IRS layoffs are reshaping the agency’s ability to serve taxpayers, and the effects are already being felt across the country. The Trump Administration has directed the Internal Revenue Service to draft plans to cut its workforce by as much as half through a combination of layoffs, attrition, and incentive buyouts. This directive came on the heels of 7,000 probationary workers being laid off in February 2025, marking one of the largest IRS workforce reductions in recent history.
For individual taxpayers and businesses alike, these cuts carry real consequences. Fewer IRS employees means longer phone hold times, slower processing of returns and refunds, and a greater likelihood of disputes escalating to U.S. Tax Court rather than being resolved administratively. Understanding what these changes mean, and taking proactive steps now, can help taxpayers avoid costly surprises.
What led to the IRS layoffs in 2025?
The IRS layoffs 2025 began as part of a broader federal government downsizing effort. In February 2025, the IRS terminated approximately 7,000 probationary employees, workers who had not yet completed their initial evaluation period and therefore had fewer employment protections. Many of these employees had been hired as part of the IRS’s recent modernization push, which was funded by the Inflation Reduction Act to improve taxpayer services and enforcement capabilities.
Following the initial round of layoffs, the administration instructed IRS leadership to prepare plans for reducing the agency’s total headcount by up to 50 percent. The proposed methods include additional layoffs, voluntary early retirement offers, and natural attrition as employees leave without being replaced. If fully implemented, these IRS staffing cuts would reduce the agency’s workforce from roughly 90,000 employees to approximately 45,000.
The timing of these reductions is significant. The IRS had been in the middle of a major hiring and technology upgrade cycle designed to modernize outdated systems, reduce the backlog of unprocessed returns, and improve the taxpayer experience. The workforce reduction effectively reverses much of that progress.
How IRS wait times are expected to increase
One of the most immediate and visible effects of IRS layoffs is the impact on customer service. Over the two years prior to the cuts, the IRS had made substantial progress in reducing phone wait times. Average filing-season hold times dropped from about 28 minutes in 2022 to roughly 3 minutes in 2024, a dramatic improvement that made it significantly easier for taxpayers to reach a live agent and resolve issues.
With fewer customer service representatives available, those gains are at serious risk. Taxpayers should prepare for IRS wait times to climb back toward, or even exceed, the levels seen before the recent improvements. For anyone who needs to resolve a billing question, verify a payment, request a transcript, or discuss a notice, this means longer hold times and fewer available agents to help.
The reduction in staff also affects written correspondence. The IRS processes millions of pieces of mail each year, including amended returns, responses to notices, and documentation supporting claims or deductions. With fewer employees to open, sort, and process this mail, response times for written inquiries are likely to stretch from weeks into months.
More IRS notices of deficiency and increased tax court cases
Staffing shortages could fundamentally change how the IRS handles disputes with taxpayers. Under normal operations, many disagreements between taxpayers and the IRS are resolved through the IRS Independent Office of Appeals. This administrative process allows taxpayers to present their case to an impartial appeals officer without going to court, saving time and money for both sides.
With fewer appeals officers and support staff available, the IRS may increasingly bypass this step. Instead of routing disputed cases through Appeals, the agency could issue more Notices of Deficiency, formal letters that give taxpayers 90 days to petition the U.S. Tax Court before the IRS assesses additional tax. An IRS notice of deficiency is sometimes called a “90-day letter,” and receiving one means the taxpayer’s options narrow significantly.
Being forced into IRS Tax Court rather than resolving a matter through Appeals has several consequences for taxpayers. Legal fees increase substantially, since taxpayers typically need to hire a tax attorney or CPA to represent them in court. The process also takes much longer: Tax Court cases can take a year or more to resolve, compared to a few months through the Appeals process. For small businesses and individual taxpayers, these added costs and delays can be financially burdensome. Working with experienced tax advisory services before a dispute hardens into litigation can often keep a matter in the lower-cost administrative track.
What happens to ongoing IRS audits during the layoffs?
Taxpayers who are currently under audit face a particularly uncertain situation. If the IRS agent assigned to a case is laid off or takes a buyout, the audit does not simply go away. Instead, the case must be reassigned to another agent, and with a smaller workforce, finding an available agent could take considerable time.
During this reassignment period, taxpayers remain in a state of limbo. The audit stays open, which means the taxpayer cannot fully close the books on the tax year in question. This extended uncertainty can affect financial planning, loan applications, and business decisions that depend on having a finalized tax position.
There is also a risk that institutional knowledge is lost when experienced agents leave. A new agent assigned to an ongoing audit may need to re-review documents and re-examine issues that the previous agent had already resolved, potentially prolonging the process further and increasing the chance of miscommunication.
How taxpayers can prepare for the impact of IRS staffing cuts
Taking proactive steps now can help mitigate the disruption caused by IRS layoffs. Here are the most important actions taxpayers should consider:
Retain all critical IRS documents. Keep copies of accepted SS-4 forms (used to obtain an Employer Identification Number), S Corporation approval letters, and any IRS communications that abate penalties or close a matter. These documents may be difficult to obtain from the IRS if staffing shortages cause delays.
Respond to IRS notices promptly. With processing times expected to increase, submitting responses well before deadlines is more important than ever. Do not wait until the last day to mail a response to a notice. Build in extra time for postal delivery and IRS processing.
Consider electronic filing and communication. Where possible, use the IRS’s online tools and electronic filing options rather than paper correspondence. Electronic submissions are processed more quickly and are less susceptible to the backlogs that affect physical mail.
Work with a qualified tax professional. Given the increased complexity and potential for disputes to escalate to Tax Court, having a CPA or tax attorney involved early can save significant time and expense. A tax professional can help ensure that documentation is thorough, responses are timely, and your rights are protected if a dispute arises. Pease Bell’s accounting services team works with individuals and businesses to keep records organized and responses defensible.
Monitor your IRS account online. The IRS online account portal allows taxpayers to view their tax records, payment history, and notices. Checking this regularly can help you catch issues early, rather than waiting for a letter that may be delayed due to staffing shortages.
The broader consequences of IRS workforce reduction
Beyond the direct impact on individual taxpayers, the IRS workforce reduction has broader implications for tax compliance and government revenue. A smaller IRS workforce means fewer audits overall, which some taxpayers may see as a short-term benefit. However, reduced enforcement capacity could lead to a widening of the “tax gap,” the difference between taxes owed and taxes actually collected. The IRS has estimated this gap in the hundreds of billions of dollars per year, and fewer enforcement resources could push that number higher.
Reduced staffing also affects the IRS’s ability to combat tax fraud and identity theft. Processing fraudulent returns and verifying legitimate ones both require trained staff, and a depleted workforce makes both tasks harder to accomplish effectively.
For businesses that rely on timely IRS processing, such as those waiting for EIN assignments, tax-exempt status determinations, or resolution of employment tax issues, delays could create operational bottlenecks that ripple through their organizations. Companies in regulated industries where licensing or reimbursement depends on a clean tax standing should plan for these delays well in advance.
Frequently Asked Questions
How many IRS employees have been laid off?
The IRS laid off approximately 7,000 probationary workers in February 2025. The administration has directed the agency to plan for reducing its total workforce by up to 50 percent, which could mean a reduction from roughly 90,000 employees to around 45,000 through a combination of additional layoffs, attrition, and buyouts.
Will IRS layoffs delay my tax refund?
IRS staffing cuts could slow refund processing, particularly for returns that require manual review. Electronically filed returns with no errors are processed largely through automated systems and should be less affected. Paper-filed returns, amended returns, and returns flagged for additional review are more likely to experience delays.
What is an IRS notice of deficiency?
An IRS notice of deficiency, also called a “90-day letter,” is a formal notice that the IRS has determined you owe additional tax. It gives you 90 days to file a petition with the U.S. Tax Court if you disagree. With IRS layoffs reducing the capacity of the Appeals office, more taxpayers may receive these notices instead of having disputes resolved administratively.
How do IRS layoffs affect taxpayers currently under audit?
If your assigned IRS auditor is laid off, your audit does not end. It must be reassigned to another agent. This reassignment can take months given the reduced workforce, leaving you in an extended period of uncertainty while the case remains open.
Can I still reach the IRS by phone during the staffing cuts?
You can still call the IRS, but IRS wait times are expected to increase significantly. Before the layoffs, average hold times had dropped to about 3 minutes. With fewer customer service representatives, taxpayers should expect much longer waits and may need to try calling multiple times.
What should I do to protect myself from the impact of IRS layoffs?
Retain all important IRS correspondence, respond to notices promptly, use electronic filing when possible, and consider working with a CPA or tax attorney. Monitoring your IRS online account regularly can also help you stay ahead of potential issues before they escalate.
