In the midst of the busiest time of year, the Internal Revenue Service (IRS) has been experiencing significant disruptions. Across one hectic week, the agency saw three acting directors come and go. Additionally, the IRS is bracing for the loss of tens of thousands of employees due to layoffs and retirements. Meanwhile, President Donald Trump is contemplating which nonprofit organizations should be stripped of their tax-exempt status, a move that could politicize the typically nonpartisan agency and further undermine confidence in federal institutions.
Three months into Trump’s second term, the IRS has found itself caught in the Republican administration’s broader agenda to slim down the federal bureaucracy. Tax experts warn that these swift changes might lead to delays in taxpayer services and tax collection.
Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, expressed concern that the rapid leadership changes and other transformations could lower employee morale and lead to inefficiencies in assisting taxpayers promptly. “Leadership sets the tone, especially in this unstable environment,” she commented, noting the departure of experienced nonpartisan civil servants who have either resigned over policy disagreements or have been laid off.
As the chaotic reshuffling unfolded, Americans were dutifully submitting their tax returns ahead of the April tax deadline, while the IRS was busy processing these returns and issuing refunds, which totaled $228.7 billion this season. Michael Faulkender, the newest acting commissioner of the IRS, stated, “We’re committed to improving the efficiency of the IRS. The modernization plans under the Treasury’s direction are expected to complete in two years at far less expense than anticipated.
Still, the IRS, like other federal entities, faces a staff exodus as a consequence of cuts pushed by the Department of Government Efficiency, all while churning through acting leaders and awaiting a permanent commissioner. Former acting commissioner Douglas O’Donnell announced his retirement amid controversies surrounding access to taxpayer data. His successor, Melanie Krause, resigned over an agreement to share immigrant tax data with Immigration and Customs Enforcement. Gary Shapley, briefly acting commissioner, was succeeded by Faulkender amid appointment controversies involving Treasury Secretary Scott Bessent and Trump adviser Elon Musk.
Trump’s proposed nominee for IRS commissioner, ex-U.S. Rep. Billy Long of Missouri, awaits a confirmation hearing amidst allegations of involvement in tax credit scandals. Long has yet to comment publicly on the matter.
There are growing concerns that President Trump could use the IRS to target adversaries and benefit allies. Key Democratic entities fear the potential of federal investigations as Trump scrutinizes the tax-exempt status of organizations like Harvard University and environmental groups. Trump highlighted targeting the ethics watchdog organization CREW, questioning its charitable contributions given its consistent criticisms of him.
Jonathan S. Masur, a professor at the University of Chicago Law School, warned that legally the president cannot unilaterally revoke tax-exempt statuses. He anticipates swift judicial intervention should such moves occur.
The administration is also closely monitoring Trump allies. Treasury official David Eisner corresponded with the IRS about MyPillow founder Mike Lindell, a Trump supporter, questioning his targeting by IRS audits.
Additionally, concerns are mounting regarding the IRS’ collaboration with the Department of Homeland Security (DHS) over a controversial new data-sharing arrangement. The agreement, currently being challenged in court, would allow DHS access to cross-reference immigrant information with IRS records. This is part of Trump’s broader initiative to enforce stricter immigration policies.
Holtzblatt said the agreement highlights the instability at the IRS and questioned its professed focus on enhancing technology and data-sharing. The implications of these shifts remain to be fully understood.