Recently, the Trump administration announced that massive layoffs were coming to the IRS. Right now, it is the middle of tax-filing season so the timing couldn’t be more awkward. According to various sources, up to 15,000 IRS employees will be targeted for termination and 6,000 have already been terminated.
Most of the impacted employees are on probationary status — new hires with less than one or two years of experience.
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The IRS will also lay off about 3,500 employees from its Small Business/Self-Employed (SB/SE) division. This division focuses on businesses with less than $10 million in assets. As the name implies, this division focuses examination and collection enforcement on self-employed small businesses.
Some layoffs will come from the Office of Appeals which generally resolves disagreements between taxpayers and IRS staff. The Taxpayer Advocate Service (TAS) is also subject to layoffs. TAS is an independent division at the IRS that helps taxpayers resolve issues when they are unable to do so through normal channels.
Large-scale layoffs or “reductions in force,” as the government calls it, are rare at the IRS. It last happened in 1996 when the IRS proposed cutting 5,000 jobs although it later cut 4,500 through the use of buyouts, transfers, and early retirement incentives.
When IRS funding is reduced, the agency generally does not lay off people. Instead, they implement hiring freezes and employees who leave or retire are not replaced. And it is generally the IRS senior management who decide which divisions are cut.
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Public reaction to the layoff announcement seems to be mixed. Some question why the government would cut IRS funding when its job is to enforce tax laws and protect government revenue. This sentiment is shared by prior IRS commissioners who served under every administration since President Ronald Reagan in a guest essay to the New York Times condemning the layoffs. They said the move would not lower taxes (that is up to Congress.) Instead, it would impede efforts by the IRS to modernize customer service and simplify the tax-filing process for everyone.
Others praise the move by citing anecdotal experiences of harassment and unfair treatment from IRS auditors and collection agents. Many tax professionals who represented small business in audits and collection disputes can also attest to dealing with unnecessarily aggressive behavior from some IRS employees.
The supposed goal of the layoffs is to improve government efficiency and reduce expenses. Obviously cutting staff is one way to reduce expenses. But laying off newly hired probationary employees seem inefficient as they are likely to be on the lower end of the GS pay scale. Also, the government as employers has expended time and resources training these new hires. If efficiency is the main goal, then employment decisions should be made on an individual performance basis rather than with a broad brush.
Will these midseason layoffs mean a delay in issuing tax refunds? Maybe. There are no indications of any layoffs at the IRS service centers that processes tax returns. However, a former IRS commissioner stated that laying off nearly 10% of the IRS workforce in the middle of filing season is extremely risky.
What is likely to happen is that for most people, getting hold of an IRS representative will take longer.
Also, tax controversies such as audits and collection cases will take longer to resolve. In audit cases, the IRS examiners may make taxpayers sign a waiver that would extend the regular three years to audit a case. Otherwise, the auditor will close the case without an agreement and the taxpayer must either litigate at the U.S. Tax Court (usually an expensive and time-consuming ordeal) or do nothing and later get a tax bill. In collection matters, taxpayers could be forced to accept difficult installment agreements or be subject to bank levies or wage garnishments.
And what happens to the people who have been impacted? Those with years of IRS experience could be competitive candidates at the private sector.
But since probationary employees have not been at the IRS for a long time, their experience may not be sufficient to transfer over to the private sector. Also, they may have trouble obtaining unemployment benefits.
On a positive note, those impacted may have a better chance at obtaining jobs elsewhere. Due to the intense publicity of the layoffs and the questionable reasons for it, potential employers (even those who support President Donald Trump or Elon Musk) are less likely to view a job applicant’s layoff as a sign of poor performance.
The IRS layoff announcement is something the agency hasn’t seen in almost 30 years. To the agency’s credit, they have regularly dealt with setbacks, although usually this took the form of funding cutbacks. So they will again do their best with what they have. Some layoffs are probably necessary but surprise layoffs on a large scale could hurt morale and overwork existing employees.
If government efficiency is the goal, Trump and Musk should also look into improving technology infrastructure such as computers. Computers should be up to date so that IRS representatives can get taxpayer information quickly. Also, systems should be set up so that taxpayers and IRS staff can communicate and transfer documents more efficiently and securely.
Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at [email protected]. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.