What a Shrinking IRS Really Means for Professionals

The IRS isn’t just tightening its belt, it’s dropping sizes like it’s on a crash diet. With layoffs, leadership shakeups, and hiring freezes colder than a Chicago winter, the agency charged with collecting trillions is facing a full-blown identity crisis. For CPAs and tax professionals, this isn’t background noise, it’s front and center. You’re navigating stressed systems, anxious clients, and shifting expectations. What’s unfolding isn’t just another chaotic tax season... it’s a preview of what tax enforcement and service might look like for years to come. Let’s break down the latest moves, myths, and messes, so you can guide clients confidently and stay sharp amid the shakeup.

What the IRS Cuts Really Mean

The Trump administration isn’t just trimming the IRS, it’s chopping it down like a pine tree before Christmas. With the hiring freeze still locked in and more than 6,000 probationary employees already let go, reports from Reuters estimate the agency could shrink by up to 25,000 staffers, nearly 25% of its workforce.

Some cuts came from the Small Business/Self-Employed Division, but the ICIJ reports that even high-stakes teams like Large Business & International (LB&I), those who audit billionaires and corporations—have seen layoffs or internal chaos. According to former IRS commissioner Charles Rettig, “People are now asking, ‘Why should I pay taxes?’” That’s not just bad for the IRS, it’s a bad vibe for the whole system.

Audits on Ice

Remember the 87,000 agents from Biden’s Inflation Reduction Act? That plan got iced fast. Thanks to the hiring freeze, enforcement is on pause. That means small businesses, S Corps, and high-income earners (especially those pulling in $400k+) can exhale, for now. But this isn’t a free pass. Fewer audits today could mean fiercer enforcement down the road as the IRS tries to claw back lost revenue. And the lost revenue is no joke. Yale’s Budget Lab warns that a 50% IRS workforce cut could lead to $395 billion in forgone revenue over 10 years. That’s before factoring in increased noncompliance, potentially adding another $2.4 trillion to the deficit.

Refunds Stuck in Traffic

The IRS claims e-filers won’t feel the burn as much, but for those still rocking paper? It’s looking bleak.

• Nearly 57 million paper returns were filed in 2024
• Processing timelines? Expected to double from 6–8 weeks to 12–16+ weeks
• ERC refunds worth $10 billion are still frozen after more than a year

And prior-year filings or amended returns? Some are stuck in a backlog dating back over six months, with no clear fix in sight. As CPA Mark Gallegos told USA Today, "It's been smooth sailing for e-filers, but good luck if you mailed it in."

Dial Tone Drama

Only 32% of taxpayers will have a real person on the line in 2024. That leaves 68% trapped in what we’ll call IR 739,000 S voicemail limbo. Why the silence? Attrition is sky-high. NTA reports show 24% of reps left in 2023 and 19% more in 2024. And with 63% of staff eligible for retirement soon, this isn’t a seasonal issue—it’s a slow-motion staffing collapse.

Bloomberg reports that many reinstated employees (after recent court rulings) are sitting on paid administrative leave, unable to help while the IRS figures out what to do next. Meanwhile, there aren’t enough desks for those still working. Seriously.

Why Taxpayers Are Getting Bold

With fewer auditors and rising uncertainty, some taxpayers are treating 2025 like a cheat year. An Intuit Credit Karma survey found that 25% of filers are less concerned about errors because of IRS cuts. Others are skipping returns entirely, thinking enforcement is asleep at the wheel. And while it’s tempting to think “no news is good news,” experts warn otherwise. “The IRS still uses computers to flag inconsistencies,” says Gallegos. “Cutting corners now could cost you big later.” Plus, with underreporting already over 50% for self-employed or tip-based income, the erosion of “voluntary compliance” is real. Former Treasury Secretary Larry Summers even warned, “Tax cheating is highly contagious”—and the IRS cuts are making it worse.

So, What Should Professionals Do?

You can’t fix the IRS, but you can protect your clients (and your sanity). Here's how:

• Go all-digital: File everything electronically. The paper is just asking for delays.
• Use the Taxpayer Advocate Service (TAS): They’re a lifeline for frozen refunds or unresolved issues.
• Educate early: Tell clients what to expect and what delays are normal this season.
• Document everything: When timelines slip, you’ll need that paper trail.
• Keep calm and carry on: Clients need clarity, not panic. Be calm in the storm.

Final Word

This isn’t just a bad year; it’s a potential reset for how the IRS functions long-term. Leadership shakeups, funding changes, and strategic shifts are already in motion. So yeah, the IRS may be shrinking, but your role as a CPA? It’s only growing. Stay sharp, stay proactive, and maybe keep a little extra coffee on hand. You’ll need it. Timely trends, smart strategies, and financial deep dives—straight to your inbox. Join our newsletter and lead the conversation!