By As the Trump administration continues slashing the federal workforce, a familiar target of budget cuts is squarely in the crosshairs: the IRS. And mass firings at the tax agency last month may soon benefit wealthy Americans, who were a key focus of President Biden’s efforts to strengthen tax enforcement.
Some audits of rich individuals and corporations are at immediate risk of being closed prematurely without action due to a lack of personnel to complete them, according to several current employees at the tax agency. The handful of imperiled audits that agents described in general terms to the International Consortium of Investigative Journalists could amount to millions of lost dollars in public revenue from wealthy people and corporations, although agents said this likely represents only a sliver of the agency’s lost revenue stemming from the firings.
“All of a sudden, these cases are going to be closed and we’re going to look like idiots,” said a senior revenue agent, who works within the IRS’s Large Business & International Division, which audits the country’s wealthiest taxpayers. “There is no one left to work them. The remaining agents have full caseloads.”
The firings and orphaned cases are a major setback in the IRS’s quest to address high-end tax dodging. As part of the 2022 Inflation Reduction Act, the IRS received $80 billion in new funding, in part to help the agency’s faltering efforts to audit wealthy individuals and large corporations, who are believed to commit an outsized portion of tax cheating. But Congressional Republicans have since been able to eliminate half of that new money. The IRS has now become a primary focus of the new administration’s aggressive cost-cutting effort led by billionaire Elon Musk.
It remains unclear how many employees LB&I lost as a result of the recent terminations; the IRS did not respond to a request for comment for this story. The IRS’s Small Business and Self -Employed Division, which audits businesses with assets under $10 million, reportedly lost the largest number of employees in last month’s termination of more than 6,000 IRS staff members. That office has in recent years employed more agents than LB&I.
Agents said that LB&I’s ranks had significant numbers of new employees still on probationary status that is required of recent hires. Such probationary employees have fewer job protections and accounted for the bulk of last month’s firings.
Current and former IRS agents ICIJ spoke with emphasized that many of the now-terminated probationary employees were anything but inexperienced hires; in many cases they had decades of accounting knowledge that was critical to some ongoing cases. These agents had been recruited into the recent IRS effort to match the sophistication of the corporate tax industry, which deploys legions of highly-paid accountants and tax attorneys to construct and defend complex tax savings structures for the ultrawealthy.
Some terminated probationary employees in LB&I included specialists hired to help agents with highly technical corners of tax law, agents said. The loss of these experts could put the agency in a difficult position. Lacking such in-house specialists previously snarled audits of some of the largest American taxpayers.
Wesley Stanovsek, a recently-terminated probationary revenue agent within LB&I said some of his fellow trainees brought with them extensive knowledge of pass-through entities, which can form into large webs of LLCs that pass earnings and tax burdens on to investors. Pass-throughs have become a favored tool for large-scale tax dodging and an area in which the IRS was trying to match the expertise of the private tax bar.
“They were probationary in name only,” said Stanovsek, who was a part of LB&I’s Global High Wealth unit that audits ultrawealthy people. “There was a high baseline aptitude required to be a part of Global High Wealth.”
Stanovsek said he left the agency with multiple open audits. Although he doesn’t know the status of those cases since being terminated, he said their future looked dim. “There will be no one to pass those cases onto,” Stanovsek said. “I don’t think they will be seen to completion.”
These cases are going to be closed and we’re going to look like idiots,
— a senior revenue agent in the IRS
Probationary revenue agents in LB&I were generally given a small number of training cases in their first year, and some of these were substantial audits, according to several agents. Each audit involving an ultrawealthy person could encompass a review of multiple intricate tax returns.
One probationary revenue agent in LB&I who took the Trump administration’s much-publicized buyout offer last month told ICIJ that his cases are now in the process of being closed. Another agent within LB&I told ICIJ that an audit of a corporation believed to have underpaid its taxes appears doomed after multiple team members were terminated late last month.
Because in-house tax specialists sometimes assist agents with only specific issues within a wider audit, some cases that lost those experts may still move forward but with a narrower scope, agents said. These specialists also help agents keep track of complex elements of tax law to strengthen audit findings that taxpayers may eventually challenge in court.
The loss of such specialists could have big consequences. In 2019, the U.S. Treasury Department estimated that the top 1% of Americans accounted for 28% of the “tax gap” — the disparity between taxes owed and taxes collected — totaling an approximate $163 billion each year. In a 2022 directive, the Biden administration barred the IRS from using its new funding to increase audits of taxpayers earning less than $400,000 annually, although the IRS’s watchdog has criticized the agency’s implementation of that order.
Last year, ICIJ reported that after years of lobbying by high-end private tax attorneys, LB&I had adopted a far more lenient stance toward the wealthiest taxpayers than seen in the IRS divisions that audit ordinary taxpayers and small businesses. Even as its staff levels began to increase, LB&I seldom made criminal referrals on cheating by major businesses or ultrawealthy people. Some agents raised concerns over possible industry influence within the office, especially among high-level hires coming to the tax agency from major law firms or accounting firms. Agents in the division also said they were not well-equipped to send out civil demands for information known as summonses, which can secure necessary data for audits.
Late last year, however, the division appeared to be addressing some of these challenges, holding mandatory trainings for all managers and agents in the division who participate in audits on how to craft and enforce summonses, according to records ICIJ obtained through a records request. These training sessions were required for new trainees and longtime agents alike and included instruction on how to confront the tactic of taxpayers withholding records based on claims of legal privilege.
Audits of billionaires and large corporations can sometimes be adversarial proceedings in which attorneys for the taxpayer aggressively seize upon any technical misstep or apparent weakness in the approach of IRS audit teams. In this setting, the perception of a strong tax agency can help agents secure a baseline level of cooperation from taxpayers under audit while discouraging big-dollar tax-cheating in general, agents said. An agency struggling with mass-firings and abandoned cases could send the opposite signal.
“These cases will set a terrible precedent,” said one current agent within LB&I. “The taxpayers will see us struggling. When they see us struggle, they will make sure to make us struggle even more.”
