Your Tax Practice and Cuts at the IRS
IRS budget and staffing cuts mean fewer audits slower responses and limited help from the Taxpayer Advocate Service. Practitioners may face client pressure to take aggressive positions and will need stronger judgment and documentation to stay compliant.
By William Stromsem, CPA, J.D., George Washington University School of Business
IRS personnel and budget cuts will affect your tax practice. With fewer resources available at the IRS, audits will generally be less frequent and less combative, but auditors may be slower and less responsive in resolving issues. Practitioners may be pressed by clients to be more aggressive in light of reduced audit credibility. Recourse to the Taxpayer Advocate Service will be more limited in resolving client problems after a severe 25% cut in personnel. Practitioners may not have timely regulations and procedures to implement the complex new tax act and may have to consider legislative intent and other factors. By understanding what is happening with cuts at the IRS, you may be able to practice more efficiently and effectively.
IRS Cuts
President Trump and Congress have sought to cut federal spending, and the IRS has been a particular target. Some view the IRS as too intrusive, regulatory and potentially partisan, and the IRS is an easy target with most not worrying about fewer tax collectors. These spending cuts overlook the fact that a weakened tax agency will collect less revenue and will reduce the ability of taxpayers and their advisers to resolve tax issues.
Funding Cuts. The Administration has proposed a 37% decline in budgeted funding from 2025 to 2026—that’s a reduction from $22.5 billion to $14.2 billion. The Inflation Reduction Act of 2022 provided $80 billion for the IRS over 10 years, but $42 billion has already been rescinded and more may be coming.
Personnel. According to a report from the Treasury Department Inspector General for Tax Administration (TIGTA), the IRS had a major reduction in its staff. The Administration has undertaken several efforts to cut the number of IRS employees, led by the Department of Government Efficiency. The IRS started 2025 with approximately 100,000 employees and is now around 70,000 as cuts continue. An internal IRS memo discusses the goal of reducing IRS employees by 50% from the number at the start of 2025. The first deferred resignation offer in February was accepted by 11,000 workers. Another 20,000 took the second deferred resignation offer. Court challenges resulted in the rehiring of some employees, but they were told not to work and their jobs will likely be included in future reduction-in-force efforts.
Of those who have been separated so far, 31% were revenue agents, 18% were revenue officers and 10% were tax examiners. These numbers do not show the full impact because many who took deferred resignation offers were more experienced personnel who were at or near retirement age.
Separated employees came from various parts of the IRS, with 31% from Tax Exempt/Governmental Entities Division, 25% from Large Business/International and 23% from Small Business/Self Employed. As of May, 1,241 of the separated IRS employees were from Texas.
The remaining staff are demoralized, losing friends and co-workers, and having to shoulder the additional work of those who have departed. The newly appointed Commissioner of Internal Revenue has, in the past, advocated for the elimination of the IRS. With a shrinking budget and reduced personnel, many feel as though they are aboard a sinking ship and considering whether or how they can save themselves. Discouraged and overworked staff may be less motivated and aggressive.
Effect on Your Tax Practice
Compliance and Enforcement Efforts will be Reduced. The previous Treasury Secretary, Janet Yellen, had directed increased audit efforts on high-income taxpayers, partnerships and large corporations. Her replacement, Treasury Secretary Scott Bessent, listed the primary goals for the IRS as collections, privacy and customer service, with no mention of compliance and enforcement. This clear shift in priorities is also reflected by Congress, which clawed back much of the $80 billion provided to the IRS by the Inflation Reduction Act of 2022, 57% of which was intended for increased compliance and enforcement.
Funding and personnel cuts will result in fewer and less-combative audits, but they may also mean that auditors will be slower and less responsive. Practitioners may find that if they provide a strong defense in an audit, the IRS will not have the resources to continue a dispute. We have already heard of some audits unexpectedly being settled with no change notices because of case overloads.
Practitioners should consider strategies for submitting documents to the IRS. If a document could easily resolve an issue for a taxpayer, it should be promptly provided, even if not requested or required, with agents anxious to clear cases. If a requested document may work to the disadvantage of the taxpayer, the tax adviser and taxpayer might consider resisting production, hoping that the IRS will not have the resources to pursue the issue. As always, if such a document is not in existence, the practitioner and client do not have to prepare one in response to an IRS request.
Clients May Press Practitioners to be More Aggressive on Controversial Issues. With low audit rates and highly publicized cuts at the IRS, clients may wish to take more aggressive tax positions and may bring pressure on you. The current IRS audit rate based on income before losses and deductions is as follows: for those with $10 million or more—11%; for those $5-10 million—3.1%; for those $1-5 million—1.6%; and for those with under $1 million—1%. Practitioners should be prepared for this pressure and be prepared to advise clients on penalty standards. In recommending tax positions, CPAs cannot weigh the likelihood of an audit. The practitioner should review various taxpayer penalties and be prepared to advise the client in writing about potential penalty risks.
CPAs have generally encouraged clients not to take positions that might result in an IRS controversy, even if the practitioner might have been able to be slightly more aggressive and still comply with their professional standards. The language of IRS Circular 230 and the AICPA Statements on Standards for Tax Services (SSTS) have some flexibility so that they can apply to a variety of situations, and the practitioner must use professional judgement and have a good-faith belief that a penalty would succeed if audited. If a client wishes to take a more aggressive position than you might normally advise, but that might not be a violation of your professional standards, this may require additional research, analysis and documentation. In such situations, practitioners should carefully review their responsibilities under Section 6694(a), Circular 230 and the SSTS. Your professional license and ability to practice before the IRS are at stake as taxpayers push for more aggressiveness.
Regulatory Guidance may not be as Forthcoming. Practitioners may have to proceed without prompt regulatory guidance on some issues in the complex new tax law. This may require additional research into legislative intent behind new provisions where the issue is material and administrative guidance is not provided. In an effort to cut back on government regulations, President Trump issued an executive order directing that for every new proposed regulation, 10 existing regulations must be eliminated. New regulations were halted in February while the IRS considered which regulations should proceed and which should be eliminated. Also, an extra layer of review of new regulations by the Office of Management and Budget was initiated. Routine IRS guidance was not affected, but which guidance is considered routine could be an issue. In addition, the IRS lost many experienced regulation writers.
Lost Government Tax Revenue. With less audit credibility, taxpayers may reduce compliance. The IRS hopes to combat this by using artificial intelligence to generate revenue rather than relying on exams; however, the effectiveness of this approach is questionable. To the extent that some taxpayers pay less than their fair share of taxes, government services may decline or the tax burden may shift to more compliant taxpayers—our clients.
Taxpayer Advocate Office Resolution Less Available. Taxpayer Advocate Service (TAS) has lost 25% of its workforce this year through deferred resignations and other “voluntary” separations. This amounts to 400 staff, many of whom were carrying caseloads of 150-200 cases. The reduction in staff results in a heavier caseload for those who remain and a reduced ability to promptly serve taxpayers with serious IRS problems. Practitioners often contact the TAS office when the IRS is unresponsive or when issues persist without resolution. This will be much less available with staff reductions.
TAS provides taxpayers and practitioners an alternate path to resolve issues when normal procedures have not been successful. The IRS will be busy dealing with a new tax law, and with budget and personnel cuts, the IRS may be less able to resolve many cases in the regular course of business. This makes TAS all the more important in providing fairness to taxpayers. Additionally, Congress receives regular reports from the National Taxpayer Advocate and uses these to address systemic issues at the IRS, as well as to resolve constituent complaints.
The Federal Tax Policy Committee of the Texas Society of CPAs is preparing a letter to send to Congress, the Treasury and the IRS to encourage full restoration of resources for the important services of the Taxpayer Advocate office.
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