The Impact of IRS Workforce Reductions on Tax Enforcement: What Taxpayers Need to Know by Michael J. Brennan, CPA
The Trump administration’s calls to reduce the size of the federal government and make the federal workforce more efficient[1] are expected to have a significant impact on the work of the Internal Revenue Service (IRS) and potentially end the agency’s 10-year plan to expand its tax compliance enforcement activities. However, savvy taxpayers should not assume that a smaller IRS will lead to fewer audits. Proper tax documentation and reporting remains a critical aspect of individuals’ and businesses’ annual budgeting needs and their planning for tax efficiency throughout life and after death.
Background
The Biden Administration passed the Inflation Reduction Act (IRA) in 2022, which, among other things, would have provided the IRS with nearly $60 billion in federal funding over 10 years to increase skilled staff, modernize its systems, improve taxpayer service and step up its enforcement of federal tax laws. As of Sept. 30, 2024, the IRS had expended $9 billion, or 15 percent of its federal funding, according to the U.S. Treasury Inspector General for Tax Administration. By Dec. 12, 2024, the agency had collected more than $4.5 billion in overdue taxpayer debt and prosecution of financial crimes.[2] These efforts have slowed considerably under the Trump administration, which quickly terminated new IRS hires in early 2025 and announced plans to further reduce the agency’s workforce by tens of thousands before the end of the year.
At the same time, the government and taxpayers must contend with several provisions of the Tax Cuts and Jobs Act (TCJA) that are set to expire at the end of 2025. While it is unlikely that Congress will allow all these provisions to lapse, these changes to the tax code could impact taxpayers’ wallets and complicate an already strained IRS’s enforcement capabilities. For example, at the end of 2025, taxpayers could see the following changes:
- individuals’ marginal income tax rates could rise, with a top rate of 39.6 percent, as compared to the current 37 percent
- the standard deduction of $15,000 for individuals could revert to approximately $6,000 for individuals
- the generous estate tax exemption, which currently sits at $13.999 million for individuals and $27,998 for married couples filing joint tax returns, would be cut in half, exposing more estate to a 40 percent estate tax liability
- the alternative minimum tax (AMT) could be reduced to its 2017 levels, exposing more high-income taxpayers to the tax
- pass-through entities, such as S corporations, could lose a qualified business income (QBI) deduction, increasing their tax rates from 29.6 percent to 37 percent and potentially restricting business cash flow
- the bonus depreciation deduction for qualifying new and used depreciable property, including machinery and office furniture, computer systems and software, vehicles, and certain improvements made to the interior of nonresidential buildings, will drop to 20 percent in 2026 and be eliminated in 2027.
Managing Through Uncertainty with Confidence
Whether reductions to the IRS workforce will affect the agency’s ability to collect taxes and identify tax returns for examination remains to be seen. After all, the IRS had been understaffed for several years before the enactment of the IRA. IRS agents remain adept at identifying abnormalities in your tax returns and discrepancies in the information you report. By the same token, documenting your finances, keeping detailed records and abiding by the tax laws remain the best ways to prepare yourself and your business for a potential audit. The more organized and accurate your records, the easier it will be to defend your position in an IRS examination.
Your ability to keep your financial life in order with meticulous and up-to-date records also benefits you as you plan for building wealth, growing your business, and maintaining tax efficiency or mitigating tax liabilities, both for yourself and for future generations. It is also recommended to build a team of trusted advisors, including CPAs, financial advisors and lawyers, to ensure that the plans you put in place today continue to reflect your circumstances and needs in the future.
About the Author: Michael Brennan, CPA, is a tax advisor and consultant with Berkowitz Pollack Brant Advisors + CPAs. He assists high-net-worth families, professional services firms, and business owners with complex tax issues and tax planning strategies. He can be reached in the CPA firm’s New York City office at 646-213-7600 or by email at info@bpbcpa.com.
[1] Fact Sheet: President Donald J. Trump Works to Remake America’s Federal Workforce, Deb. 11, 2025, https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-works-to-remake-americas-federal-workforce/
[2] https://www.irs.gov/newsroom/irs-recovers-billions-in-tax-financial-criminal-cases-focused-on-drug-trafficking-terrorist-financing-launches-new-business-online-account-features
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