Deep cuts at the Internal Revenue Service could make it even harder for international taxpayers to resolve problems.

 

President Donald Trump’s buyout of some federal employees could hit the U.S. Internal Revenue Service particularly hard, at least as far as the public can see. The forced departures could exacerbate an already serious attrition at an agency that has unequaled power over Americans domestically and abroad.

 

The latest U.S. tax-filing season went smoothly, observers say. Yet they warn that phone-wait times, response lags in correspondence, audit negotiation and other services of the IRS – an agency infamous for its impatience with taxpayers it determines are delinquent, especially international ones – could be hampered soon.

 

 

Staff exodus

The IRS had slightly more than 100,000 employees at the end of FY24, about a 10% increase over that fiscal year. In recent months, about a third have reportedly accepted buyouts.

 

IRS employees received a memo in late January offering a buyout to those who didn’t want to comply with the federal return-to-office mandate. Plans also call for cutting up to 50% of the IRS workforce after tax season and some 7,000 probationary employees were recently put on paid administrative leave and may or may not return as the cutbacks pinball through the courts.

 

At first, IRS employees were offered the chance to retire before a late-September deadline. According to a recent report from the IRS Taxpayer Advocate Service, almost one in five IRS employees are now eligible for retirement and more than a third will become retirement-eligible in the next five years. Observers assume these are the most experienced employees in taxpayer service, procedure and technology (the agency has also paused its technology modernization).

 

This staff exodus, recently highlighted by a revolving door of commissioners, follows recent double-digit attrition in taxpayer services personal and eventually could cut the IRS workforce in half. Not to mention an administration floating the end of national income tax and that has turned the new Department of Government Efficiency loose to slash costs and perceived waste in the federal government. Observers have called the future IRS a potentially “gutted” agency that would ultimately cost the U.S. billions in lost tax revenue.

 

Before then, international taxpayers may hit a wall of frustration when trying to resolve complex and long-distance tax problems.

 

Smooth season, but what next?

For the week ending April 4 this year, the IRS said it processed all but some 1.1 million of the slightly more than the 101.4 million returns received, slightly ahead of last year’s figures. The agency had issued 67,745,000 refunds by that date, also slightly ahead of April 2024.

 

This filing season, tax professionals did report longer than usual waits for phone help and incorrect information on IRS.gov, including a wrong extension payment due date, mislabeling of the amended return as “104X” instead of 1040-X and in some cases a message implying that already-processed returns for 2022 and 2023 are still being processed.

 

Former IRS Commissioner Danny Werfel has warned that layoffs so far have been more on the collection side than in taxpayer assistance, meaning that a smooth season may not indicate worse IRS services to come. News reports add that tax professionals have seen delays when trying to set up clients’ powers of attorney, resolve clients’ disputes with the agency or to set up payment agreements for clients’ prior-year taxes.

 

International U.S. taxpayers may be in for especially hard times. National Taxpayer Advocate Erin Collins noted in her 2023 Report to Congress that even then the IRS had problems with such matters as assistance and guidance for U.S. taxpayers living abroad; escalating International Information Return (IIR) penalties; and gifts from foreign persons. Other troubles included duplication of information reporting required by the Foreign Account Tax Compliance Act (FATCA) regime and information reporting required by the Financial Crimes Enforcement Network (FinCEN).

 

“How do they propose to improve taxpayer service?” Nina Olson, executive director of the Center for Taxpayer Rights and a former National Taxpayer Advocate at the IRS, has told news outlets. “Everybody’s been trying to eliminate the calls since the phone system was set up, and all it does is increase. Maybe you can eliminate some of the repeat callers, the more that you do chatbots and things. But as I keep saying to people, the IRS isn’t like Amazon or your bank. It has enforcement powers that no bank has.”

 

Historically, the more complicated a taxpayer’s interaction with the IRS, the greater the need for written, phone or in-person response. An agency already slow to respond to the complex needs of international taxpayers is likely to be only slower as planned cutbacks take hold.

 

Your tax specialist needs to stay on top of this and many other issues of wealth, foreign income and tax enforcement. If we can help, please let us know.

 

 

About the Author 

Alicea Castellanos is the CEO and Founder of Global Taxes LLC. Alicea provides personalized U.S. tax advisory and compliance services to high-net-worth families and their advisors.

 

Alicea has more than 20 years of experience. Prior to forming Global Taxes, Alicea founded and oversaw operations at a boutique tax firm, worked at a prestigious global law firm and CPA firm.

Alicea specializes in U.S. tax planning and compliance for non-U.S. families with global wealth and asset protection structures which include non-U.S. trusts, estates and foundations that have a U.S. connection.

 

Alicea also specializes in foreign investment in U.S. real estate property, and other U.S. assets, pre-immigration tax planning, U.S. expatriation matters, U.S. persons in receipt of foreign gifts and inheritances, foreign accounts and assets compliance, offshore voluntary disclosures/tax amnesties, FATCA registration, and foreign companies wanting to do business in the U.S.

 

Alicea is fluent in Spanish and has a working knowledge of Portuguese.

 

Alicea is an active member of the Society of Trusts & Estates Practitioners (STEP), the New York State Society of Certified Public Accountants (NYSSCPAs), the American Institute of Certified Public Accountants (AICPA), the International Fiscal Association (IFA), a member of Clarkson Hyde Global, a world-wide association of accountants, auditors, tax specialists and business advisors and the Global Referral Network (GRN).

 

Distinctly, in 2020, Alicea was awarded with a prestigious NYSSCPA Forty Under 40 Award. She was selected as someone that has notable skills and is visibly making a difference in the accounting profession.

 

In 2021 and 2022, Alicea was the Gold and Silver Winner, respectively, of Citywealth’s Powerwomen Awards in the category USA – Woman of the Year – Business Growth (Boutique). In 2023, she continued her winning streak by receiving the Gold award for Company of the Year Female Leadership (Boutique) and the Silver award for Accountancy Firm of the Year at the Magic Circle Awards. Furthermore, Alicea has consistently secured her position in the Global Elite Directory for four consecutive years, being recognized as a Private Client Global Elite Advisor and is currently listed for 2024 as a Non-Legal Adviser. This exclusive directory annually highlights the world’s elite lawyers and outstanding wealth advisors serving ultra-high net-worth clients.

Please note: This content is intended for informational purposes only and is not a replacement for professional accounting or tax preparatory services. Consult your own accounting, tax, and legal professionals for advice related to your individual situation. Any copy or reproduction of our presentation is expressly prohibited. Any names or situations have been made up for illustrative purposes — any similarities found in real life are purely coincidental.