IRS Layoffs Threaten Tax Revenue Collections and Enforcement Efforts

Washington, DC - The recent layoffs of approximately 7,000 probationary IRS workers have sparked concerns about the agency's ability to pursue high-wealth tax evaders and collect revenue effectively.

Enforcement Impact

Experts emphasize that the majority of laid-off employees were focused on compliance, including ensuring taxpayer adherence to the tax code and collecting delinquent debts. This reduction in enforcement capacity could disproportionately harm efforts to target wealthy individuals and businesses that engage in tax evasion.

Customer Service and Backlog

The layoffs also raise concerns about the IRS's ability to provide adequate customer service and process tax returns during the upcoming tax season. The union representing Treasury Department employees warns that this workforce reduction could exacerbate existing backlogs and delay refunds.

Funding and Rescissions

The Inflation Reduction Act provided significant funding to the IRS for enforcement and customer service improvements, but congressional Republicans have since reversed some of that funding. This poses further challenges to the agency's ability to address tax evasion and maintain efficient operations.

Deficit Implications

A Congressional Budget Office report estimates that rescissions in IRS funding could significantly reduce revenue projections and increase the federal deficit. For example, a $20 billion rescission would reduce revenues by $44 billion and increase the deficit by $24 billion over a 10-year period.

Stakeholder Reactions

Treasury Secretary Scott Bessent has downplayed the significance of revenue collection issues, while the National Treasury Employees Union has criticized the layoffs as detrimental to both taxpayers and IRS operations. Tax law experts and former IRS officials have also condemned the move as misguided and detrimental to the agency's ability to enforce tax laws effectively.

Legal Challenges

The union representing IRS workers has filed legal challenges against the mass layoffs. Appeals courts have issued injunctions blocking the layoffs temporarily, but a final outcome is yet to be determined.