The Internal Revenue Service (IRS), the backbone of the US tax system, has long been a formidable institution, handling the financial intricacies of millions of taxpayers. However, in recent months, it has found itself in the eye of a storm, buffeted by unprecedented challenges that threaten to disrupt its operations and, by extension, the financial stability of the nation. The upheaval began with the embedding of members from the Department of Government Efficiency (DOGE) during tax filing season, the busiest time of the year for the IRS. Despite these disruptions, tax professionals report that the core functions of tax filing and refund issuance have remained relatively stable. However, the collateral damage is becoming increasingly apparent, with delays in critical taxpayer services and potential long-term impacts on US revenue collection.

The past seven weeks have seen a dramatic exodus of key personnel from the IRS. Commissioner Danny Werfel and his interim replacement have both departed, leaving a leadership vacuum at a crucial time. The personnel churn extends beyond the executive level: Roughly 6,700 probationary employees were let go in February, though a federal judge's preliminary injunction may restore their positions. Nearly 5,000 more employees accepted deferred resignation offers from the Trump administration, and another 6,800 may face layoffs in May, according to draft plans. This wave of turnover has raised concerns about the agency's ability to maintain its operations, especially during the critical tax filing season.

Amid this turmoil, one of the most pressing concerns was whether the tax filing season, which runs from January 27 to April 15, would be disrupted by DOGE's efforts to access IRS data systems. However, based on discussions with certified public accountants (CPAs) and enrolled agents, it appears that the electronic filing process has been functioning smoothly. Tax professionals have been able to submit returns electronically, obtain refunds in a timely manner, and even reach the IRS with questions. "It seems to be business as usual," said Mark Koziel, CEO of the American Institute of Certified Public Accountants (AICPA). Illinois-based CPA Mark Gallegos echoed this sentiment, noting that the filing process has been "relatively smooth so far." H&R Block, one of the largest tax preparation firms, also reported that the IRS continues to process returns and issue refunds without significant delays.

Former IRS Commissioner Werfel attributed this resilience to critical investments made over the past two years, funded by the Inflation Reduction Act. These investments bolstered the agency's technology and staffing, particularly in call centers and walk-in centers. "You're seeing a carryover from those investments," Werfel explained. However, despite the apparent stability in tax filing and refund issuance, tax professionals are reporting significant delays in other critical areas, particularly compliance disputes and audits.

The layoffs have primarily targeted the collection side rather than taxpayer services, noted Werfel. This has led to delays in resolving disputes and setting up payment agreements for clients' prior-year taxes. CPA Miklos Ringbauer, secretary of the California Society of CPAs, highlighted the challenges in setting up installment agreements, noting long wait times on the IRS practitioner hotline. Wisconsin-based enrolled agent David Mellem recounted a case where a client's 2024 refund was held up because the IRS records did not reflect a recent payment for back taxes. Similarly, North Carolina CPA Jim Buttonow and Texas enrolled agent Joshua Youngblood reported delays in obtaining power of attorney approvals for their clients, which now take up to 30 days compared to the previous five-day turnaround.

These delays are not just inconvenient; they have significant financial implications. Fewer staff members mean longer wait times and potential bottlenecks in processing. Former IRS Commissioner Charles Rettig advised tax professionals to keep copies of all correspondence with the IRS regarding client audits. "Some of the folks who are leaving the exam function of the IRS are being instructed to mark the case 'no change' and close down the particular examination," Rettig said. However, if these cases are reassigned, it is crucial to ensure that all documentation is in order.

The potential for further staff cuts looms large, threatening to exacerbate existing delays. "Plans for large reductions in force, if they materialize, will inevitably impede the services side," Werfel warned. This could impact routine interactions with the IRS, making it more difficult for taxpayers to resolve issues or obtain necessary services. Coupled with cuts in enforcement, such disruptions could lead to reduced revenue collection overall. "If you're trying to deal with the deficit, the last thing you want to do is mess around with the IRS. It is the government's revenue-producing arm," said former IRS Commissioner John Koskinen.

The financial implications of these disruptions are already becoming apparent. Through the sixth week of filing season, the IRS had received and processed about 2% fewer returns compared to the same period last year. However, the agency reported issuing just over 43.6 million refunds, a 1.5% increase from the previous year. The average refund amount was $3,324, up nearly 6% from the comparable period in 2024. Despite these seemingly positive figures, Werfel expressed concern that reduced collections could worsen by April 15.

The IRS finds itself at a critical juncture, navigating unprecedented challenges that threaten to disrupt its operations and impact the financial stability of the nation. While the core functions of tax filing and refund issuance have remained relatively stable, delays in critical taxpayer services are becoming increasingly apparent. The potential for further staff cuts and reduced enforcement could lead to significant disruptions in revenue collection, exacerbating existing budgetary concerns. As the tax filing season progresses, the resilience of the IRS will be tested, and the ability of the agency to adapt and maintain its operations will be crucial. The future of the IRS, and by extension, the financial health of the nation, hangs in the balance.