IRS Changes and Challenges in 2025

SARAH MCGREGOR: Welcome to the Cherry Bekaert Tax Beat, a conversation about tax that matters.

BROOKS NELSON: Welcome to this edition of the Cherry Bekaert Tax Beat podcast. Today we are talking about working with the IRS in 2025.

BROOKS NELSON: There have been plenty of headline stories on this topic, both positive and negative. We as tax practitioners and taxpayers continue to file tax returns, pay taxes, and assist clients with resolving tax notices, amended returns, and other work with the IRS.

BROOKS NELSON: The changes in progress for the IRS are likely to impact both taxpayers and tax professionals in a very tangible, practical way. Joining today's conversation are Ron Wainwright, a partner, and Kasey Pittman, a managing director, who both keep an eye on tax policy developments in Washington.

BROOKS NELSON: So how are you doing today, Ron?

RON WAINWRIGHT: Excellent, Brooks. It's a great topic to talk about. I'm in Raleigh, North Carolina, where unfortunately it's raining, but it's a great day.

BROOKS NELSON: And Kasey, how are you doing today?

KASEY PITTMAN: I'm doing great. It's raining here in Virginia as well, but I'm happy to be here to talk about this.

BROOKS NELSON: And joining me as always, Sarah McGregor from Greenville. Ms. McGregor, how's life treating you?

SARAH MCGREGOR: Life is good here in Greenville. It's beautiful, though the pollen has started turning everything yellow, so it's going to be a good week to stay indoors and work on taxes.

BROOKS NELSON: I'm Brooks Nelson, partner in Richmond, and I'm in the same rain cloud that Ron and Kasey are in. Not the prettiest day, but we did have a nice weekend.

BROOKS NELSON: 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.

BROOKS NELSON: Ron, federal workforce reductions are certainly in the news across all sorts of agencies and departments. What can you tell us about the reduction of employees at the IRS specifically?

RON WAINWRIGHT: From reading and from the administration announcement, there are three main efforts to reduce IRS employee headcount.

RON WAINWRIGHT: First was the voluntary reduction, which impacted about 6,700 employees accepting an offer to leave the IRS in May with pay through September.

RON WAINWRIGHT: Second is a focus on reducing the number of probationary employees. Those are employees with the shortest tenure who are still working through training and supervision.

RON WAINWRIGHT: Third are the goals from DOGE, which have made headlines and are specifically attributable to the IRS. The stated goal is to reduce the workforce by approximately 18 to 19 percent and an overall long-term goal of reducing that workforce by about 50 percent by the end of the year.

RON WAINWRIGHT: These are the three main efforts we've read about, and we're monitoring how they develop.

BROOKS NELSON: At the least, a 50 percent reduction is substantial any way you look at it. Along with the employee reductions, we've also seen changes at the top.

SARAH MCGREGOR: Ron, with all these folks leaving the IRS, what areas of the IRS are seeing or expected to see losses of personnel?

RON WAINWRIGHT: The voluntary reductions appear to be across the agency.

RON WAINWRIGHT: Many of the probationary employees were hired as a result of funding for enforcement in the Inflation Reduction Act of 2022. It appears most of these employees are split between the Large Business and International division, Examination, and the Small Business/Self-Employed division.

RON WAINWRIGHT: Where the additional workforce reductions will come to achieve the 18 to 19 percent and the overall 50 percent will become evident over time as the IRS makes announcements about workforce reductions.

BROOKS NELSON: Kasey, we're talking about a reduction in the troops, but we've also seen changes at the top. What can you tell us about that?

KASEY PITTMAN: Once President Trump became president-elect, he announced he was looking to replace then-IRS Commissioner Danny Werfel, who was not even halfway through his five-year term. He announced he was looking to replace him with former Republican Representative Billy Long.

KASEY PITTMAN: In anticipation of that change, Werfel resigned on Inauguration Day. Billy Long is set to take the top seat and finish out the remainder of Werfel's term through November 2027. There's not a lot of movement on Long's nomination in the Senate right now, but it still seems on track and likely to be confirmed in the next month or two.

KASEY PITTMAN: We've also had turnover in acting commissioners. When Werfel stepped down, Doug O'Donnell stepped in as acting commissioner and was recently replaced by Melanie Krause. Melanie is set to be deputy commissioner once Billy Long is in place, so we are on our third commissioner since January 20, 2025.

KASEY PITTMAN: In addition, we saw a change in IRS chief counsel — William Paul was replaced with Andrew DeMello about two weeks ago. The chief taxpayer compliance officer departed just this past Friday and no replacement has been named yet.

KASEY PITTMAN: We're seeing a lot of turnover in those top positions, and those leaders set the tone for operating priorities across the agency.

BROOKS NELSON: Any general observation on the trend or philosophy of this leadership change? Is there a pattern in who is replacing whom, or is it too early to tell?

KASEY PITTMAN: There's been speculation, but it appears President Trump is seeking people who are aligned with his vision of a reduced IRS workforce and with prioritizing his key areas for tax reform and guidance on existing and prospective tax law.

KASEY PITTMAN: It seems the administration is placing people in seats who are closely aligned with those overall goals.

SARAH MCGREGOR: Kasey, that brings us to what might be the IRS's priority guidance plan. Anticipating tax law changes, the IRS will focus on issuing regulations, notices, revenue rulings, and revenue procedures. In the meantime, what are your thoughts on the IRS's priority guidance plan?

KASEY PITTMAN: The priority guidance plan, often referred to as the PGP, comes out every year to identify and prioritize guidance projects. Guidance is crucial because the details matter for interpretation and compliance.

KASEY PITTMAN: For example, Section 199A from the Tax Cuts and Jobs Act was only a few pages of statutory language but required hundreds of pages of regulations to interpret. Guidance can take many forms — regulations, revenue rulings, revenue procedures, notices — and Treasury and IRS leadership will align guidance priorities with the administration's goals.

KASEY PITTMAN: If Republicans are able to pass a tax reform bill, we'll need guidance for any provisions that are new or significantly altered so CPAs and taxpayers can interpret and report appropriately.

BROOKS NELSON: Are they at risk of a catch-22 — desperately needing workforce to issue guidance while reducing the workforce? Or can they reallocate resources to produce guidance and cut back elsewhere?

KASEY PITTMAN: From my dealings with Treasury and the IRS, a final guidance package typically requires far more effort and alignment than practitioners fathom. It takes a lot of people and coordination.

KASEY PITTMAN: If cuts are too steep or not thoughtful, we risk having a Treasury and IRS workforce that cannot produce the amount of guidance needed to interpret new tax law effectively. If that happens, it would become evident and I hope there would be a course correction, but it's uncertain.

BROOKS NELSON: It's not only high-level guidance. It can be as simple as revising forms or creating forms necessary for implementation.

KASEY PITTMAN: And people may not realize that forms are updated every single year.

SARAH MCGREGOR: Ron, with the plan to reduce the IRS workforce, there's also twin attention given to technological solutions to replace the need for many people. The IRS has announced a pause in its technology modernization activity. Can you speak to that?

RON WAINWRIGHT: The legacy systems of the IRS need updating to the 21st century, and most agree the agency's legacy systems have not kept up with modern technology.

RON WAINWRIGHT: The Inflation Reduction Act of 2022 provided funding for technology improvements, including upgrades in taxpayer accounts, digital file sharing, and enhanced communication.

RON WAINWRIGHT: With a smaller workforce, the agency will need to lean heavily into technology solutions to maintain and increase both proactive and reactive communication.

RON WAINWRIGHT: A headline item recently was a discussion by DOGE about potentially eliminating the free IRS Direct File. Despite its popularity, the Direct File program's future is unclear.

RON WAINWRIGHT: The current administration indicated it would remain in place for the 2024 tax season filing into 2025 and through the April 15 individual filing deadline. The Direct File pilot was rolled out in 2024 after the IRS explored creating a direct file system with funds from the Inflation Reduction Act.

RON WAINWRIGHT: The IRS accepted about 140,000 returns filed by taxpayers using the Direct File program in roughly 12 states during the initial pilot. It has been expanded to include half the country this year, but it's unclear how many taxpayers will effectively utilize the technology as the program evolves.

RON WAINWRIGHT: There is clearly a need to modernize technology. The Secretary of the Treasury, Scott Bessent, stated during his January confirmation hearing that maintaining and enhancing IRS technology is a commitment.

BROOKS NELSON: With these significant changes to the IRS, how is this going to impact taxpayers and tax practitioners?

SARAH MCGREGOR: The technology transition is a work in progress, and the agency continues to rely on people to fill gaps. We can expect more difficulty with fewer people available.

SARAH MCGREGOR: It will be harder to reach the person we need to resolve an issue, answer a question, or handle correspondence. Expect slower response times and longer horizons for IRS actions to resolve notices, process returns, waive penalties, or issue refunds on amended returns or refund claims.

SARAH MCGREGOR: Consider that roughly 180 million tax returns are filed and the IRS presently has fewer than 100,000 employees, and that number is decreasing. We will effectively be sharing IRS resources, so plan for slowness and allow longer margins of time.

BROOKS NELSON: Not everything in the news is negative. Earlier this year a draft bill was released that caught everyone off guard and included helpful provisions for taxpayers and practitioners. Kasey, can you talk about that?

KASEY PITTMAN: I'm excited about this. I do a lot of volunteer work with the tax division of the AICPA and they've been excited about this for months. The proposal is the Taxpayer Assistance and Services Proposal, a discussion draft of a bill released with bipartisan support by Senate Finance Chair Mike Crapo and ranking member Ron Wyden.

KASEY PITTMAN: It's a discussion draft open for public comment until March 31st. It touches many areas of filing and dealing with the IRS and offers taxpayer protections and administrative improvements.

KASEY PITTMAN: One item I like is improved notice content, clarifying the information that must be disclosed on notices provided to taxpayers. There's a modernization effort that includes developing a callback function so taxpayers can request a callback instead of waiting on hold.

KASEY PITTMAN: The bill gives the Taxpayer Advocate more autonomy, changes estimated payment dates to be consistent and three months apart, and includes other improvements to IRS administration, oversight, and appeals.

KASEY PITTMAN: I think it's a promising bill with bipartisan support and almost no revenue effect, so I hope Congress will pass it. If anyone has comments, there's a week to submit them.

BROOKS NELSON: Anything that seems logical and rational is often hard to pass in Washington, but we'll see.

BROOKS NELSON: All right, final comments under the theme of best practices for working with the IRS. Ron, we'll turn the floor to you first.

RON WAINWRIGHT: There's a lot of uncertainty surrounding the IRS as we go into the busy season. It's critical to manage expectations about when something will be answered or resolved by the IRS.

RON WAINWRIGHT: We've had experiences where correspondence returns in three months asking for another three months to respond. When planning calls with the IRS, make sure you have everything ready to interact with the agent handling your return or matter.

RON WAINWRIGHT: I'll turn it over to Kasey, who will have additional best-practice ideas.

KASEY PITTMAN: As the IRS decreases workforce and attempts to modernize systems, it's increasingly important that all information be provided to your tax practitioner and properly included on your return.

KASEY PITTMAN: It can be better to file for an extension and file later than to file on time and then have to amend. Accurate returns and documentation reduce notices and the need to deal with the IRS, minimizing time spent on the phone or with agents.

KASEY PITTMAN: I stress the importance of having a handle on your tax documentation and working with your practitioner to ensure accurate reporting.

SARAH MCGREGOR: From both the practitioner and taxpayer side, it's getting harder to prove certain things when the responsibility to maintain records is on the IRS.

SARAH MCGREGOR: For example, when a return was paper filed or when a payment was made outside the IRS electronic payment system, taxpayers should keep very good records of every event. Use trackable mail systems when necessary to document timing.

SARAH MCGREGOR: From the practitioner side, obtain powers of attorney from clients so we can interact on their behalf. Do everything we can to get to the front of the line by making it as easy as possible for IRS personnel to resolve issues.

SARAH MCGREGOR: Providing a proposed response or answer that agents can act on quickly will help move matters toward resolution efficiently.

BROOKS NELSON: I'll go a little zen and say the best practice for working with the IRS is recognizing you may not be getting timely communication or guidance from the IRS. Work with qualified professionals to avoid potential controversy.

BROOKS NELSON: If new tax legislation passes, there won't be immediate guidance, which creates opportunities to take reasonable positions. That timing can allow taxpayers to apply the laws in taxpayer-friendly ways.

BROOKS NELSON: That's a wrap on this discussion of working with the IRS in 2025. We are not providing tax advice on this podcast. Please consult with your tax advisor, preferably at Cherry Bekaert, about specific tax issues or to discuss information from today's podcast.

BROOKS NELSON: Check 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.

BROOKS NELSON: Thank you, Ron. Thank you, Kasey. Thank you to our listeners for spending your time with us. Let's call it a day and go forth in peace.