Why A Weaker Irs Is A Headache For Taxpayers And A 'feast' For Tax Cheats

The mounting uncertainty at the IRS – with reports indicating the agency may reduce its workforce by as much as 50 percent, following the recent termination of approximately 7,000 employees – are sparking critical questions for Americans relying on the agency to deliver valuable services during tax season.

Among those concerned about the layoffs, which are occurring amid a larger downsizing of the federal workforce led by the Department of Government Efficiency, are former IRS officials, policymakers, and advocacy groups who warn that reduced staffing could significantly weaken tax enforcement and taxpayer services.

A note by the Brookings Institution published Thursday outlined how the threat of workforce reduction follows a series of administrative decisions that have affected IRS operations, including a hiring freeze and reported attempts to divert IRS Criminal Investigation agents to immigration enforcement. According to the think tank, the firings earlier this year disproportionately affected employees responsible for tax compliance, technology modernization, and taxpayer assistance.

No less than seven former IRS commissioners, who served under multiple administrations both Democratic and Republican, have panned the move to let go of 7 percent of IRS staff as “a huge mistake.” The reductions come as the IRS faces a growing need for experienced personnel, with about 63 percent of its workforce expected to be retirement-eligible within six years. Additionally, IRS customer service positions experienced an attrition rate of 19 percent in the last fiscal year.

In a separate statement touching on the planned halving of IRS staff, Ian Gary, executive director of the Financial Accountability & Corporate Transparency Coalition, warned that “cuts at such a massive scale would destroy the ability of our nation’s revenue agency to effectively operate.” He added that the move “represents an existential threat to the revenues needed to operate the federal government.”

The Brookings Institution noted that IRS budget reductions in previous years have already led to a decline in audit rates, particularly among high-income taxpayers. According to government reports, the agency generates between $5 and $12 in revenue for every dollar spent on audit activities, with higher returns when targeting the wealthiest individuals – an efficient operation in terms of collecting revenue for the federal government.

A 2024 Government Accountability Office study found that IRS agents identified between $1,000 and $13,000 in additional revenue per audit hour, depending on the taxpayer’s pre-tax income.

With fewer staff members dedicated to tax enforcement, experts suggest that compliance among high earners could decline further. Audits of wealthy taxpayers require more resources, and while federal layoffs have focused on probationary workers who are presumably less experienced, many of the new hires during the Biden administration were brought in to support its efforts to crack down on wealthy tax dodgers. 

"A starving IRS is a feast for wealthy tax evaders. Most of the 600 billion dollars in taxes owed but not paid – the 'tax gap' – is due to underreporting of income by high-income taxpayers," the Brookings Institution noted. "When the government underfunds and understaffs the IRS, they don’t have as much capacity to audit rich tax evaders with high-priced tax lawyers."

The IRS has also announced plans to close more than 100 taxpayer assistance centers, which provide in-person support to individuals navigating the tax filing process. These closures, combined with personnel reductions, may lead to longer wait times for assistance and a more challenging tax season for filers.

In a separate commentary, the think tank highlighted the uncertainty hanging over Direct File, a free federal tax-filing program introduced during the Biden administration. At his confirmation hearing in January, Treasury Secretary Scott Bessent stated, “I will commit that, for this tax season, that Direct File will be operative.” But less than three weeks later, Elon Musk, the widely recognized head of DOGE, took to social media saying that the digital team who developed Direct File had been "deleted."

While the program is still up and running, it's not out of the woods either. Before his confirmation as president, more than two dozen Republican members of the house called on Trump along with Musk to "take immediate action, including but not limited to a day-one executive order” to end the Direct File program." 

"As many as 30 million Americans are eligible to use the program, and the more of them that do, the harder it will be for politicians to countenance its destruction," the think tank said.