IRS staff cuts mean less scrutiny for ultra-wealthy, officials warn
The Internal Revenue Service’s burgeoning efforts to more closely inspect the taxes of some of the country’s richest people and most powerful companies are stalling, thanks to layoffs imposed by the Trump administration, say current and former IRS employees.
The IRS terminated about 7% of its roughly 100,000-person workforce in February, including at least 5,000 in the enforcement and collections divisions. More layoffs are expected. Meanwhile, tax investigators working on drugs and criminal syndicates may be reassigned to help the Department of Homeland Security.
Current and former employees don’t know who will take on pending audits amid these staff cuts. But some say one demographic stands to benefit.
“The wealthy. One hundred percent,” said Anthony Kim, a longtime IRS attorney now in private practice.
It’s a sharp turnaround from 2022, when Congress gave the IRS $80 billion over a decade under the Inflation Reduction Act, including funds to beef up its auditing of the wealthiest Americans. The agency hired new employees and bulked up units trained to detangle some of the most complicated corporate returns, which can run hundreds or thousands of pages.
It’s not clear how many laid-off employees were specifically auditing big businesses, but tax experts say the cuts undermine the agency’s much-touted effort to crack down on wealthier Americans – who for years have faced slimmer and slimmer odds of being audited and generally have more resources to respond than middle- and low-income taxpayers.
“We do get outgunned. There is no other way to say it,” said former IRS commissioner Charles Rettig in 2021 congressional testimony.
Others say the agency simply can’t do more with less.
“It’s like having shovels” and digging holes, said IRS agent David Carrone, who leads the local Treasury employees’ union in Arkansas and Louisiana. “You have less people to dig the holes now. So there’s only so much the remaining people can dig.”
Critics of the agency, however, say the IRS has a culture of conducting fishing expeditions that hit households or small businesses, or point to watchdog reports that have questioned IRS expenditures and its ability to stay focused on high-income filers.
“Are taxpayers supposed to trust the repeatedly broken assertion that the IRS is only putting the screws to Scrooge McDuck and Rich Uncle Pennybags?” said John Kartch, with anti-tax group Americans for Tax Reform.
The loss of probationary employees – some of whom have specialized experience in valuation, engineering or corporate tax law – comes amid a broader shake-up at the agency that has destabilized day-to-day operations, according to interviews with more than a dozen current and former employees.
Overnight travel has been suspended, limiting revenue agents’ ability to conduct in-person examinations or locate documents for audits, according to seven employees. Employees have been told not to open new business cases, four employees said. Some big-business cases have already been closed, according to a senior manager, who said he has spent the last two years hiring new employees from the private sector. And a transformation and strategy office that oversaw new agency initiatives – those funded with the $80 billion appropriation – was recently disbanded, according to a former agency official.
In West Virginia, four of the state’s nine revenue agents were laid off in February, said Matt Kirk, a revenue agent and another union chapter leader. He estimated the laid-off employees had about 40 cases between them, each looking at people making $400,000 or more.
With those losses, “we don’t have the manpower to absorb that volume of cases,” Kirk said.
White House spokeswoman Liz Huston said that Trump is “focused on saving tax dollars, eliminating bloat and increasing the agency’s efficiency,” in contrast to President Joe Biden’s “wildly unpopular plan to hire thousands of additional IRS agents.”
Calling the premise of this story “incorrect,” a Treasury Department spokesperson said the agency is considering “major investments in modernization” to more accurately target suspected tax evaders and is working on other initiatives to improve compliance and taxpayer customer service and to ensure a smooth filing season.
However, no plan has been approved yet, the spokesperson said.
Republican pushback
Conservatives have long targeted the IRS, arguing a more muscular tax agency would harass middle-class Americans. Trump’s nominee to lead the agency, Billy Long, has supported abolishing the IRS. Republican lawmakers have used those arguments to justify cuts – and so far have rescinded or frozen half of the $80 billion the agency was allocated.
Some former officials say layoffs don’t mean audits of wealthy Americans have to go down. The agency, for example, could retrain and reassign agents who look at small businesses to keep scrutinizing the highest-income earners, said David Kautter, who was acting IRS commissioner during part of President Donald Trump’s first term.
“As long as they’ve got auditors available, they’ve got choices to make,” he said.
Others say the cuts will have a more limited effect, given that some employees were still training and not carrying full caseloads – or that the layoffs force the IRS to rethink its operations or rely more on technology.
Proponents of more IRS funding, however, say the agency offers a solid return on investment – making layoffs there counterproductive. Each dollar the IRS spends tracking down unpaid tax dollars from the wealthiest 10% generally brings in $12 or more, according to one National Bureau of Economic Research study.
“If you’re … concerned about the deficit … then the last thing in the world you want to do is hamstring your revenue agents and your revenue arm,” said John Koskinen, IRS commissioner under President Barack Obama.
How much tax revenue goes uncollected is the subject of wide-ranging estimates, running from about $500 million to $1 trillion each year. Audits conducted by the IRS’s large-business division, which handles some of the agency’s most sophisticated tax matters, can recover “many millions of dollars,” said Rettig, who was IRS commissioner from 2018 to 2022.
“It would not be unusual,” he said, for such a case to “involve a disputed issue in the range of more than $500 million.”
One new employee, Wesley Stanovsek, had three open cases when he was laid off from an IRS global high-wealth division that was beefed up after the 2022 funding became available. Two of the cases involved enterprises with more than one tax filer, he said.
He estimates about 20 employees, of whom five to 10 worked on big-business cases, were also terminated from the Columbus, Ohio, office where he was employed.
John Witkowski, a recent hire who was laid off in February a week after finishing the agency’s training program, expects managers will end up dismissing some of the probationary employees’ cases because of staffing shortages. He left behind four cases, each for a filer with more than $250 million in annual assets, he said. More than two dozen employees also were laid off in his West Coast office, he said.
“I imagine they’ll say, ‘Hey, you won the audit lottery. We’re just going to close your case and let it go,’ ” Witkowski said.
Specialists hired to help audit sophisticated cases – such as a wind turbine project eligible for tax credits – were also laid off. That includes engineer Vanessa Rollins and appraiser Jack McCumber, who left behind a combined seven cases when they were let go from their offices in Chicago and Seattle, respectively.
“The amount of cases that engineering specialists are able to help audit will just completely plummet,” said Rollins, who estimates that seven engineers in the Illinois office – about half – were laid off or accepted deferred resignation offers this year.
Beating the odds
The IRS’s scrutiny of big businesses has fallen in recent decades, driven in part by budget cuts after the GOP gained a majority in the House in 2010.
In the mid-1990s, the agency audited returns for about 50% of companies with $250 million or more in assets. That rate dropped to 8.8% in the 2019 tax year, according to an IRS document. The number of revenue agents shrank from 14,600 to 8,700 between the 2010 and 2019 fiscal years.
By the time the Inflation Reduction Act passed, there was one IRS examiner reviewing returns for every 150 millionaires and large corporations, former IRS commissioner Danny Werfel told a congressional committee in 2024.
“Picture that one IRS auditor or examiner backing in 150 truckloads of paper,” he said.
Unlike typical salaried workers, most ultra-wealthy filers don’t have an employer automatically withholding federal income taxes on paychecks, or a W-2 listing their earned income. Instead, they may have thousands of partners, international operations and a range of investments.
Partnerships have become more common and often have obfuscated structures with 20 or more layers, according to the nonpartisan Government Accountability Office. Fewer than 0.2% of partnerships were audited in recent years – odds akin to “getting hit by a meteorite,” Sen. Ron Wyden , D-Oregon , said in 2021.
Kim, the former IRS attorney, said the agency can face a “total mismatch” in resources when auditing a filer with private accountants and attorneys.
While working at a Big Four accounting firm, Kim once supervised a team of four people who sent 10 to 15 boxes of documents to the sole IRS agent assigned to audit their client. He saw what it was like on the other side when he worked in the IRS’s office of chief counsel years later and was told there was no budget for him to accompany a revenue agent to a meeting with a tax filer’s representatives.
Kim, now in private practice and mostly working with small businesses, tells clients that there are pros and cons to the layoffs: On one hand, the tax agents might be too drained or overworked to pursue their audit. On the other, a pending audit might just “sit there and you don’t get the resolution quickly.”
“Either way,” he said, “the system’s broken from the inside.”