The federal government on February 19 announced the layoff of many IRS “probationary” employees (those who have worked at the IRS for fewer than 12 months or who have been promoted to new positions within the prior 12 months). These layoffs are generally effective immediately and may be the first of several rapid waves of IRS employee layoffs during the 2025 calendar year.
At this time, it is unclear which IRS departments have already been impacted by the layoffs; however, the resulting IRS workforce reduction will cause significant delays in nearly every aspect of IRS service. As such, it is important for U.S. taxpayers and their professional tax advisors to consider the following practices.
Plan for Unprecedented Delays
U.S. taxpayers should now anticipate delays in IRS procedures, including, but not limited to, delays in:
- Processing of 2024 federal tax returns;
- Processing of claims for refund;
- Response to penalty relief requests;
- Requests for National Taxpayer Advocate assistance; and
- IRS examination and appeals procedures.
Taxpayers should plan appropriately and budget for the impact of these delays, particularly with respect to anticipated federal tax refunds.
Consider Filing Form 2848, Power of Attorney
A properly executed Form 2848 will allow U.S. tax professionals to pull a client’s IRS records to confirm, for example, that the IRS has properly applied tax credit carryforwards and tax payments, that the IRS has received filed returns, and that the IRS has properly processed returns, entity election classifications, penalty relief requests, and interest accruals.
When Practical, Consider Filing Federal Tax Returns Early
This is particularly important when a return reports an overpayment of tax, because (i) refund requests will likely be delayed; and (ii) the IRS may erroneously refund tax credit carryforwards to subsequent years.
Submit Refund Claims, Penalty Relief Requests, and Any Other IRS Communications as Soon as Possible
Prior to these layoffs, U.S. taxpayers often waited months or even years for any response to IRS assistance requests. Although the impact and extent of the 2025 layoffs is still unknown, it is highly likely that the IRS’s average response time will now increase.
Collect Contact Information for all Levels of IRS Exam and Appeals Teams
Open IRS examinations and appeals procedures will not close simply because the IRS employees working the case are terminated.
Rather, the case will likely linger, without progression, until the statute of limitations on the examined tax return nears expiration. The IRS will then contact taxpayers and request a statute extension, thus unnecessarily extending examination or appeals procedures.
It is more important than ever to be proactive with IRS Exam and Appeals teams. Collect names and contact information for all members of the IRS’s examination or appeals team now so that you can continue working toward case resolution if your revenue agent or appeals officer is terminated.
For more information on how BDO can help, please visit BDO’s Federal Tax Services page.