The Impact of IRS Layoffs

During the recent chaos of Federal employment moves over the past couple of weeks, two actions will impact how filing your tax return this year could go and how to prepare accordingly.
Voluntary termination
After being offered voluntary termination, approximately 75,000 employees across all departments of the federal government took up the executive branch’s offer. What isn't known at this time is what areas of government services will be impacted.
6,500 terminations at the IRS
As part of the executive branch’s trimming of the government, all newly-hired IRS employees were terminated. This includes about 6,500 new hires (approximately 6% of all IRS employees) as part of the IRS's recent workforce expansion. For those that follow the news, this trimming appears to be politically motivated as the recent expansion of their workforce was a fairly partisan affair.
What it means for you this tax season
The remaining staff are unsettled. There will be greater workload, sadness, and uncertainty about job security for the remaining staff at the IRS. This means getting your questions answered may be more difficult.
IMPACT: If you need a question answered by the IRS, be prepared to wait longer. You may also find it more difficult to get a qualified answer. Should you speak with an IRS representative, try to show some compassion for their situation.
Open questions may take longer to close. As you may recall, during the pandemic the IRS suspended the mailing of notices to taxpayers. When the backlog of notices was turned back on, many taxpayers found themselves facing potential liens because prior notices were never sent. Until the mailing of notices were turned back on, many these taxpayers were unaware of any problems with their tax records. This backlog still exists and will get worse.
IMPACT: You'll probably have a hard time getting someone on the phone who can help with your particular problem. And responses to your mailed replies to IRS notices is taking a very long time. So be prepared to respond multiple times concerning the same issue. Consider sending all correspondence to the IRS using certified mail so there is evidence should you need to prove the timeliness of YOUR replies.
Don’t expect audit rates to go down. Audit rates are already extremely low, with a significant portion of the audit activity now being identified automatically through computer generated correspondence audits. The irony here is that given the progressive nature of the individual tax system, the majority of tax is paid by a minority of taxpayers. Audits will still naturally follow the potential for a return-on-investment for the time spent auditing a particular tax return.
IMPACT: Double check your 2024 tax return documents for missing items. This is especially true for all 1099s! And double check that they are correct. If you report an incorrect dollar amount, you can almost guarantee you will see a notice from the IRS. And be prepared to defend your deductions with proper documentation.
It's unfortunate that the idea of voluntary compliance to help fund our government is so chaotic and more political than ever. The best approach is to comply with the tax rules and adjust according to the situation. And this is where our service can help.