President Donald Trump's push to slash thousands of IRS enforcement jobs raises the pressure on the tax agency’s long-term initiatives to upgrade its systems. They have been in need of updates for decades, Bloomberg Law reports.
Advisers to Elon Musk and the current administration are pressuring the IRS to eliminate 18,141 jobs, with the biggest reduction in its enforcement unit. That number includes the approximately 12,000 employees that have been terminated as part of the new-hire layoffs and those workers who took the offer of deferred resignation. The aim is to cut the number of IRS employees in half—which was at 100,000 workers—at year's end.
A Treasury Department official said
on a call with reporters on Mar. 14 that the IRS may initiate a strategic pause on its modernization efforts. The agency is also halting its overall operational overhaul that began under the Biden administration, The Hill reports.
According to Bloomberg Law, shrinking the IRS creates more urgency for it to move to more sophisticated technology to avoid interrupting taxpayer services and revenue collection. Practitioners have said that significant cuts to the IRS could mean longer wait times while encouraging tax avoidance by wealthy taxpayers.
The IRS will have to achieve a balancing act of depending more on technology while ensuring that there are still a sufficient number of people to oversee those systems, ex-agency officials and tax practitioners said.
“[Artificial Intelligence (AI)] can help the IRS detect work better, but you still need people to do the work, unless we’re all going to somehow get comfortable with AI doing audits,” noted Tom Cullinan, a tax attorney at Chamberlain, Hrdlicka, White, Williams & Aughtry and an ex-counselor to the IRS commissioner.
The IRS has had a long-term aim to modernize its legacy systems, several of which depend on outdated coding languages. The Inflation Reduction Act (IRA) of 2022 allotted about $5 billion for business systems modernization, Bloomberg Law reports. The IRS has spent roughly 41percent of that money, based on data from the Treasury Inspector General for Tax Administration.
Although Republicans have been against the IRA, and have successfully advocated to get back enforcement funds, GOP lawmakers have been more amenable to the funds reserved for tech modernization. The initial job cuts have not affected technology workers, Bloomberg Law reports.
Senior Treasury officials said on the press call that there are opportunities to utilize technology in enforcement for selecting taxpayers and improving internal workflows.
Meanwhile, the IRS stated in its 2024 update of its strategic operating plan that investing in its underlying technology infrastructure and data analytics made it possible to use new technology to assist taxpayers. The technology includes replacing decades-old mail sorting machines and updating digital services.
The IRS also got $24 billion for enforcement from IRA, which let the IRS utilize AI and data analytics to go after complicated partnerships as well as single out large corporate taxpayers for audits, based on the plan update.
Improving technology would let the IRS better deal with a workforce reduction, said Lisa Zarlenga, a partner at Steptoe LLP. She was tax counsel at the Treasury Department under the Biden administration. “I’m not sure they’re at the point yet to rely fully on technology. But they’ve developed tools over the years because they’ve faced other cuts before,” Zarlenga noted.
Billy Long, a former congressman and Trump's nominee for IRS commissioner, will have to assist the agency in going through technological improvements while ensuring that employees can still carry out the needed oversight, stated Mark Everson, an Alliantgroup vice chairman was IRS commissioner between 2003 and 2007.
Protecting taxpayer data and ensuring that the tax system itself stays operational are the most major challenges to modernization, Everson noted. The balancing act will be specially important for the IRS enforcement unit.
For instance, Andrew Weiner, a Kostelanetz LLP counsel, noted that automatic notices of penalties and errors on tax returns usually irritate low-income taxpayers.
Technology can help customize those automated notices to more accurately target errors in returns, said Rochelle Hodes, principal at Crowe LLP. However, taxpayers still require people to answer questions about the notices and to shepherd audits from start to finish.
Additionally, a fully staffed IRS is still key in dealing with tax scams increasing rapidly through social media promoters, Cullinan said. When he was at the IRS between 2018 and 2022, he noted that there were cases that were comparatively easy to take on but the agency wasn’t able to deal with given the lack of sufficient manpower.