In this episode of Tax Notes Talk, Tax Notes IRS reporter Benjamin Valdez provides an update on the IRS’s recent staffing developments and how they may affect filing season.
Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: On the chopping block?
In the first few months of his administration, President Trump has followed through on his promise to cut the federal workforce, and the IRS is no exception. We’ve previously discussed how the initial hiring freeze and buyout offer may affect the IRS, and you can find that episode linked to in our show notes. But since then, orders to share sensitive taxpayer data and additional reductions in force have caused further concern for the IRS’s future.
Now, it’s a lot to keep track of, so here to talk us through all of it is Tax Notes IRS reporter, Benjamin Valdez. Ben, welcome back to the podcast.
Benjamin Valdez: Thanks for having me, Dave.
David D. Stewart: So let’s start off with this idea of the reduction in force at the IRS. What is happening here?
Benjamin Valdez: So right now, Treasury and the IRS are still working on finalizing the reduction-in-force plan, and acting Commissioner Melanie Krause told employees March 18 that Treasury hasn’t provided the agency with its RIF plan yet, and there are still discussions regarding the scope of the plan and how many employees are going to be cut next.
Various news outlets, including The New York Times and Associated Press, have reported that the Trump administration wants to cut as many as 20 to 50 percent of the workforce, but there hasn’t been an indication on what number they’ve landed on.
The IRS also plans to educate employees on the stages of the RIF and what it entails in the coming days, according to the acting commissioner, and former officials have highlighted that the whole process can take months if it’s done properly.
David D. Stewart: Now, I should mention for listeners, since this is a moving target, we are recording this on March 19. Hopefully everything we say is still valid, but there’s always that possibility.
Benjamin Valdez: And another outstanding question relating to the RIF is whether or not the IRS is going to include the recently instated probationary employees who were terminated, which is approximately 7,000 of them. They’re currently on paid administrative leave. It’s unclear whether or not their future at the agency is going to be determined by this RIF.
David D. Stewart: So what are we hearing from practitioners out there? What are people saying about how these cuts may affect the IRS?
Benjamin Valdez: Tax professionals have expressed concern regarding the effect that the cuts will have on collections, especially given that the terminations so far have affected enforcement personnel like revenue agents and revenue officers. One source who works in tax resolution told me that he was essentially ghosted by the collections officer that he’d been working with because they were fired and he had to scramble to find out who to call about the taxpayer and the IRS hadn’t notified him.
Experiences like that seem to be the most immediate consequence, but former officials have also expressed concern that the cuts will have impacts further down the line, especially once the filing season ends and taxpayers are working to correct or amend their returns. Even though the filing season ends April 15, extensions can be taken until October, and work on returns happens throughout the year.
So there’s concerns that waiting until May 15 until doing further reductions might not necessarily have a lesser impact on the agency. Officials have also pointed out that identity theft case processing times could go up with further reductions and those times have ballooned in recent years and it’s been a consistent struggle for the IRS.
David D. Stewart: Now, we mentioned earlier the buyout offer. What do we know about the uptake on that? How many people have decided to leave under that?
Benjamin Valdez: Earlier this month, National Treasury Employees Union President Doreen Greenwald, she briefed the media and said that the union, which represents IRS employees, estimates that as many as 5,000 employees have taken the offer.
But the final number is still shifting. Greenwald pointed out that agencies are working to confirm with employees that they intended to take the offer initially. Some of them had replied to the email with questions, and that automatically signed them up for the program. So the number is still fluctuating, but it could be as many as 5,000.
David D. Stewart: What impacts are we expecting to see on filing season itself? I know that there’s ongoing effects that may happen, but what are we seeing immediately?
Benjamin Valdez: So far, the IRS has been taking efforts to preserve staff that it deems are essential to the filing season, including by exempting some of them from this group of probationary employees that were cut and also by requiring employees who took the buyout to continue working if they’re essential to the filing season.
What I’ve heard is that the filing season has generally progressed as usual, aside from some of the concerns I mentioned earlier relating to collections and audits. Acting Commissioner Krause said that everything is on track in a recent message to employees, and the IRS has processed over 60 million returns and issued 43 million refunds as of March 8.
However, one issue that has affected employees has been the return-to-office mandate. Employees have been directed to return to the office, and there’s been reports from former officials that there isn’t enough space in every building and some employees have been working in conference rooms and have difficult work environments. And that is happening now.
David D. Stewart: With this unusual office situation happening, are there concerns about how the IRS is operating now?
Benjamin Valdez: There are concerns. Former officials have said that working in a group setting raises some privacy concerns, especially for employees that deal with sensitive taxpayer information, and they might not be used to having other people around them when they have that information accessible on their work computer. And so I think that issue is going to be something that the IRS will have to figure out more as they go along with this return-to-office mandate.
David D. Stewart: So another thing that’s been going on at the IRS has been modernizing its technology, and I understand that we’ve heard that this process is being paused. At the same time, technology is expected to pick up the slack for the reduced force at the IRS. So what are we hearing about that?
Benjamin Valdez: Last week, several unnamed Treasury and IRS officials told reporters that this pause was happening to essentially take a look at the modernization strategy and find ways to make it more cost-effective and to potentially incorporate newer technology, like generative artificial intelligence. However, the officials didn’t indicate how long this pause would last or really how many initiatives it would affect at the IRS, because modernization is such a broad category and the IRS has been working on a lot of different things.
But the officials pointed to this progress that the IRS had been making with its legacy code and updating this 60-year-old underlying technology. And they said that this pause is necessary to reflect on whether the strategy is still relevant, essentially. We’re still awaiting further information on that.
David D. Stewart: And something else I’d like to ask about is what’s going on with the leadership at the IRS? We’ve seen a lot of change. So what positions have shifted, and who are we seeing in charge now?
Benjamin Valdez: The leadership at the IRS has been rapidly changing following the exit of Commissioner Daniel Werfel on January 20. Initially, Deputy Commissioner Douglas O’Donnell took over as acting commissioner, and then he retired in February. And former Chief Operating Officer Melanie Krause is now the acting commissioner as well as the deputy commissioner. So there’s a lot going on in the leadership structure.
Additionally, the Trump administration replaced the acting Chief Counsel William Paul with Andrew De Mello, who was a chief counsel attorney and a former trial attorney at DOJ Tax. And he was picked by Trump during his first term to be a watchdog for the Department of Education.
There’s also been tension in the leadership of the IRS. Former Human Capital Officer Traci DiMartini was put on administrative leave pending termination. She filed an affidavit in a court case regarding the probationary employee’s termination. She attested that she refused to sign the probationary termination letters that went out, along with former acting Commissioner Doug O’Donnell. And she also said that her resistance to onboarding staffers from the Department of Government Efficiency contributed to the reasoning that Krause put her on leave.
David D. Stewart: Have we heard anything from the tax community about concerns over these changes in leadership?
Benjamin Valdez: Former officials I’ve spoken to, specifically former IRS Commissioner John Koskinen, who was commissioner under President Obama, has expressed concern over the replacement of the acting chief counsel. Koskinen told me that he had never heard of an instance of the president replacing the acting chief counsel with another acting chief counsel prior to the confirmation of an official appointee to the position, which is one of the only two Senate-confirmed positions in the IRS.
David D. Stewart: So speaking of Senate-confirmed positions, we have a new commissioner that’s supposed to be coming in. Where does his nomination stand?
Benjamin Valdez: Yes. Former Missouri Representative Billy Long was picked by President Trump to lead the IRS after Danny Werfel, who was President Biden’s pick. And as far as we know, lawmakers on the Hill are still waiting for all of the final paperwork for Long, and they haven’t scheduled a hearing date yet.
Long has recently been seen on the Hill meeting with Senate Finance Committee members. Republicans on the committee have expressed their strong support for him.
David D. Stewart: Well, all right. There’s a lot to keep track of here, and I thank you so much for doing all that work in print and also coming on the podcast to tell us all about it.
Benjamin Valdez: Absolutely. Thank you for having me.
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