In this episode of Tax Notes Talk, Robert Kerr, formerly with the IRS and now with Kerr Consulting, discusses the recent federal hiring freeze and buyout offer and speculates how they may affect the IRS.
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: Order up.
During President Trump’s first couple of weeks in office, his administration has worked to align the government and its agencies with his vision. Last week we discussed how his executive orders relate to U.S. international tax policy. This week we’re looking at how his executive order freezing all federal hiring and the offer to buy out federal employees is impacting the IRS.
Here to talk more about this is Tax Notes reporter Benjamin Valdez. Ben, welcome back to the podcast.
Benjamin Valdez: Thanks for having me, Dave.
David D. Stewart: Now, I understand you recently talked with someone about this. Who did you talk to?
Benjamin Valdez: This week I talked to Robert Kerr, who currently runs his own tax consulting firm and has a decades-long career in tax administration. He spent 13 years in the IRS in a variety of positions, including some within the agency’s research division, and worked in the National Association of Enrolled Agents, advocating for members’ interests in Congress and the executive branch.
Bob also had a stint on the Senate Finance Committee, where he helped lawmakers provide IRS oversight. Needless to say, he’s in tune with tax administration and tax policy.
David D. Stewart: And what sort of issues did you get into?
Benjamin Valdez: We brought Bob in to pick his brain on a wave of fast-moving changes to the federal workforce that are bound to have immediate and long-term implications for the IRS, including a hiring freeze that singles out the agency. We also discussed the recent buyout offer for all federal employees, what the deal might mean for federal employees and IRS functions, and the offer’s validity.
David D. Stewart: Just a note before we get started: We recorded this interview on February 4. Since then, the deadline for accepting the buyout offer has been paused by a federal court, with a hearing scheduled for February 10. And with that, let’s go to that interview.
Benjamin Valdez: Well, Bob, thanks for joining us and for coming back to the podcast.
Robert Kerr: Hey, Ben. It’s great to be back. Thanks for the invitation.
Benjamin Valdez: Let’s go ahead and jump right in. Two weeks ago, Trump issued a flurry of executive orders that aim to reshape the federal workforce — among them, a hiring freeze for all federal agencies, with one caveat: The IRS can’t start hiring again until the administration believes it’s in the national interest to do so. What sort of signal does this singling out the IRS in this order send, do you think?
Robert Kerr: Well, at first I was going to say that it was a love note. It was a little love letter to IRS saying, “We think you’re really special.” I suspect that if I’m at 1111 Constitution Avenue, I’m not feeling special in the good way right now.
Now, obviously, in seriousness, it’s not what great news looks like to IRS. What it actually means versus what it might mean, there’s some distance there, and nobody knows what it will mean functionally.
Benjamin Valdez: Well, as we know, the agency has been in the middle of a massive effort to expand its ranks using Inflation Reduction Act funds. And the national taxpayer advocate reported that it was just about an increase of 10,000 employees since the start of fiscal 2024. What sort of downstream effect could this freeze have on that effort to increase the amount of employees at the agency?
Robert Kerr: When we look at the hiring freeze, I think what folks in the tax professional community tend to do is scope it in really tight. And so it’s January when this happens, and tax professionals are concerned about the current filing season, for which I would assume all the hiring has already been done. So it is a bit in that case like the proverbial closing the barn door after all the animals have left.
So for the immediate future, I don’t know that it means all that much. On a broader base, it’s a huge issue for the agency because it is indiscriminate — it is all hiring, not just focused hiring.
Benjamin Valdez: Former officials have said that this could affect attrition at the IRS, which is an existing problem, and it has been for years, with some of that including leadership turnover and competition with the private sector. When it comes to attrition as a way of reducing workforce, do you think it’s effective?
Robert Kerr: Well, Ben, it’s effective in reducing workforce, but the question that it prompts me to ask is, is it a good way to reduce workforce? I’d suggest to you that it’s a terrible way to reduce workforce. Again, it’s indiscriminate, and I suspect we’ll also get into another of the EOs later, and then both of those large EOs suffer from the same fundamental issue — well, they suffer from a lot of issues, but the commonality is that there’s no distinction on which slots the agency needs or doesn’t need or will fill or won’t fill. So once again, you lose bodies by attrition, which is what the agency did for many years between 2010 and 2020.
Benjamin Valdez: Last week we saw this mass email go out from the Office of Personnel Management offering employees to either — they can resign and get paid through September, all they have to do is reply to the email with “resign” in the subject line. And this has sort of sparked a lot of concern from members of Congress and also just other observers, including the unions for federal employees. And members of Congress have been concerned that it might not even be legal. Do you think there’s some validity to that?
Robert Kerr: Well, Ben, I am not your attorney, nor am I the attorney of anyone listening, and what follows is not legal advice: I think it’s a huge stretch. This will be litigated. NTEU, for instance, has already filed suit here in the District of Columbia. And of course there’s a huge timing issue, which is the “fork in the road” email goes out last, I guess it was Tuesday night, Tuesday at 5 p.m., giving people until February 6 to respond with a very efficient, I have to grant, “resign.” That is a very small window, and certainly not a window of time in which the legal gears are going to come into play.
Benjamin Valdez: When it comes to the IRS, what sorts of employees do you think might be taking the offer more seriously than others, perhaps?
Robert Kerr: I suspect that people who are close to retirement eligible or retirement eligible would be more prone to giving this some serious thought. The national taxpayer advocate, who evidently we’re going to be quoting a bit today, wrote that some 18 percent of the IRS workforce is eligible today for retirement.
I looked at the IRS Data Book for the fiscal year 2023, which suggested that IRS had some 83,000 to 84,000 employees. And so you math that out and it’s up to 15,000 folks who are eligible to walk out the door today. It seems reasonable to assume that those people are more inclined and more incented to take this proposal seriously.
Benjamin Valdez: Legal questions aside, there’s also this question of funding that I wonder if that could also maybe add to uncertainty with accepting the offer. The government’s only funded through March under the current continuing resolution.
Robert Kerr: I personally don’t see a difference between being on board or not on board — on board, that is, within the federal government, not “on board” in the sort of euphemistic way. I don’t see any difference at all between those two states. If we get to the CR expiration on March 14 at midnight and Congress can’t get it together, I believe that folks who are reporting to duty and folks who are on what I would assume is administrative leave would be paid or not paid in the same fashion.
If I could, though, on funding, one of the — I think, and this ties into an issue you raised earlier with members of Congress, there is a question that to me seems real, at least: What is the authority that this administration or any administration has to put people on eight-month stints of admin leave? By what authority can the administration pay people for not working for eight months?
Because when I first heard this question about funding and how do you pay for it, my simple answer was like, “Listen, the way this ‘buyout’ is structured, it has everyone off board by September 30, which is not a date drawn at random. It’s the last day of the fiscal year. So arguably, we were going to pay these people whether they showed up or they didn’t show up, and therefore we have the money to do either.” Now, do we have the authority to do either? That’s a different question that I’m not hearing kicked around as much as I would’ve thought.
Benjamin Valdez: When it comes to funding, that makes me think of sort of the journey that the IRS has been on over the past two years with their new funding and the status of the strategic operating plan, which is basically their outline for how they want to spend this 10-year influx of money that they’ve been given.
Do you think that the strategic operating plan is maybe entering a different era given all these different orders and this sort of approach to the workforce? Does it still hold weight — the same weight that it might’ve held two years ago?
Robert Kerr: I’ll back up again; I’m prone to trying to look at things pretty broadly. The strategic operating plan former IRS Commissioner Daniel Werfel suggested was IRS’s public to-do list. Treasury Secretary Janet Yellen required IRS to produce it; IRS produced it timely. It is, in my humble opinion, an excellent document, if somewhat incomplete in some areas.
But as a roadmap, as a broad statement of how the agency would like to transform itself and what its priorities are, I think it’s excellent. The strategic operating plan is predicated on having Inflation Reduction Act funding, the $80-ish billion which really wasn’t $80 billion and has been getting smaller with the passage of time. And if the agency doesn’t have the Inflation Reduction Act funding, I don’t know how much — or how little, maybe, would be the better way to frame this — it can accomplish within the strategic operating plan.
Benjamin Valdez: You sought out the civil service early in your career, so I’m just curious what your perspective is on how this approach might — what effect it might have on how employees feel about their day-to-day jobs.
Robert Kerr: I’d suggest that it’s like somebody set off a bomb beneath the civil service in general, and IRS employees are a subset of the civil service. And what we’re seeing, I think, is a cumulative effort. First, we have the results of a November election, which I believe that most people could see around the corner there and guess that it wasn’t going to be great for IRS in a lot of ways. Then we come into three sequential executive orders: the hiring freeze, we have the grant suspension, and the non-suspension a day or so later.
At first I thought, “As a tax administration guy, I don’t care.” And then someone raised to my attention that it calls into question VITA and TCE funding in the middle of January. So I thought, “That is an issue at least for some corner of the IRS, admittedly probably fairly small.” And then you have this executive order on the buyout.
And the cumulative effect on that, I think, is tremendously demoralizing. I appreciated several things about my civil service position, and frankly about working for the agency, one of which was that you have a position that’s secure — you are, as a friend of mine suggested, recession proof. When 9/11 happens, when the financial world imploded in 2008, when we had a pandemic, no one in the federal government, no one in the civil service thought, “I don’t think, or I wouldn’t have thought very hard about, what does that mean for my next paycheck?” It’s always going to be there. This is a tectonic shift in the way that I think a lot of civil servants are thinking.
One of the other pieces that I think is profoundly unsettling is the confusion around the buyout itself. Is it real? What if I do write “resign” and hit the send button? I always like to use the Charlie Brown and Lucy and the football analogy. Can I be Charlie Brown to the federal offer from Lucy and actually run at the ball and kick it? That’s in question. And so how do you take the buyout if you’re not certain of the result there?
Benjamin Valdez: Within the past few days, OPM has continued to sort of send out these additional FAQs and emails, just sort of adding elements to it, including encouraging employees that accept the buyout to take a private sector job during the next few months. Does this approach sort of signal that they might not know fully how this is going to work?
Robert Kerr: To me, it signals moving fast and breaking things. OPM comes out with the all-employee email that says, “You’ve got seven, eight days to decide whether you’re going to resign. And oh, by the way, that’s a lovely job you have there; it would be a shame if something happened to it later, and we can’t guarantee that it won’t.” Remember that part of this email? One could, I don’t think unreasonably, parse the message as part threat.
So what we’re also seeing, given a “move fast and break things,” a natural result is following up with the FAQs because you were moving fast. And so folks raise, “well what about this, what about that?” And so you come out with FAQs.
One of my struggles with FAQs is that they’re not binding. So this has been an IRS issue for years because it takes a long time for IRS to issue guidance. In the interim, and appropriately, the agency wants to provide some sort of frame, and so the agency comes out with FAQs. Then we as tax professionals, who are a rather cautious bunch of folks, say, “But wait a minute, an FAQ isn’t worth the paper it’s not printed on.” This evolves over time, and IRS issues a proclamation — I forget how they did this — saying, “We won’t summarily erase FAQs. If we change them, we will archive, and it is not unreasonable to rely on them.” So all of that comes in, but that happens over a longer arc, right?
In this case, you’ve got a week. And so, what do I do with FAQs? They say the right things. They say, “We’ll pay you while you get another job or go on vacation or whatever. We love you. Go and thrive somewhere else.” But at the end of the day, how do you make a rational decision in that environment?
Benjamin Valdez: I know we frequently hear the idea of living in unprecedented times, but I wonder if there is really a precedent for a governmentwide offer like this sent via email.
Robert Kerr: No, it is — this is de novo; this is sui generis. So, we have folks again coming in who want to move fast and break things — and with the goal of efficiency, I guess. It seems to me that the largest goal is simply to reduce the size, reduce the footprint of the federal government, which if that’s what this administration wants to do, I suppose that’s theoretically fine.
The way it is going about it is, to me, deeply troubling, simply because it is — to say “unorthodox” would be to miss the point. It is careless. So what we don’t know then is, what happens if every meat inspector at FDA decides to take up the offer? Is that OK? I wouldn’t use the IRS because what happens if every revenue agent takes up the offer? And some folks would say, “That’s fine by us.” I’d suggest that it’s an undesirable result.
Benjamin Valdez: And the IRS isn’t a stranger to being singled out or targeted for certain reasons, whether it’s by Congress or other stakeholders, but there’s frequently this sort of line drawn between enforcement and service. And critics of the agency and Republicans in Congress who want to reduce the size of the agency frequently target enforcement as the area that should be most affected, whereas service should stay. Are the lines between those two functions — are they maybe as cut-and-dry as some might make it seem?
Robert Kerr: I listened to former IRS Commissioner Charles Rossotti make this statement publicly, where he suggested that the distinction between enforcement and service is an unfortunate one that we make, and fairly arbitrary. So if IRS sends out a notice saying, “We see you haven’t filed your tax return,” is that enforcement? Is that service? And perhaps that’s not an excellent example, but it is an example of something that looks like post-filing work. And is all post-filing work — post when you were supposed to file work — is all that work enforcement? When anyone at IRS picks up a phone, is that always service?
The agency functions in that way, I believe, because it receives four appropriations, one of which is enforcement, one of which is service. And so you’re going to fund taxpayer service out of the service bucket and you’re going to fund exam out of the enforcement bucket. The fact that the agency is appropriated that way and has been for some period of time doesn’t mean that it needs to be appropriated that way, that it is wise to be appropriated that way. It’s just that it is appropriated that way.
Benjamin Valdez: Going back to the OPM memo, the biggest opponents include the unions that represent the federal workforce, including — we mentioned NTEU earlier, they represent the IRS and over 30 other agencies. They’ve urged members not to take the offer, and they’ve said there’s a lot of legal questions to it. What stake do the unions have in this whole question?
Robert Kerr: Obviously, the union is not an impartial observer. On the one hand, the union exists to protect, promote its members; on the other hand, when it has fewer members, it becomes smaller itself. So all things being equal, one could at least posit that the union benefits from people staying and is diminished by people leaving. The fact that the advice that the union is offering appears to be self-serving does not, however, make it bad advice.
Benjamin Valdez: In addition to the hiring freeze and this offer from OPM, we also saw an order from Trump to basically revive Schedule F, which was something he attempted to do in his first administration and would allow agencies to move employees into this new schedule and essentially remove their civil service protections. And how does this sort of add to this approach to trying to reduce the workforce and come in with sort of these “shock and awe” measures?
Robert Kerr: There’s just a tremendous amount of pressure being brought to bear on the federal workforce, and by extension, on the IRS — pressure from the hiring freeze, the pressure from the suspension and resumption of grants, the buyout.
The other environmental factor here is that the agency’s commissioner walked out halfway through his term. That’s not what’s supposed to happen. We’re closing — and we’ve referenced this earlier, though in a different tack — on the FY25 budget. We’re on a CR right now, and the CR expires in the middle of March.
And so once again, the agency doesn’t know what its funding is for the year. And I’d suggest to you that the funding for FY25 is not nearly as important by this point as is the funding for FY26. What does that budget look like? I don’t think we’ve seen anything come out of either chamber on what that looks like. But start looking at the over-under on $12 billion, and I’d be hard pressed not to take the under. For IRS employees, I think that the pressure is particularly severe.
And going back to a comment I made earlier about so much of the IRS workforce being eligible — well, that is a chunk. We are closing in on 1 in 5 being eligible to retire. Those folks have not retired. Each one of them has a reason for not retiring. I would guess at least some nontrivial portion of them are because they believe that what they are doing is important; they find it rewarding. They believe that the federal tax administration system is moving in the right direction. They want to be part of IRS’s transformation. So when folks are eligible and they don’t leave, there’s something there.
Benjamin Valdez: And when it comes to the IRS just attracting people that want to work in the agency, I imagine some of this isn’t really encouraging to those sorts of people. I know that offers that were accepted by prospective applicants have already been rescinded because of the freeze and whatnot. Do you think that’s possibly just discouraging to certain people that wanted to join public sector?
Robert Kerr: I suggest to you that there’s already been a pretty substantial headwind anyways. The process for applying for a federal job, the process for applying for an IRS position, it’s not like the private sector. It’s not like you print out your resume, and — I’m old school — you put a stamp on it, and send it in. It’s not that at all. You have to sort of twist yourself into a pretzel in order to complete the online form. And then you wait, and you wait, and you wait, and you wait.
And part of IRS’s strategic operating plan had a section on personnel, a staffing section in which the service, I thought quite tellingly, suggested that part of its improvement was to encourage people to remain in the pipeline. If you acknowledge that you have that problem, it’s a real problem. So you have sort of the macro level that applying for a federal job is tedious.
And then you have the possibility that once you’ve been offered the job, that it’s not really a job, which is — it has its own challenges. And that’s not just for the IRS, that’s governmentwide. As well, you look at what else is on offer, and so I think that the agency has had some difficulty in recruiting, for instance, revenue agents, for folks for exam, because the requirements are, I think, 30 hours of accounting. And once you start having those requirements and you come in at grade 7 making — Ben, I’m just spinning numbers right now — making around $40,000, and that’s not super attractive. So we have the confluence of events — we have a competitive employment market, and we have a process that’s difficult to onboard with the agency, and now you have the possibility that offers aren’t really offers. None of that’s great for recruitment.
Benjamin Valdez: Well, Bob, thank you so much for your time.
Robert Kerr: My pleasure. Thank you for the invitation. Always a pleasure to be here.
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