The Internal Revenue Service (IRS) is expected to lay off approximately 7% of its workforce in the coming weeks, with the possibility of further reductions. It remains unclear which divisions will be most affected or whether the cuts will be agency-wide.

Regardless, taxpayers should understand how a reduction in staffing at the IRS may impact them. 

What This Means for Taxpayers

Longer Wait Times for Assistance
The IRS had significantly improved call wait times—from an average of 28 minutes in the 2022 filing season to just 3 minutes after receiving Inflation Reduction Act funding. With staffing cuts, taxpayers should prepare for a reversal of that progress.

Delays in Audits
If an assigned auditor is laid off, taxpayers under audit may face prolonged review periods, increasing both uncertainty and potential costs.

More Notices of Deficiency and Tax Court Cases
A staffing shortage could push the IRS to issue more Notices of Deficiency rather than allowing disputes to be directly resolved through the IRS Independent Office of Appeals. This would force more taxpayers to challenge assessments in U.S. Tax Court, adding complexity, delays, and legal expenses.

Challenges for Business Transactions
Businesses needing IRS documents, such as those verifying S corporation elections, may struggle to obtain them. This could delay or even derail business sales that require timely proof of tax elections.

Steps Taxpayers Should Take Now

Review and Secure Tax Records

• Ensure you have critical IRS documents, such as the CP261 Notice (S Corporation Approval Letter). If not, request a Letter 385C (S Corporation Verification Letter).
• If under audit, maintain a clear, organized record of all IRS communications.
• Consider obtaining tax transcripts via the IRS online portal, phone, or Form 4506-T.

Respond to IRS Notices Promptly

• Read all IRS notices carefully and respond within the required timeframe.
• While notices often suggest calling the IRS, reduced staffing may make phone resolution difficult—written responses are recommended.

IRS layoffs could have far-reaching effects on taxpayers, from delayed responses to increased legal challenges. Staying proactive can help mitigate potential issues.

Sources: Molly Bohannan and Sara Dorn, Here’s Where Trump’s Government Layoffs Are—FEMA, IRS, TSA and More, Forbes (Feb. 21, 2025); Filing Season 2024 Report Card: IRS Builds On 2023 Progress, Delivers World-Class Customer Service Thanks to Inflation Reduction Act, U.S. Department of the Treasury (April 15, 2024).

For more information on coping with IRS processes, please contact Chantal C. Renta at crenta@foxrothschild.com or Gregory Novotny at gnovotny@foxrothschild.com.

This information is intended to inform firm clients and friends about legal developments, including the decisions of courts and administrative bodies. Nothing in this alert should be construed as legal advice or a legal opinion. Readers should not act upon the information contained in this alert without seeking the advice of legal counsel. Views expressed are those of the author(s) and not necessarily this law firm or its clients.