Dive Brief:
- Lax review by the IRS opened the way for swindlers to file bogus Forms 941 and bag tax refund checks even after agency managers were informed of the risk from such business fraud, the Treasury Inspector General for Tax Administration said.
- TIGTA last year alerted the IRS that investigators found that the agency provided more than $93 million in fraudulent refund checks to 20 businesses, TIGTA said in a report. IRS staff failed to properly authenticate callers and enabled the wrongdoing by providing fraudsters with account, deposit and other tax information.
- “IRS management was aware of the risk of erroneous refunds being issued,” TIGTA said, adding that “the agency did not take action to prevent the scheme.”
Dive Insight:
The report, criticizing staff who handle queries from callers to Business Security Tax and Practitioner Priority Service telephone lines, identifies errors that preceded a historic agency shakeup this year under the Trump administration.
The White House during the first half of 2025 slashed the IRS work force from 102,000 to less than 76,000, with Taxpayer Service staff shrunk by 22%, National Taxpayer Advocate Erin M. Collins said in June. The tally includes employees who accepted an early resignation offer and will stay on payroll through Sept. 30.
Roughly 26% of revenue agents and 27% of tax examiners have left the agency or intend to do so, TIGTA said in July.
“With the IRS workforce reduced by 26% and significant tax law changes on the horizon, there are risks to next year’s filing season,” Collins said in a June report.
The Trump administration, in its 2026 budget request, flagged the risks from mass cuts in taxpayer services and requested the hiring of 11,000 customer service employees.
At current staff levels, “most taxpayers would be unable to reach the IRS by phone or receive answers to questions related to tax compliance,” the IRS said. “Taxpayers that do get through will face long wait times.”
Meanwhile, the Trump administration has triggered unprecedented turnover in the agency’s top spot. During the past eight months, the administration has cycled through seven commissioners, a position with a five-year tenure.
Dozens of top career civil servants have left the IRS, with many resigning after the announcement of a memorandum of understanding on the use of tax data between the IRS and Immigration and Customs Enforcement.
“During Trump’s first term, turnover in senior leadership was tempered in important ways by a bulwark of qualified, dedicated civil servants in federal agencies,” Brookings said this month in a report. “This time the damage is far more severe.
“To date, career officials have shown remarkable tenacity in performing their legally mandated responsibilities to protect taxpayer data,” Brookings said. “But with the loss of leadership, the guardrails are weakening — and the likelihood of a competently run tax season dims.”
The IRS pledged last month to take steps aimed at averting the filing of fraudulent Forms 941 and illegitimate refunds, including improved training and increased use of electronic payments rather than the issuance of checks.
“The protection of taxpayer information and prevention of fraudulent refunds are top priorities for the IRS,” Kenneth Corbin, chief of the Taxpayer Services Division, said in a July 3 letter to TIGTA.
