IRS layoffs could hurt revenue collection and benefit rich tax dodgers, experts say

WASHINGTON — The layoffs of roughly 7,000 Internal Revenue Service probationary workers beginning this week probably mean the end of the agency’s plan to go after high-wealth tax dodgers and could spell disaster for revenue collection, experts say.

The majority of employees shown the door at the federal tax collector are newly hired workers focused on compliance, which includes ensuring that taxpayers are abiding by the tax code and paying delinquent debts, among other duties.

The IRS layoffs, one of the largest purges of probationary workers this year across the government, could also hurt customer service and tax return processing during tax season this year, the union representing Treasury Department employees warned Thursday.

The upheaval comes less than two months before the tax filing deadline and as the so-called Department of Government Efficiency under Trump advisor Elon Musk seeks to shrink the size of the federal workforce in an effort to radically cut spending and restructure the government’s priorities.

Vanessa Williamson, a senior fellow at the Urban-Brookings Tax Policy Center, said on a call with reporters that the layoffs at the IRS will disproportionately harm enforcement efforts.

“When you underpay and understaff the IRS, the agency doesn’t have the power or the resources it needs to go after wealthy tax evaders with their high-priced lawyers,” she said, adding, “The result is, of course, a disaster for revenue.”

Trump’s company was fined $1.6 million in 2023 for a scheme in which his top executives dodged personal income taxes on lavish job perks. A fine was the only penalty a judge could impose on the Trump Organization after its conviction for 17 tax crimes, including conspiracy and falsifying business records. The amount was the maximum allowed by law. A person convicted of the same crimes would’ve faced years in prison.

The Inflation Reduction Act, signed into law by President Biden in 2022, gave the IRS $80 billion and the ability to hire tens of thousands of new employees to help with customer service and enforcement as well as new technology to update the tax collection agency, though congressional Republicans later clawed back some of the money.

Former IRS Commissioner Daniel Werfel, appointed by Biden, placed a particular focus on aggressively auditing high-income tax cheats as well as executives who use business aircraft for their personal use while still writing it off as a tax expense and wealthy people who sought to get favorable tax treatment through Puerto Rico without meeting certain tax requirements.

A Congressional Budget Office report issued last year describes how rescissions in funding for the IRS affect baseline projections of future revenue, offering a variety of scenarios depending on the severity of the cuts.

A $5-billion rescission would reduce revenue by $5.2 billion from 2024 to 2034 and increase the deficit by $0.2 billion. A $20-billion rescission would reduce revenue by $44 billion and increase the deficit by $24 billion for the same period. A $35-billion rescission would reduce revenue by $89 billion and increase the cumulative deficit by $54 billion.

“If you starve the IRS, you’ll be providing a feast for the tax evaders,” Williamson said.

Treasury Secretary Scott Bessent said during his confirmation hearing last month that “we do not have a revenue problem in the United States of America, we have a spending problem.”

However, both revenue and spending will be an ongoing point of contention for congressional Republicans, who are trying to come up with ways to pay for extending provisions of President Trump’s Tax Cuts and Jobs Act. The Penn Wharton Budget model estimates that permanently extending Trump’s tax cuts would increase deficits by $4 trillion over the next decade.

Chye-Ching Huang, executive director of NYU’s Tax Law Center, called the layoffs “misguided” and said they “will hurt everyday Americans who pay their taxes and count on the IRS to pay refunds on time while encouraging wealthy people and large businesses to cheat on their taxes.”

Doreen Greenwald, president of the National Treasury Employees Union, said: “In the middle of a tax filing season, when taxpayers expect prompt customer service and smooth processing of their tax returns, the administration has chosen to decimate the whole operation by sending dedicated civil servants to the unemployment lines.”

The union representing IRS workers has already filed multiple legal challenges over the Trump administration’s mass layoffs.

Mark Mazur, a former assistant secretary for tax policy at Treasury, said that since most of the laid-off workers were in the IRS’ small-business and self-employment division, employees who had handled bigger corporate enforcement cases will be forced to stop their work and handle easier small-business cases.

“For sure this mean less enforcement activity,” and the deterrence effect of audits will be diminished, he said.

Representatives from Treasury, the IRS and the White House did not respond to Associated Press requests for comment.

Hussein writes for the Associated Press. AP writer Josh Boak in Washington contributed to this report.