IRS makes harsh decision that threatens taxpayer services | Official Website of Louis Velazquez, entrepreneur, finance guy and tech innovator

The IRS is about to undergo an alarming change that is heightening concerns about how the agency will manage to operate tax returns and taxpayer services in the near future.

Elon Musk, who runs the Department of Government Efficiency (DOGE), and President Donald Trump have been determined to shrink the federal government through job cuts.

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Their main goals with this effort are to “eliminate unnecessary programs” and “reduce bureaucratic inefficiency,” according to a recent executive order.

So far, DOGE has laid off over 79,000 government employees, and over 156,000 federal employees have chosen to depart.

The IRS hasn’t been exempt from this initiative. The IRS fired 7,000 employees in February, impacting tax compliance department workers. These departments ensure taxpayers follow tax laws, correctly report their income, file their returns, etc.

About a month later, the IRS reportedly emailed a few of the workers it fired to inform them that they could return to work full-time on April 14, the day before the deadline for Americans to file their taxes.

IRS plans another drastic move

Now that the deadline has passed (but has been extended for several states), the IRS has sent a memo warning employees that it is planning to shrink its workforce by 40% through layoffs and buyouts, according to a new report from Federal News Network.

The Tax Withholding Estimator is a free IRS tool that can help you figure out your federal income tax withholding.

Image source&colon; Walzberg/picture alliance via Getty Images

These cuts would shrink the agency’s headcount from roughly 100,000 employees to between 60,000 and 70,000. The memo specifically states that “taxpayer services and compliance will need to be trimmed.”

The job cuts will happen in two phases. Phase 1 will reportedly start this week, while Phase 2 will begin in August. Some departments in the IRS will be more affected by the cuts than others.

For example, the memo flags that the Taxpayer Services department, which helps taxpayers solve tax-related issues and ensures they understand and follow tax laws, will face a “high” level of workforce cuts in Phase 2.

The Civil Rights department, which protects taxpayers from discrimination, will also face a high level of workforce reductions in Phase 1.

The Taxpayer Advocate office will face “moderate” levels of cuts in both Phase 1 and 2. In contrast, the Direct File department, which manages an online tool that allows taxpayers to file their federal taxes for free electronically, will face moderate cuts in Phase 1 and “low” cuts in Phase 2.

About 20,000 workers have already accepted buyout offers.

These job cuts come during a time when the IRS has so far received about 101 million tax returns this year, and it has only processed roughly 100 million, according to recent data on the agency’s website.

The IRS has an uncertain future

The change also comes after U.S. Secretary of Commerce Howard Lutnick said in an interview with Fox News in February that Trump plans to abolish the IRS and replace it with a service that collects revenue from tariffs, which would fund the U.S. government.

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“Donald Trump announced the External Revenue Service, and his goal is very simple: to abolish the Internal Revenue Service and let all the outsiders pay,” said Lutnick in the interview.

Tariffs are taxes companies pay to import goods from overseas, and the extra cost is often passed down to consumers through price increases.

The Trump administration is also using the IRS to help tackle illegal immigration. Earlier this month, the IRS made an official agreement with the Department of Homeland Security to share taxpayer data with ICE officials. This information includes the names and addresses of taxpayers who are being investigated for residing in the country illegally.