How Recent Developments at the IRS Might Affect Enforcement and Compliance

The Internal Revenue Service (IRS) is undergoing major internal changes that could have far-reaching effects on taxpayers across the country. With substantial staffing reductions, a hiring freeze, and a shifting enforcement approach, individuals and businesses alike may face new challenges in navigating tax compliance.

How IRS Workforce Reductions Affect Taxpayer Services

In early 2025, the IRS announced plans to lay off approximately 6,000 first-year employees, many of whom work in enforcement roles. These layoffs come at a time when the agency is already facing operational strain and are part of a broader federal initiative spearheaded by the Department of Government Efficiency’s (DOGE) to reduce government staffing. At the same time, a hiring freeze has stalled onboarding and training efforts for new personnel. Among those vulnerable to layoffs are staffers hired recently to focus on audits of corporations and the wealthiest taxpayers—raising questions about whether the IRS will be able to police tax evasion, fraud, and other malfeasance as effectively.

The result is a shrinking workforce at a time when the tax system is growing more complex. With fewer agents available, many areas of enforcement and taxpayer support are expected to be disrupted, including audits, appeals, collection negotiations, and assistance for taxpayers facing compliance challenges.

Reduced Enforcement Does Not Eliminate Enforcement

Even with widespread staffing cuts at the Internal Revenue Service, the same rules still apply for taxpayers. This includes filing an accurate return that minimizes your chances of getting audited. It seems counterintuitive for the IRS to lay off employees who do audits, as that is where the revenue is generated. However, this is exactly what the IRS is doing.

Taxpayers Shouldn’t Count on Lax Enforcement

It’s a common assumption that fewer IRS employees may translate into reduced risk for taxpayers with outstanding liabilities. While a decrease in audit frequency and direct contact with enforcement agents is possible, the IRS’s automated systems remain active and operational.

These automated processes continue to issue notices, identify potential compliance issues, and initiate enforcement actions such as levies. Staffing changes primarily affect the availability of personnel to assist with appeals, payment arrangements, or compromise offers. As a result, taxpayers receiving automated notices may experience delays in reaching support or resolving issues, which can lead to enforcement actions proceeding without immediate opportunity for intervention.

Certain issues can automatically trigger audits. The IRS can identify and track anonymous transactions of foreign financial accounts that can be used as a way to avoid taxes in the U.S. Neglecting to report all your income is another red flag. Employers must provide records to the IRS. The agency compares the documentation it receives with what ultimately appears on the tax return. This includes payments received from third-party payment apps like Venmo and PayPal. Accurately reporting gains or losses from cryptocurrency is also important. Brokerages like Coinbase Global are now required to report transactions to the IRS using Form 1099-MISC if a taxpayer earned $600 or more from crypto. The IRS also looks for taxpayers who may try to minimize or avoid their tax liability, by taking big deductions of expenses or losses in relation to their income.

Given these dynamics, individuals with unresolved tax matters may benefit from addressing them proactively to minimize complications and ensure compliance.

What This Means for Tax Season and Beyond

With the 2025 tax season underway and policy changes on the horizon, timely filing and accurate reporting are more critical than ever. Delays in return processing, especially for paper filings, are likely to become more common due to the lack of available staff. In addition, taxpayers may experience longer wait times for refunds and slower resolution of discrepancies.

Looking further ahead, the scheduled expiration of the Tax Cuts and Jobs Act (TCJA) at the end of 2025 may significantly alter the tax landscape. If not extended or replaced, this could mean higher individual tax rates, reduced deductions, and shifts in business tax treatment beginning in 2026. If the IRS is not adequately staffed, they might not be able to properly respond to the many questions that will inevitably arise due to these possible significant changes.

For more information or questions, please reach out to your LMC professional.