The Internal Revenue Service (IRS) is undergoing a period of change. A combination of leadership turnover, budget developments, staffing shifts, and evolving priorities are reshaping how the agency operates and interacts with taxpayers. For businesses, these changes may influence compliance timelines, audit activity, and overall engagement with the IRS.
How IRS changes impact businesses
Operational shifts within the IRS can affect the timing, approach, and focus of federal tax enforcement and guidance. For business owners, Chief Financial Officers (CFOs), and compliance teams, understanding these developments is key to preparing for possible changes in audit processes, communication timelines, and service availability.
Leadership transitions and organizational direction
Since 2024, the IRS has seen several leadership transitions, with multiple high-level roles filled by interim or new appointees. These shifts can influence how priorities are set and how agency initiatives are carried out over time. The recent confirmation of Commissioner Billy Long offers the IRS an opportunity to set its direction over the course of his remaining term, which runs through November 12, 2027.
Leadership turnover may also affect the consistency and momentum of long-term planning. Frequent shifts in direction can create uncertainty around internal priorities, contribute to morale challenges among staff, and influence the confidence of external stakeholders and partners. In this environment, project timelines may be reevaluated or delayed as new leaders reassess goals and strategies.
For businesses, the implications may include shifting priorities in audit selection, potential inconsistencies in tax policy interpretation, and longer wait times for decisions. Delays in processing returns, refunds, and rulings may also arise, potentially leading to short-term liquidity challenges or the need for revised compliance timelines.
Budget developments and funding outlook
The IRS's FY 2025 budget holds steady at $12.3 billion, maintaining the same level as the previous year. In a rising cost environment, flat funding may require the agency to reprioritize how resources are allocated across operations.
To support core functions, the IRS continues to draw on funds provided in the Inflation Reduction Act (IRA)—resources that were originally intended to improve taxpayer services, modernize outdated technology systems, and enhance compliance and enforcement activities. The agency initially received $79.4 billion through the IRA. However, as of the latest available data from March 31, 2025, that funding has been reduced to $37.6 billion due to multiple legislative actions. While IRA funds continue to offer supplemental support, their growing use for routine operations reflects broader challenges in securing consistent, long-term appropriations for the agency.
This drawdown of IRA resources has occurred alongside discussions of further budget tightening. A recent federal budget plan proposes to reduce IRS appropriations by $2.4 billion—approximately 20 percent. If adopted, this change would represent a notable shift in available resources and could impact the agency's investment capabilities moving forward.
Together, these developments continue a broader trend of funding reductions for the IRS. With base appropriations under pressure and contingency resources diminishing, the agency may need to further balance immediate service needs with long-term transformation goals.
Staffing adjustments and service capacity
Staffing levels at the IRS have declined, with more than 20,000 employees departing through retirement, attrition, and planned reductions. Areas impacted include auditing, taxpayer services, legal support, and IT.
Revenue Agent staffing is down approximately 30%, and adjustments have also been made to corporate auditing and international tax compliance teams. Planned reductions to the Information Technology workforce—potentially as high as 60%—may influence the pace of technology upgrades.
Support services, including the Taxpayer Advocate Service, have also experienced resource constraints. These changes could contribute to longer wait times for resolving issues related to audit correspondence, appeals, and taxpayer assistance requests.
Technology modernization and resource balancing
The IRS has outlined goals to modernize its systems by 2028, including digital processing, advanced analytics, and Artificial Intelligence-driven compliance tools. As resources are allocated toward both day-to-day services and long-term transformation, the pace and scope of modernization efforts may be adjusted.
Staffing changes and evolving budget allocations may impact the timeline for implementing new technology. The agency continues to balance near-term service delivery with its broader transformation agenda.
What businesses should consider
While the IRS is undergoing internal changes, businesses may still face increased compliance risk—particularly those operating in high-risk sectors or managing large and complex tax positions. Despite reductions in workforce, the agency is expected to maintain a targeted enforcement posture, with a growing reliance on data analytics to guide audit selection and resource allocation.
Rather than conducting broad, routine audits, the IRS is shifting toward fewer but higher-stakes investigations with a data-driven approach. Areas likely to receive greater scrutiny include cross-border transactions, passthrough entities, and large-dollar issues. This evolving audit strategy reflects the agency's focus on using limited resources more selectively and efficiently.
At the same time, businesses may experience slower turnaround times for rulings, refund requests, and issue resolution. Guidance and approvals could be delayed as the IRS balances service delivery with operational constraints.
Operationally, CFOs and tax leaders should anticipate longer response cycles and more nuanced enforcement patterns. Building flexibility into compliance planning and project timelines may help mitigate potential disruptions. A proactive approach to understanding enforcement trends and preparing for interaction with the IRS will be increasingly important in this environment.
Strategic actions to take
To stay aligned with the current environment, business leaders may consider the following:
- Review Internal Controls: Make sure that tax documentation and reporting processes are organized and traceable.
- Assess Compliance Posture: Identify and address potential risk areas to reduce audit exposure.
- Engage Tax Professionals Early: Advisors can help interpret changes and provide insight on evolving IRS focus areas.
- Plan for Longer Timelines: Incorporate extra time for IRS interactions, particularly for audits, rulings, and correspondence.
Planning ahead in a shifting IRS landscape
As the IRS continues to evolve, businesses may face new considerations in how they manage compliance, prepare for audits, and engage with the agency. Staying informed and taking a proactive approach can help reduce uncertainty and support better outcomes.
Working with an experienced tax controversy professional can provide valuable insight into what these changes mean for your organization. From reviewing documentation processes to preparing for longer timelines or increased scrutiny in certain areas, an experienced advisor can help you navigate this environment with greater confidence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
