IRS Taxes Business Taxpayer Impact: How Staffing Cuts Affect Owners

How IRS Staffing Reductions Could Impact Business Owners

The recent workforce reductions at the Internal Revenue Service (IRS) have significant implications for business owners across the United States. In February 2025, the IRS terminated approximately 7,000 employees, coinciding with the peak of the tax-filing season. This move is part of broader federal efforts to reduce the deficit by $1 trillion, resulting in widespread layoffs across multiple agencies.

Scope of IRS Staffing Reductions

The National Association of Tax Professionals reports that up to 6,500 IRS positions have been eliminated, potentially affecting tax return processing, customer service, and issue resolution. These cuts primarily impact probationary employees—those with less than one to two years of service—raising concerns about the IRS’s ability to provide timely assistance during a critical period.

Implications for Business Owners

1. Longer Wait Times for Taxpayer Support  

With fewer agents available, businesses may face extended wait times when seeking assistance with tax filings, deductions, and IRS correspondence.

2. Delays in Tax Refunds and Processing  

Businesses expecting tax refunds or dispute resolutions could experience significant delays due to reduced staffing, impacting cash flow and financial planning.

3. Potential Increase in Tax Audits  

While fewer employees may suggest reduced audits, the IRS may shift toward automated enforcement and data-driven audits, making it critical for businesses to maintain accurate financial records and tax compliance.

4. Reduced Guidance for Tax Credits and Deductions  

Many businesses rely on IRS updates for new tax credits, deductions, and policy changes. With fewer agents, staying informed will require more proactive efforts from business owners.

Common IRS Audit Triggers for Businesses

To minimize the risk of an audit, business owners should be aware of common red flags:

- Misreporting Income – Failing to report all income, including earnings from payment apps and cryptocurrency transactions, can lead to audits.  

- Disproportionate Deductions – Claiming deductions that are unusually high relative to income, such as excessive charitable contributions or business expenses, can attract IRS attention.  

- Excessive Expenses – Overstating business expenses, particularly in areas like travel or entertainment, can raise red flags.  

- Large Cash Transactions – Businesses that handle significant amounts of cash, such as restaurants or salons, may face increased scrutiny due to potential underreported income.  

- Home Office Deductions – Improperly claiming home office deductions without meeting IRS criteria can trigger audits.  

Navigating IRS Changes: Resources for Business Owners

To help tax professionals and businesses adapt to these challenges, NATP has launched a Looking for Work section on its website. This free resource connects displaced IRS employees with tax firms and businesses seeking skilled tax professionals.

Business owners can also take proactive steps to minimize disruptions:

- Consult a Qualified Accountant or Tax Professional – Engaging with an experienced accountant can help businesses navigate tax compliance efficiently, especially amid IRS staffing shortages.  

- Leverage Digital Tax Tools – Online tax software and digital accounting solutions can support record-keeping and reduce reliance on direct IRS support.  

- Stay Updated on IRS Policies – Subscribing to IRS bulletins and industry newsletters ensures businesses remain informed about tax changes and deadlines.  

- Plan Early for Tax Filing – Given potential processing delays, early preparation can help businesses avoid last-minute challenges.  

The Future of IRS Workforce and Business Taxation

Reports suggest the IRS may reduce its workforce by up to 20% through layoffs and attrition. These reductions may shift how businesses interact with the IRS, requiring them to be more self-sufficient in tax preparation and compliance.

For business owners, understanding these changes is key to avoiding unnecessary risks. Staying informed, maintaining accurate financial records, and seeking professional guidance when necessary can help businesses remain compliant and efficient despite IRS staffing challenges.