Expect a tempest in tax under Trump

Expect plenty of changes in the world of tax under the new administration.

On Inauguration Day, President Donald Trump signed an executive order calling for a longer hiring freeze at the Internal Revenue Service than he was imposing on other federal agencies, as well as another executive order rejecting U.S. participation in the Organization for Economic Cooperation and Development's two-pillar global tax framework. He also called for sending armed IRS agents to patrol the Mexican border, which the Department of Homeland Security later requested of the Treasury Department. 

Republicans in Congress are currently negotiating the contours of an extension of Trump's signature tax legislation, the Tax Cuts and Jobs Act of 2017, along with his campaign promises of exempting certain kinds of income, such as tips, Social Security income and overtime, from taxes. 

Mark Everson, a former IRS commissioner who is currently vice chairman of Alliant, a consulting firm in Washington, D.C., believes the administration under Treasury Secretary Scott Bessent will focus on the international front with tariffs and sanctions.

"It will be relatively more aggressive in the international arena," said Everson. However, he believes the OECD tax deal would only be implemented through an act of Congress in the aftermath of Trump's executive order.

(For insights on the new administration's impact on other areas of regulation, like the PCAOB, see our feature article.)

He also expects to see changes at the IRS, with less emphasis on enforcement and diversity, equity and inclusion programs. "Consistent with the move against DEI, my guess would be a return to enforcement without scrutiny of results by racial grouping," said Everson. "There's a lot of discussion of the impact disproportionately on minorities through the Earned Income Tax Credit in terms of audit rates. I don't think that will be considered in this approach going forward, given what they've already done with the abolition of the DEI offices, including, as I understand it, at the service."

However, he expects to see continuing improvements in taxpayer service. "I do think that there will be common ground in terms of emphasis on service improvements," said Everson. "I'm not suggesting that everything at the IRS is going to stop. Hardly. The Republicans feel very strongly about the need for good service, and I think that will be a focus of the administration once, presumably, Commissioner [Billy] Long is in office. I think there will be continuation and a great deal of focus on privacy versus efficiency. They'll want to make the improvements on the system side, which are already underway, but I do think there will be a great deal of focus on privacy."

Hiring freeze

The hiring freeze at the IRS could be a concern, however. 

"Will they be able to maintain adequate personnel? Time will tell on that, but I think we'll know fairly quickly," said Everson. "The filing season has already started, and I think that the impact of departures on the workforce will be felt over time. I'm not overly concerned about the filing season, per se. Over a period of time, if people are leaving government — and the IRS does have a very high component of people who have been working from home — because that is no longer allowed, what will the impact be there? That's very much in the mix, but it will take time to feel the effects of that."

He expects to see more of a focus at the IRS on process in terms of enforcement activities. Trump's proposal to create an "External Revenue Service" to collect tariffs and duties could also introduce complications, since many of those functions are already performed at the Department of Homeland Security rather than the Treasury Department.

Al Drago/Bloomberg

After the election, Trump named former Rep. Billy Long, R-Missouri, to be the next IRS commissioner, even though IRS Commissioner Danny Werfel's term was scheduled to run until November 2027. That prompted Werfel to announce his last day would be on Jan. 20, coinciding with Inauguration Day. When he was in Congress, Long had sponsored a bill to abolish the IRS and replace it with a consumption-based tax known as the Fair Tax. In January, a group of 12 Republican lawmakers revived the bill as the Fair Tax Act of 2025.

The Trump administration and Republicans in Congress have been moving to claw back at least half of the $80 billion in extra funding under the Inflation Reduction Act from the IRS's enforcement efforts, which had been targeting large partnerships and corporations, as well as high-wealth individuals, for increased audits. That could affect the reliance of the agency on doing centralized partnership audits, which were allowed under the Bipartisan Budget Act of 2015, but have only recently begun being used.

"Without the IRA funding — and as it stands today, there's no funding coming from any additional sources — it is certainly less likely that the IRS will be able to conduct effective audits of partnerships," said Colin Walsh, principal and practice leader of tax advocacy and controversy services at Top 10 Firm Baker Tilly. "Something could change tomorrow, and Billy Long could become commissioner and figure out a different way to finance it. Billy Long will have his own ideas, and we're all curious to see how he'd like to build the IRS. There's a big push to get federal workers back into the office. What impacts might that have? Maybe the theory could be that people working in an office are going to be more effective and more efficient than people working remotely. I don't think at this stage we can even predict, if Billy Long becomes the commissioner, what that will look like, but we can say that it is going to be different. I think comfortably, we could say it's going to be different than what it would have been like if the IRS had $80 billion and Danny Werfel, versus $40 billion and Billy Long. It is different objectively."

"It doesn't mean that it will necessarily be less stringent," he noted. "We just don't know, whereas six months ago, we all had a pretty good idea of where this was headed, because the IRS was explicit in saying what they were going to do, creating a partnership audit task force, auditing 80 of the largest partnerships, and in practice, we were seeing that last year."

The IRS and the Treasury may also cut back on labeling tax transactions such as micro-captive insurance as "transactions of interest."

"The IRS lost all those cases on making things transactions of interest or reportable transactions by notice," said Bill Smith, managing director of the national tax office at Top 25 Firm CBIZ Advisors. "They now have to go through the regulatory process, with proposed regulations, a notice and comment period, all of that. Having nothing to do with the change of administration, they suffered a pretty serious setback there. They suffered a setback with the elimination of Chevron deference. It's all taxpayer favorable, but is it good, sound policy? The IRS collects something like 97% of the revenue for the United States. I don't know if Elon Musk is going to be able to cut that much out. If you're going to eliminate a lot of the income, you'd better start eliminating the expenses too."