Wall Street Journal, IRS Retreats From Some Audits as Agency Slashes Workforce:
The Trump administration’s rapid shrinking of the Internal Revenue Service is ending some large audits and putting others in limbo. That is the early fallout of a retreat from stepped-up tax enforcement that could dent compliance and cost the government tens of billions of dollars in revenue.
Treasury Secretary Scott Bessent hasn’t detailed his plans for the IRS, its employees and operations. But a new direction is clear. Tough talk about pursuing tax dodging by corporations and high-income households is gone, and the administration is leaning more on technology for taxpayer service and enforcement. That would reverse the recent IRS push to put more people on telephone lines, in walk-in centers and on the front lines of audits and collections.
The IRS expansion started by former President Joe Biden screeched to a halt after President Trump took office. The new administration fired 7% of IRS employees, mostly from the enforcement staff, and froze hiring. The Republican Congress moved to rescind almost all the enforcement spending Democrats approved in 2022. Former IRS officials expect thousands of further job cuts soon, though the Treasury Department hasn’t announced a specific target.
The administration mostly delayed taxpayer-service cuts to avoid damaging tax-filing season, so the most immediate changes are being felt in enforcement.
Bryan Skarlatos, a New York tax lawyer, said an IRS appeals officer on a long-running partnership case called and said he was leaving the government soon. He asked for Skarlatos’s best offer and settled on taxpayer-favorable terms. In two other cases involving high-net-worth individuals, Skarlatos said, the IRS closed recently opened audits without seeking money.
“We have seen agents just disappear from cases that we’re in the middle of, and I don’t know what’s going to happen,” said Kathy Pakenham, co-head of the tax controversy practice at law firm Vinson & Elkins, who saw a ramp-up in IRS activity for 18 months and then a rapid drop-off. “We have seen like a switch flipping in the number of audits that are being started.” …
Former officials, such as Trump’s first-term pick to run the agency, see potentially dangerous consequences ahead. They warn that weaker enforcement would reduce revenue far beyond savings from firing workers and worry about disruptions to tax filing. Some expect longer telephone wait times and doubt computers can replace humans as quickly as Trump allies expect.
“There’s no strategy here except to, I don’t know, weaken the IRS and replace it with apps,” says Nina Olson, who was the national taxpayer advocate, the agency’s in-house critic, for 18 years. “It’s completely different from anything I’ve seen before.”
One big concern: Hollowing out the IRS could erode a valuable asset—high voluntary tax compliance by households and businesses. People pay partly because of social norms against lawbreaking and partly because they fear getting caught. Now, Americans pay about 85% of what they owe, with direct IRS collections adding 2%, levels that research suggests are above many European countries.
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