The Trump administration’s decision to lay off up to 15,000 probationary IRS employees during tax season has raised serious concerns about the agency’s ability to process tax returns efficiently, enforce tax laws, and adequately assist taxpayers. These cuts could have far-reaching consequences, including longer refund delays, increased tax fraud, and exacerbation of existing disparities in IRS audits—especially for Black taxpayers who are already disproportionately targeted by IRS enforcement actions.
One of the immediate concerns is the impact on tax return processing. The IRS is responsible for handling millions of tax filings each year, and with fewer employees, processing times will likely slow down. This will be particularly problematic for taxpayers who depend on timely refunds to cover essential expenses. Individuals who file paper returns or claim tax credits, such as the Earned Income Tax Credit (EITC), may face longer wait times due to additional verification processes requiring human review. Additionally, customer service issues will likely worsen. The IRS already struggles with long wait times for phone assistance. With a reduced workforce, it will become even more difficult for taxpayers to get help with tax-related questions, audits, or corrections to their filings.
Another significant consequence of the layoffs is the potential for a substantial decline in tax enforcement. The IRS plays a crucial role in ensuring that taxpayers pay what they owe, and without sufficient staff, tax audits and compliance efforts will suffer. Over the past decade, audits of millionaires and large corporations have already declined significantly. With fewer employees, the IRS will likely struggle even more to conduct complex, high-dollar audits, allowing tax evasion among the wealthy and large corporations to go unchecked. The loss of revenue from uncollected taxes could lead to higher budget deficits or cuts in public services.
However, while audits of high-income earners may decline, low- and middle-income taxpayers may find themselves increasingly vulnerable to automated audits. A recent study from Stanford University’s RegLab found that Black taxpayers are 2.9 to 4.7 times more likely to be audited than non-Black taxpayers, and despite the IRS using “race-blind” auditing tactics, the study, which reviewed nearly 800,000 audits and about 148 million tax returns, revealed that the agency’s outdated audit algorithms disproportionately select Black taxpayers for review. The primary reason for this racial disparity is the IRS’s focus on refundable tax credits like the EITC, commonly claimed by lower-income taxpayers. Black taxpayers, who made up 21% of EITC claims, accounted for 43% of EITC audits. The research team also found that single Black men with dependents who claim this credit are nearly 20 times more likely to be audited than a non-Black married taxpayer claiming the same credit.
The issue lies in the IRS’s audit selection process. The agency relies on algorithms such as the Dependent Database, which flags potential tax issues and generates audit letters. Because of limited resources, the IRS has prioritized mail audits— disproportionately affect low-income taxpayers—over in-person audits, which are more expensive but better suited for detecting high-income tax evasion. Government officials have often justified this focus on refundable credits by arguing that improper EITC claims amount to fraud. However, the study found that the racial disparity in audits would decrease significantly if the IRS prioritized audits based on the total dollar amount of underreporting rather than focusing on refundable credits.
Potential Benefits for Black Business Owners
One of the main concerns for small business owners—regardless of race—is the fear of an IRS audit. Historically, the IRS has allocated a significant amount of its enforcement efforts to examining small businesses, self-employed individuals, and sole proprietors because their income reporting is less transparent than that of W-2 employees. With fewer IRS auditors available, small businesses—including Black-owned businesses—could experience a reduced risk of being audited. This might offer short-term relief, especially for entrepreneurs who may face challenges with the complexities of tax compliance.
Furthermore, some small businesses could thrive in a less stringent tax enforcement environment. If the IRS has fewer resources to conduct audits, businesses that make honest mistakes in their tax filings may have more opportunities to rectify them without facing immediate penalties. In sectors where cash transactions are common, like beauty services, restaurants, and independent contracting—areas where Black entrepreneurship flourishes—business owners might feel less pressure from IRS scrutiny.
Another indirect benefit is the potential for more favorable tax negotiations. When the IRS is understaffed, it often prefers to settle tax disputes rather than engage in lengthy investigations. This could create an opportunity for Black business owners who owe back taxes or are contesting penalties to negotiate payment plans or reductions in amounts owed more easily.
The layoffs could exacerbate this issue. With a reduced workforce, the IRS will likely depend even more on automated audits that disproportionately target low-income taxpayers, while also diminishing the agency’s capacity to perform **thorough audits of wealthy individuals and corporations. This implies that as billionaires and large companies continue to exploit tax loopholes, low-income taxpayers—particularly Black Americans—may experience increased scrutiny over relatively minor tax errors.
This decision also comes as the IRS is set to modernize its systems and enhance tax enforcement. The agency recently received nearly $80 billion from the Inflation Reduction Act to upgrade technology and hire new agents to target high-income tax evaders. If the administration continues to cut the IRS workforce, it could jeopardize these modernization efforts, making it more challenging for the agency to ensure fair and effective tax enforcement.
For taxpayers, these changes could lead to increased frustration, longer delays, and a heightened risk of audits for lower-income individuals who depend on tax credits. Filing early, ensuring accuracy in tax returns, and utilizing electronic filing methods may help alleviate some of these concerns. However, systemic challenges within the IRS will necessitate broader policy changes to address disparities and enhance fairness in tax enforcement, particularly in the audit selection process.
The IRS layoffs are not merely aimed at cutting government spending—they signify a fundamental shift in how tax enforcement is managed in the United States. While some contend that downsizing the agency will lead to a more efficient government, critics caution that these reductions could result in increased inequality, diminished tax compliance, and a system that unfairly penalizes lower-income taxpayers while allowing wealthier individuals to dodge scrutiny**. Whether these layoffs will ultimately foster meaningful reform or further erode trust in the tax system is yet to be determined. Still, one thing is sure: the stakes are high.
