IRS Changes and Challenges in 2025

(00:01) [Music] Welcome to the Cherry Bekaert Tax Beat, a conversation about tax that [Music] matters. Welcome to this edition of the Cherry Bekaert Tax Beat podcast. Today we are talking about working with the IRS in 2025. There have been plenty of headline stories on this topic, both positive and negative.

(00:29) But we as tax pra practitioners and taxpayers continue to file tax returns, pay taxes, and assist clients with resolving tax notices, audit amended returns, and other work with the IRS. Uh the changes in progress for the IRS are likely to impact both taxpayers and tax professionals in a very uh tangible, practical way. So joining in today's conversation are Ron Wingwright, a partner, and Casey Pitman, a managing director who both keep an eye out on tax policy developments in Washington.

(01:05) So uh how you doing today, Ron? Excellent, Brooks. It's a great topic to uh talk about and uh from Raleigh, North Carolina, where unfortunately it's raining. It's a great day. And Casey, how are you doing today? H I'm doing great. It's raining uh it's raining here in Virginia as well, but uh happy to be here to talk about this.

(01:28) And joining me as always, Sarah McGregor from Greenville. Miss McGregor, how's life treating you? Life is good here in Greenville. Uh it's beautiful. Pollen has started turning everything yellow. So, uh it's going to be a good week to stay indoors and work on taxes. And and I'm Brooks Nelson, a partner in Richmond, and I'm in the same rain cloud that, uh, Ron and Casey are in.

(01:58) So, not not the prettiest day, but we did have a nice weekend, so I'll take that. All right. So, we'll walk through some of the announced changes for the IRS and what that may mean for the work of the agency and taxpayers. We'll also address how taxpayers can respond to these changes. and um let's get on with it. So, Ron, federal workforce reductions are certainly in the news across all sorts of agencies and departments.

(02:23) What can you tell us about the reduction of employees at the IRS specifically? Well, Brooks, it's a great question. So, from um reading as well as what we know from a uh administration announcement, there's really three main efforts to reduce the IRS employee headcount. Uh first uh was the voluntary reduction uh which impacted about 6,700 employees uh accepting the offer to leave the IRS in May with pay uh through September.

(02:54) Uh second is the focus on reducing the number of what are referred to as probationary employees and those are employees with the shortest tenure. Um they're still working through their training and supervision time with the agency. uh therefore the term probationary employees. And then third are the goals from Doge uh which certainly have made the headlines specifically attributable to the IRS and with the goal to reduce the workforce by approximately 18 to 19%.

(03:26) And an overall goal or a long-term goal of reducing that work force by about 50% by the end of the year. So these are really the three main efforts that we have uh read about and we're monitoring and we're seeing come from the current administration and uh to say the least 50% is certainly substantial any way you look at it.

(03:49) So along with the uh with all the employees uh we're also seeing changes at the top. So, Ron, with all these folks leaving the IRS, what are the IRS are seeing the losses of personnel or expect to see some of these losses of personnel? That's a great question, Sarah. Uh, so really the voluntary reduction appears to be across the agency entirely.

(04:15) Uh when we focus on the probationary employees, many of these were hired as a result of funding for enforcement which took place in the inflation reduction act of 2022. However, it appears that perhaps most of these employees are really split between the LBI division examination and the small business self-employment division.

(04:40) um where the additional workforce reductions will come to achieve that 18 to 19% and then the overall 50% is really going to become evident um over time and when the IRS makes their uh announcements in regards to u reductions in in workforce. All right. So Casey, we're talking about the reduction in the troops, but we've also seen changes at the top.

(05:09) So, what can you tell us about that? Yeah. So, so once uh Trump um became the president-elect, he announced that he was looking to replace the then IRS commissioner Danny Warfl uh who was not even halfway through his 5-year term, which is it's pretty odd. It's not something that that happens um usually when an when an administration changes over.

(05:35) But he did announce he was looking to replace him with former Republican representative Billy Long. Um and so in anticipation of that change, Warfl resigned on inauguration day. So Billy Long is now set to come take that top seat um and finish out the remainder of Warful's term, which goes through November of 2027. Um there's not a lot of movement actually on Long's nomination in the Senate right now, but it does still seem to be um on track.

(06:03) It's just not the highest priority in terms of Senate confirmations at the moment. So, we're looking uh to see Long probably confirmed in the next month or two. In addition, we've had a little bit of turnover in who the acting commissioner is. So, when Warfl stepped down, Doug O'Donnell stepped in as acting commissioner.

(06:22) He was actually just recently replaced by Melanie Krauss. Melanie is going to be the deputy commissioner once Billy Long is in place, but for now we are on our third commissioner since January 20th, 2025. She'll sit in the seat and then we'll move down into that deputy position once Long is in place. In addition, just a couple other changes.

(06:42) We saw a change in IRS chief counsel. William Paul was just recently replaced with Andrew Dlo um about two weeks ago. And then in addition, the chief taxpayer compliance officer departed just this past Friday. Um no replacement has been named yet. So we are seeing a lot of turnover in those top positions and we know those top positions really do set the tone for um operating priorities for the um for the office.

(07:09) So Casey, any general observation on trend or uh philosophy of this leadership change or is there any pattern or or anything else you can observe from who's replacing whom or is it too early to tell? There has been some speculation. And I I will leave it at you know um as speculation but it seems as though um President Trump is looking to have people in seat who really are completely aligned with his vision of uh a reduction in the force at the IRS in addition to um prioritizing his um you know key areas for tax reform

(07:52) and um guidance uh issued on both existing and what he's hoping to be uh to have uh in terms of new tax law. So, um it does seem to be that we are looking at people going in seat who are most closely aligned with the administration's overall goals. Well, Casey, that brings us to what might be the IR the IRS's priority guidance plan in anticipating a tax law coming at in the year.

(08:26) I know the IRS will be focused on any new law that comes from that and putting out regulations or or notices or or revenue rulings and and uh revenue procedures for that. But in the meantime, we still have some goals and needs. What's what are your thoughts on the IRS's priority guidance plan? Yeah, so the priority guidance plan comes out every year and um uh a lot of times I I refer to it as the PGP.

(08:54) Um, but it's used to identify and prioritize those guidance projects. Um, as we know, at least uh CPAs know and and I believe many of our clients do, the devil is in the details both of the actual law that is passed, but then you know I like to reference 199A a lot. 199A came out as part of Tax Cuts and Jobs Act. It's 13 pages.

(09:17) There's like triple spaced with the widest margins you've ever seen in your life, right? And from there we have this massive deduction. And so we need a lot of guidance and we have hundreds of pages of regulations that have resulted telling us how to interpret this guidance, you know, in alignment with uh the Treasury's interpretation as well as what they believe congressional intent was.

(09:40) So guidance is really important for us as practitioners and for taxpayers as well. Um so the priority guidance plan comes out and says, "Hey, this is what we're essentially this is what we're going to prioritize for the year. we're going to spend our time working on these guidance projects and the guidance can be in the form of regulations or rev rules or revrocks or you know there's a whole wide array of guidance of forms that guidance can take um but so we expect some changes here as Treasury and IRS leadership change sort of as I alluded to right we're trying to get

(10:10) those in line with the administration's priorities um so there will be some aligning there in addition there will be some new priorities if Republicans are able to get this tax reform bill over the finish line, we're going to have to have guidance for any provisions that are new or significantly altered um in order for uh CPAs to interpret and appropriately report on that activity.

(10:35) Great. Thank you. Well, can I just follow up, Casey? Um I mean are we going to find are they going to find themselves in a catch 22 desperately needing workforce to issue guidance but yet sitting here reducing uh the workforce? Um or do you think they will be able to u uh round up the the horsepower to get get the guidance on what they want and uh just cut back on other areas.

(11:03) So, I will tell you from my dealings with Treasury and the IRS, um, which is probably true of many different industries, we see a final package and whatever we anticipate went into creating that package, at least 10 to 20 times the effort went into it. the number of people who have touched this and the alignment that's happening inside uh the agency is is I think well beyond what most practitioners and um taxpayers fathom.

(11:34) It takes a lot of work. So I I do think that if we are if we see cuts that are too steep and or not really thoughtful um then we could wind up with a workforce that can't produce the amount of guidance you know a treasury and IRS workforce that can't produce the amount of guidance uh that that we need in order to you know effectively interpret and particularly new tax law. Uh so we do run that risk.

(12:05) I do think that should that happen uh it would become evident and I am hopeful that there would be a course correction but you know it's it's all just a guess at this point. Yeah. Not that I mean it's not only highle guidance it can be as simple as revising forms or creating forms necessary to do some of this stuff as well.

(12:25) You know I don't think people realize forms forms are updated every single year. Right. And the speaking of the software that interprets those forms, um, Ron, with the the plan to reduce the IRS's workforce, there's also been this twin uh attention given to technological answers to take the place of of the need for so many people. But along those lines, the IRS has announced a pause in its technology modernization activity.

(12:56) Um, you want to speak to that a minute? Yeah, Sarah, that's a great question and it certainly has made a lot of uh headlines. Um, so when you think about the legacy systems uh of the Internal Revenue Service, they they really need to be updated to the 21st century. I think everyone uh across the agency, the administration as well as Congress would indicate that the legacy systems of the Internal Revenue Service have have not really been uh keeping up uh with the technology and the modernization that has occurred. Um, we did see within the

(13:31) inflation reduction act of 2022, very similar to my comment about the funding around the workforce of the IRS, uh, there was also funding to the IRS to really help with technology improvements. Um, specifically called out were recent upgrades in taxpayer accounts, uh, digital file sharing, and really a lot about communication, more proactive communication.

(13:58) I I think a fair conclusion or takeaway is that with a smaller workforce, the agency will need to lean in heavily into technology solutions and support to maintain and really increase um the IRS's proactive as well as reactive uh communication. One thing that has caught the headlines recently, specifically with Doge last week, was the conversation, I shall say, that uh was had by Doge and potentially getting rid of what is referred to as the free IRS direct file.

(14:39) Um, and so despite the popularity of this, uh, the IRS to correct file program really is unclear underneath Doge or the Department of Government efficiency. And is that an area that we're going to see more technology solutions and really a replacement of of the direct file? Um now it is interesting to to note that um when the current president became president he indicated that it would be in place uh for the remaining part of this tax season that being the 2024 tax season filing into to 2025 and really that April 15th tax filing deadline of

(15:22) individuals. Um, so as a reminder, the direct file uh was rolled out as a pilot program uh in 2024 um really after the IRS was taxed was looking into how to create a direct file system as part of the dollars that were received from the inflation reduction act. And we know that a lot of those dollars are being redeployed uh which was signed um and really directed by uh an executive order of of current administration.

(15:55) Um and so again uh it's going to be here. But just as a point of information, the IRS accepted about 140,000 returns filed by taxpayers using the direct file program in about 12 states. Um and that was just kind of last season. Um that being the 2023 filings in the 2024 year when it became a kind of a pilot program. It has been expanded now to include half the country this year.

(16:25) Um however, as I commented it, it's really unclear how many taxpayers uh are going to be able to utilize and really effectively utilize the technology. uh recognizing that that is is a doge item that uh could be changing from a technology perspective. Uh but there's clearly a need for the modernization of technology. I think the current administration recognizes that as well as the current secretary of treasury.

(16:52) uh Scott Bessant has has come out and and stated that his commitment um during his January confirmation hearing is is to maintain uh the technology and enhance the technology of the IRS as he received a number of questions uh in regards to his thought process as Secretary of Treasury. All right. So Sarah, with all these significant changes to the IRS, how how's this going to impact taxpayers and tax practitioners? Well, as Ron just mentioned, the technology changes and transition is still a work in progress and the agency continues to rely on people to fill in

(17:35) those blanks where it's needed. So we can expect uh more difficulty with fewer people there at the agency. we can expect it's going to be harder to reach a person uh that we would need to resolve an issue or answer a question um or handle correspondence that comes in. It's just going to take longer for all of those things to take place.

(18:01) So expecting a slower response time, uh a longer time for Horizon for say an IRS action to resolve a notice or a processing or to wave a penalty or even to uh issue a refund on an amended return or a refund claim. So uh I think the time it is going to take um because the number of taxpayers and the number of uh questions and concerns the number of business businesses the number of individuals continues to grow.

(18:36) Um and so the number of individuals if you think there was 180 million tax returns filed and we only have presently less than a 100,000 employees at the IRS. uh and we're going to have fewer than that. That that means we're going to have to share. All of us will not get our own IRS employee. We're going to have to share.

(19:00) Um so I think just anticipating um a slowness and um uh planning in longer margins of time for things to take place will be very important to managing our expectations. But uh Casey, not everything in the news is negative. Um, earlier this year, there was a uh draft bill released that caught everyone offguard and was uh a nice surprise with um some really helpful provisions for both the tax payer and tax practitioner community.

(19:37) You want to talk about that? Yeah. Yeah, I'd love to. Actually, um I'm extra excited about this. I do a lot of volunteer work with the tax division of the AICPA and this is something they've been excited about for months. They were uh they've been working um behind the scenes and were very happy when it was released. Um so yeah, this is the taxpayer assistance and services proposal.

(19:58) It's a discussion draft of a bill right now. It was released uh with bipartisan support. the two the chair of Senate Finance and the ranking member um Senate Finance Chair Crapo and ranking member Widen. They actually just switched spots when the Senate uh flipped control here um at the beginning of the year.

(20:17) Um so this is a discussion draft as I mentioned. It's open for public comment for about another week until March 31st. So if you've got some comments um I encourage you to submit them in that time. Um, and it touches a ton of different areas of really just uh filing and dealing with the IRS and and tax practitioners.

(20:37) Um, there are some taxpayer protections and relief from certain issues. Um, including one of my favorites here is the information that has to be disclosed on the notices that taxpayers are provided. Um, there are modernization efforts. Um, and one of my favorite item from this is the IRS developing a call back function where you know like sometimes you call a service number and you can press press one for a call back instead of waiting on the queue and they'll call you back you know when an agent frees up.

(21:06) Um, so that would be a a very welcome uh change in from my perspective. Um, it gives the taxpayer advocate more autonomy. Uh, it changes estimated payments state estimated payments payment dates so that they're consistent. They're actually three months apart. Um, so June would become July and September would become October.

(21:25) And then there's a bunch of other um improvements to IRS administration, including oversight and appeals and and essentially how taxpayers and practitioners deal with the IRS. So, I think this is a really promising bill. I love the bipartisan support and the way it was rolled out. I'm really hopeful that um Congress will work together to get this passed.

(21:44) there's there's almost no revenue effect here. So, um hopefully it's a slam dunk for them. But, um uh yeah, if you have any comments, you've got a week to make them. Well, my main comment is anything that seems so logical and rational is bound to have a hard time getting passed in Washington. So, we'll see. We'll see.

(22:05) Maybe I'm being too cynical. All right. Cross our cross our fingers. Yeah. Yeah. All right. All right. So, um, let's go to final comments and we're going to try to put under the theme of best practices for working with the IRS. So, we'll turn the floor to you, uh, Ron first. Well, as you have uh, listened to our uh, tax beat podcast, you you recognize and realize there's a a lot of uncertainty uh, surrounding the Internal Revenue Service as we go into uh, this busy season, if you will.

(22:37) And so I think it's a real critical step to really manage expectations of one uh when something will be answered by the IRS uh or in fact resolved. Um I mean we've had experiences where we will correspond and uh we'll get correspondents back in 3 months that said can you give us another three months to respond to your initial letter.

(23:02) I I think when you're planning your calls with the IRS, make sure you have everything ready uh that you will need to interact with that that individual um uh on the return on on your return or on the matter uh that you're going to be discussing with the IRS. And so I'll turn it over to my colleague Casey as uh she'll probably have some ideas on best practices as well.

(23:28) Yeah, I think as the IRS goes through this transition period of, you know, uh, decreasing their workforce and and attempting to modernize their systems, it's be it's going to become increasingly important that, uh, all of your information is is turned into your tax practitioner and it's all appropriately included on your return.

(23:49) I think it's going to be better to file to file for an extension and file late than to file on time and then have to amend. um having returns and informations as accurate as possible is going to reduce notices and and your need to deal with the IRS. Um so I think uh that's something we we all like is is to minimize the amount of time we have to spend on the phone or dealing with agents.

(24:14) So, um I would stress the importance of of really uh having a handle on your tax documentation and situation and working with your practitioner to make sure that um you're as accurate as possible when reporting. All right, Sarah. Uh, I would say from the practitioner side, um, and from the taxpayer side, it's getting harder and harder to prove certain things when the correspondence or the responsibility is on the IRS to maintain the records.

(24:45) For example, when a return might be paper filed or when a payment was made that wasn't through the electronic system, tax payment system. So, I would encourage taxpayers to keep very good records of every event. use trackable mail systems whenever that's necessary. um to to keep up with when events are happening.

(25:10) And also from a tax practitioner side, uh getting powers of attorney from clients so that we can interact for them and doing everything we can to get to the front of the line uh and make it as easy as possible for those handling um issues for us or working with us at the IRS to get those resolved. uh handing them a a proposed response or a proposed answer or something that they can move quickly forward into a conclusion I think hopefully will help keep uh the the time constraints in and move things along as efficiently as as can be.

(25:48) Okay. Um, I'm going to go a little zen here and say, uh, the best practice for working with the IRS is recognizing you may not be working with the IRS and you may not be getting communication or guidance from the IRS. So, um, you know, I encourage you to work with qualified professionals to uh, avoid as much potential controversy or things that will flag.

(26:16) And also if we get this tax legislation which I think most people think we will get and I'm hopeful we will get some fun stuff. Um um it also provides you opportunity to take positions uh that are you know reasonable within you know what's being passed. there's not going to be immediate guidance and you know that that also gives you a lot of opportunity at that perspect um to uh apply the laws and you know and I think what would be taxpayer friendly um ways so I mean so there are some opportunities maybe some positives here all righty uh that's a wrap on uh this

(26:53) discussion of working with the IRS in 2025 thank you for listening in a quick disclaimer that we are not providing tax advice advice on this podcast, please consult with your tax advisor, hopefully at Cherry Bekaert, with your specific tax issues or to discuss information from today's podcast.

(27:12) Check out the firm's website at cbh.com for the latest guidance and materials on this and other tax and business topics. This concludes today's podcast. Please like, share, and subscribe. Thank you, Ron. Thank you, Casey. Thank you, our listeners, for spending your time with us. We truly appreciate it.

(27:28) Let's call it a day and go forth in peace. [Music]