations reminiscent of the 1985 tax year, when a sudden overhaul of software and hardware at 10 IRS service centers delayed the processing of millions of tax returns and refunds until the fall.

These outliers and “edge case” taxpayers are the ones who often set the stage for how the public feels about the IRS. Taxpayers who have a missing refund or receive a letter requiring a response are much more likely to feel frustration over limited staffing, especially if it involves customer service requests for something out of the ordinary.

In general, we anticipate taxpayers will experience significant delays in personal communiques from the IRS.

While IRS e-services have greatly improved and there are more self-help options, artificial intelligence agents that can replace a human being are still a long way off. This means longer phone call wait times, delays in written responses, and a lack of personalized answers to timely tax questions.

Staffing shortages are more likely to affect those who file small business returns or report business income directly on their individual tax return. The IRS has greatly improved its use of data analytics and AI to spot anomalies that don’t align with most other small business filers. Typically, the more a taxpayer deviates from a standard W-2, the more likely their return will be flagged, and the more likely they will need to communicate with the IRS.

The loss of intellectual capital within the agency is tremendous. Earlier this year, like other federal agencies, the IRS fired thousands of probationary employees who were just starting to get up to speed as part of a broader workforce reduction. Although a federal judge later ordered their reinstatement and many were asked to return to work, their future remains uncertain due to ongoing restructuring plans.

When one couples those layoffs with deferred resignations and the sudden early retirements of experienced staff, the IRS is facing a great loss of institutional knowledge, as well as the continuity of information sharing between new and seasoned employees.

Staffing shortages are already being felt during examinations this year after the loss of over 7,000 experienced probationary agents who conducted audits. With a third of the examiners gone, we’re noticing fewer audits and more closing letters, and the audits that are “sticking” are taking longer to appeal or may bounce in between multiple agents who each ask for the same documentation.

This doesn’t bode well for taxpayers, especially if they disagree with changes made at exam and subsequent delays cause the interest to grow before they get a chance to have their case heard at appeals.

While we are expecting fewer audits due to staffing issues, taxpayers should still maintain accurate and timely compliance. Most IRS problems surface years after a return is filed—meaning 2025 filings won’t even be audited until 2027 at the earliest—so it’s wise to stay diligent even when enforcement activity appears reduced.

Ironically, the agency’s modernization efforts post-Covid-19 likely will help the IRS navigate staffing challenges. Change at the IRS tends to be gradual, and while we may not see all the sleek digital features common on commercial websites, the agency continues to progress steadily in modernizing its systems.

The underlying software platforms, predictive analytics, and AI initiatives have helped the agency forward over the last few years. Notable examples include streamlining processes to reduce the manual hours required for audits and improvements to IRS.gov that enhance taxpayer experience and accessibility.

Optimistically, the short-term pain of fewer IRS employees may even lead to progress. While white collar workers are hoping AI doesn’t make their jobs irrelevant, the IRS may be forced into using these technologies. Without the staffing or the time to work out the kinks, however, the IRS is less likely to go through extensive testing before deploying new technologies or forms.

Meanwhile, the Trump administration’s massive tax package has introduced new tax provisions, such as “no tax on tips,” and “no tax on overtime,” that will require guidance from the IRS and the Department of the Treasury to implement. This and all similar guidance comes from people, and the IRS still has tens of thousands of dedicated public working long hours to fill this function.

The real wild cards are how many of these employees will stay at the agency in the coming years and whether it will be able to be fully staffed—including the seasonal contractor workforce required to meet the demands of filing season next year.

If taxpayers and their tax professionals have complex tax questions for the IRS or need to file an appeal soon, patience and persistence will go a long way. Anyone interacting with the IRS in the coming months should remember that the agency is being asked to do more with fewer resources. The individuals answering phones and reviewing taxpayer correspondence are hardworking professionals who deserve respect.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

James Creech is a principal with Baker Tilly’s specialty tax practice.

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