Prapass Pulsub | Moment | Getty Images
As the IRS faces mass layoffs, Congressional Democrats warn those staffing cuts could undermine the agency’s progress in collecting unpaid funds from “wealthy tax dodgers.”
In a letter to Acting IRS Commissioner Melanie Krause last week, more than 130 House Democrats demanded answers about the termination of an estimated 7,000 probationary agency workers, which included compliance staff.
The IRS staffing cuts started in late February and were part of broader federal spending reductions via Elon Musk’s so-called Department of Government Efficiency.
More from Personal Finance:
These accounts can be the ‘worst possible asset’ for retirement, expert says
Potential cuts to Medicaid could include work requirements
Consumer credit rose to $5 trillion in January
The letter from the House Democrats said the agency’s compliance team plays a critical role in “pursuing tax evaders and securing vital revenue” for the U.S. government.
The same day last week, 18 Senate Democrats, led by Sens. Elizabeth Warren, D-Mass., and Ron Wyden, D-Ore., asked the Treasury Inspector General for Tax Administration to evaluate the IRS staffing reductions.
The recent layoffs hurt the agency’s ability to “improve collections, crack down on complex tax avoidance and evasion by high-income taxpayers and large businesses,” the lawmakers wrote.
The U.S. Department of the Treasury and the IRS did not respond to CNBC’s request for comment.
IRS cuts benefit ‘unidentified, noncompliant taxpayers’
Congress approved nearly $80 billion in IRS funding via the Inflation Reduction Act in 2022, and more than half was earmarked for enforcement. The agency has since targeted higher earners, large corporations and complex partnerships with unpaid taxes.
The enforcement plans of the IRS have been heavily scrutinized by Republicans, who have clawed back part of the Inflation Reduction Act funding and vowed to make further cuts.
The agency in September announced it recovered $1.3 billion in unpaid taxes from “high-income, high-wealth individuals,” under Inflation Reduction Act initiatives.
Former IRS Commissioner Charles Rettig, who served under Presidents Donald Trump and Joe Biden from 2018 to 2022, criticized the recent staffing cuts in a Bloomberg op-ed last week.
“For decades, IRS operations have been thoroughly depleted by underfunding and annual hiring freezes adversely impacting virtually every internal and external function,” he wrote. “To the extent taxpayer services and compliance functions existed, they were on life support.”
Through fiscal year 2023, the IRS examined 0.44% of individual returns filed for tax years 2013 through 2021, according to the latest IRS Data Book.