The Impact of IRS Layoffs on Audits and Tax Refunds

Thousands of recent layoffs at the IRS — including 6,000 to 7,000 probationary employees in February — could significantly impact key agency functions during the peak of tax season. The cuts, part of broader federal workforce reductions under the new Trump administration, may affect tax return processing, refund issuance, audits, and collection enforcement.

A court has since ordered the reinstatement of some laid-off employees, but the ultimate number of IRS job cuts remains uncertain. Experts warn the timing is especially problematic, as the agency is busiest during filing season.

Financially, the downsizing could harm IRS efficiency. The agency collected over $5.1 trillion in 2024 and plays a crucial role in closing the annual $600 billion to $1 trillion tax gap. Studies show IRS enforcement spending yields high returns — $5 to $12 for every $1 spent — making budget cuts to the agency counterproductive, especially when revenue collection is critical.

The full impact on taxpayers is still unfolding, but delays and reduced enforcement capacity are likely.

Check out the original article by Jeff Huang here.