Filing season
The Service has announced the 2026 filing season will start on January 26th. The big question is whether reductions in IRS staffing, including the departure of over 20% of its IT and customer service staff (p. 5), and enactment of OBBBA provisions affecting tax year 2025 (no tax on tips and overtime, car loan deduction, etc.) will cause a breakdown.
The Service is on its seventh commissioner with Scott Bessent serving as acting commissioner for an apparently indefinite period of time. In addition to the challenges of being the Secretary of the Treasury, he appears to be easily distracted – e.g., into using the IRS to chase down rumors1 that seem a bit removed from typical Service activities (whether admitted fraud proceeds went to a foreign terrorist group). The head of the Social Security Administration – a challenging job in its own right – is acting as chief executive and will be in charge of day-to-day operations. Not sure how much comfort that provides.
IRS apparently has reversed course and will be hiring seasonals rather than permanent customer service employees, according to Bloomberg. That should make recruitment more difficult, I assume.
Last year everything went remarkably well with similar but different issues at the top and impending chaos for those in the ranks. But the bar is a bit higher this year and staff who were kept on for the filing season are gone.2 So, who knows. I wouldn’t hold my breath and would not file a paper return if I could avoid it.
Flagging audits
Meanwhile, NYTimes reports, not surprisingly, that the number of audits of large partnerships in 2025 was down significantly from 2024:
Since President Trump returned to office, nearly all the senior leaders of the [large partnership audit] operation have left the I.R.S. — taking the newly acquired partnership tax expertise with them. Audits have been abandoned, they have decreased in number and the initiative is foundering.
Progress on complex audits has slowed to a trickle, tax lawyers who specialize in these cases said. The number of large partnership exams has not gone “completely to zero, but it has certainly dropped 80 or 90 percent,” said Gary Huffman, a tax lawyer at Vinson & Elkins who represents partnerships that are being audited. A lawyer who handled roughly 15 such audits in 2024 reported only three in 2025. Another who advised clients on four such audits in 2024 saw zero new audits in 2025.
…
“We were having good success bringing into the I.R.S. seasoned tax and legal expertise to help with complex audits, including for large partnerships,” said Danny Werfel, who served as I.R.S. commissioner for the final two years of the Biden administration. “Because these folks were relatively recent hires, they were probationary employees. When all probationary employees were let go, lots of talent walked out the door.”
…
Profits reported by partnerships exploded to $2.6 trillion by 2022, from $267 billion in 2000, the most recent I.R.S. data shows. Profits reported by traditional corporations grew at about half that pace.
…
With no one left to look for the dodges, tax experts warn that abusive shelters are likely to proliferate.
A recent study by a team of business and law school professors at schools including Stanford, the University of Georgia, New York University and the University of Chicago found that audits of complex partnerships had a “high return on investment,” generating $20 in collected taxes for each $1 spent by the I.R.S. That return is over eight times what the I.R.S. generates from auditing corporations, the researchers found.
Doing large partnership audits seems to me to have a higher cost-benefit payoff than seeing if the Feeding Our Future fraud moneys made their way to al-Shabab. Discovering that the latter occurred would obviously be bad, but the payoff would largely be partisan political scalps, rather than internal revenues.3 That’s world we live in.
Notes
- Per Fox News: “Bessent said Friday [1/8/2026] that the Internal Revenue Service (IRS) Civil Enforcement is auditing financial institutions that allegedly supported the laundering of Minnesota funds, and that the IRS is planning to unveil the ‘formation of a task force to investigate any fraud and abuse involving pandemic-era tax incentives and misuse of 501(c)(3) tax-exempt status by entities implicated in the Minnesota based social services fraud schemes.’” ↩︎
- IRS employees with filing season responsibilities were prohibited from taking the Fork Email early retirement. ↩︎
- I’ll be surprised if Bessent’s inquiry results in criminal charges or sanctions on financial institutions for money laundering. ↩︎
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