The IRS is in turmoil. Taxpayers are taking notice.

Summary

Post Reports: The IRS is in Turmoil. Taxpayers are Taking Notice

Published on March 26, 2025

Hosts: Martine Powers and Elahe Izadi
Reporter: Colby Ekowitz and Jacob Bogage

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Introduction

In the March 26, 2025 episode of Post Reports, hosted by Colby Ekowitz, longtime congressional economics correspondent Jacob Bogage delves deep into the current turmoil within the Internal Revenue Service (IRS) and its significant implications for taxpayers and the federal government. This episode sheds light on the predicted decline in tax revenues, the administrative changes under the Trump administration, and the potential ramifications for both the economy and undocumented immigrants.

Predicted Decline in Tax Revenues

At the outset, Jacob Bogage highlights a critical forecast: “The forecast right now is a 10% decrease in tax revenue for this filing season” (00:40). This projection is alarming, considering the IRS’s substantial role in collecting approximately $5 trillion in taxes annually. A 10% shortfall translates to a staggering $500 billion deficit, juxtaposed against the Defense Department's expenditure of about $825 billion the previous year.

Trump Administration and DOGE's Influence on the IRS

Jacob attributes the anticipated revenue drop to the concerted efforts by President Donald Trump and his Department of Government Efficiency (DOGE). Over recent months, DOGE has implemented sweeping changes aimed at downsizing the IRS:

• Mass Layoffs: Thousands of IRS staff have been laid off, significantly reducing the agency’s operational capacity.
• Halting Modernization: Efforts to modernize the tax system have been stalled, hindering efficiency and adaptability.
• Leadership Overhauls: High-ranking officials, including the acting Commissioner of the IRS and the Chief Transformation and Strategy Officer, have been either dismissed or have resigned in protest (01:15).

Impact on Taxpayer Behavior

These administrative upheavals have led to noticeable shifts in taxpayer behavior. Jacob explains, “Taxpayers and major corporations are noticing and they're starting to change their behavior to do more, to pay less” (02:23). The erosion of the IRS's infrastructure and enforcement capabilities has undermined the previously robust voluntary tax compliance system. As a result:

• Ease of Avoidance: Reduced enforcement signals that the IRS is less likely to pursue aggressive tax evasion.
• Increased Aggression: Some taxpayers are adopting more aggressive strategies to minimize tax liabilities, sometimes crossing into fraudulent territory.
• Compliance Difficulties: With fewer resources, actions that were once straightforward have become cumbersome, deterring accurate tax reporting.

Consequences of Lower Tax Revenues

A significant decline in tax revenue carries profound implications:

1. Increased National Debt: A $500 billion shortfall would exacerbate the national debt, currently standing at $36.2 trillion. Jacob warns, “If you add to the debt substantially, to the tune of $500 billion, all the people who lend us money look at that and go, huh? I think I'm less likely to get my money back” (08:22).

2. Higher Interest Rates: To compensate for increased risk, investors may demand higher interest rates on U.S. Treasury bonds, contributing to inflation and making borrowing more expensive.

3. Crowding Out: Elevated debt levels can crowd out essential government investments in infrastructure, healthcare, and defense, perpetuating a detrimental economic cycle.

Jacob emphasizes, “We have been in this doom loop for some time because of rising costs across the federal government... If tax revenue drops this much and then taxpayer behavior changes such that over time we continue to collect less in taxes, that reinforces this doom loop” (09:14).

Potential Data Sharing Deal Between IRS and ICE

After a commercial break, the discussion pivots to a controversial potential agreement between the IRS and Immigration and Customs Enforcement (ICE). This proposed deal would allow the IRS to share taxpayer addresses of suspected undocumented immigrants with ICE, marking a significant shift in the utilization of taxpayer data.

Jacob outlines the proposal:

“The IRS has promised for 30 years, if you file your taxes, they are private. And we do not collaborate with law enforcement or immigration officials to turn over that information voluntarily” (16:01). This deal poses severe privacy concerns, as it undermines the longstanding confidentiality of tax information.

Legal Implications and IRS Reactions

The legality of this data-sharing arrangement is highly questionable. Jacob delves into IRS Regulation 6103, the privacy statute governing taxpayer information:

“The answer is almost none in almost zero circumstances” for whom the IRS can legally disclose taxpayer data (18:30).

Despite the restrictive nature of this law, ICE has maneuvered to exploit its most lenient provisions, requesting taxpayer names and addresses with the caveat that they must be accurate for the IRS to comply. Jacob critiques this approach:

“Immigration and Customs Enforcement went to the IRS and said, if we provide you the name and address of a taxpayer who we think has violated the law by being in this country unlawfully, will you then provide us the name and address of that taxpayer?” (20:24).

The IRS officials are reportedly “apoplectic” about the proposal, perceiving it as an unprecedented breach of taxpayer privacy and an abuse of the agency’s authority (22:04).

Consequences for Undocumented Immigrants and the Tax System

Should this deal materialize, the repercussions would be multifaceted:

• For Undocumented Immigrants: Jacob warns, “It puts undocumented folks in a really difficult position... It will disincentivize compliance in our voluntary tax system” (23:14). The fear of increased scrutiny may drive undocumented individuals further underground, diminishing their contributions and complicating their paths to legal status.

• For the Tax System: Such collaboration could erode trust in the IRS, undermining the voluntary compliance that is foundational to the U.S. tax system. It risks transforming the tax process from a civic duty into a tool for immigration enforcement, fundamentally altering its purpose and effectiveness.

Conclusion

This episode of Post Reports paints a concerning picture of an IRS in disarray, grappling with administrative instability and reduced enforcement capabilities. The Trump administration’s interventions, through DOGE, have significantly impaired the IRS’s ability to maintain tax compliance, potentially leading to a substantial drop in tax revenues. Furthermore, the proposed data-sharing deal with ICE threatens the privacy and integrity of the tax system, with far-reaching implications for both undocumented immigrants and the broader economic landscape. As Colby Ekowitz and Jacob Bogage elucidate, these developments not only jeopardize fiscal stability but also pose existential questions about the role of taxation in democracy.

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Notable Quotes:

• Jacob Bogage (00:40): “The forecast right now is a 10% decrease in tax revenue for this filing season.”

• Jacob Bogage (02:23): “Taxpayers and major corporations are noticing and they're starting to change their behavior to do more, to pay less.”

• Jacob Bogage (08:22): “If you add to the debt substantially, to the tune of $500 billion, all the people who lend us money look at that and go, huh? I think I'm less likely to get my money back.”

• Jacob Bogage (16:01): “The IRS has promised for 30 years, if you file your taxes, they are private. And we do not collaborate with law enforcement or immigration officials to turn over that information voluntarily.”

• Jacob Bogage (22:04): “They're apoplectic. I can't get into who my sources are and what kinds of people I'm talking to. But I can tell you that I was on the phone on Saturday with people who were alternatively cursing at me over the phone because they couldn't believe this was happening or were in tears.”

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Produced by Rennie Svirnovsky, Bishop Sand, Shawn Carter, Peter Bresnan, and Mike Madden.

Transcript

[Host]

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[Colby Ekowitz]

We are just a few weeks out from April 15, Tax Day, and many officials at the IRS are feeling nervous.

[Jacob Bogage]

The forecast right now is a 10% decrease in tax revenue for this filing season.

[Colby Ekowitz]

Jacob Bogage is a congressional economics correspondent for the Post.

[Jacob Bogage]

The IRS collects about $5 trillion in taxes every year. If we're looking at a 10% drop, that's $500 billion. And to put that in perspective, the Defense department spent about $825 billion last year. That's a huge amount of money that will have impacts across the federal government immediately.

[Colby Ekowitz]

Jacob says that tax officials are predicting a massive drop in tax revenue this year, and the reasons have a lot to do with President Donald Trump and Elon Musk's Department of Government Efficiency, or doge. Over the last few months, DOGE has taken steps to severely reduce the size and scope of the irs. They've laid off thousands of staff, halted efforts to modernize the tax system, and have fired or forced out officials who've stood in their way.

[Jacob Bogage]

A commissioner of internal revenue, the acting commissioner of the irs, the chief human capital officer, the chief procurement officer, the acting chief procurement officer, the chief the chief counsel, the chief transformation and strategy officer, and the chief of tax compliance. All of these people have either been actively fired by the Trump administration or said, I can't work like this anymore. And the guardrails that are holding up our voluntary tax system are starting to wither a little bit, and taxpayers and major corporations are noticing and they're starting to change their behavior to do more, to pay less.

[Colby Ekowitz]

From the newsroom of the Washington Post, this is Post Reports. I'm Colby ekowitz. It's Wednesday, March 26th. Today, Jacob takes us through how the Trump administration is reshaping the IRS and why the federal government might take a hit this tax season. And after the break, we'll discuss how the Trump administration is hoping to use the IRS to target undocumented immigrants. Jacob, I know it's been really busy for you, so thank you so much for being here with us.

[Jacob Bogage]

It's been wild, but it's been a lot of fun, and it's meaningful to do this kind of work at this time.

[Colby Ekowitz]

So you mentioned the taxpayer behavior is changing. Before we get into why that's happening, what does their behavior normally look like?

[Jacob Bogage]

We operate under a voluntary tax system. You tell the government what you've earned, and the government says, great, based on what you've earned, you owe a certain amount or you've overpaid a certain amount, and we'll pay you back. It is a very complicated system, and Americans are also very good at it. But when you make that system harder to comply with or you start sending overt signals to people that we're not going to enforce that system as we once did, taxpayer behavior can change very quickly and in large ways. There are all kinds of ways that you can avoid paying taxes or try to minimize what you owe. A lot of those ways are legal, and there's not even anything wrong with trying to pay as little as you possibly can. There is something wrong with falsifying your information or lying about what you owe. And we're starting to see both of those. We're starting to see folks who are being more aggressive, taking more aggressive positions to claim they owe less or just completely lying about what they should be paying, specifically because the Trump administration is sending signals through the IRS that we're not going to go after folks.

[Colby Ekowitz]

Hmm. Jacob, I really want to get into what those signals are, but first I want to know, are tax officials actually seeing this behavioral change already a few weeks out from tax day?

[Jacob Bogage]

So we're seeing two things, and one of them is actually really good news. One of them is, for all of the turmoil at IRS that we've been reporting on day in and day out, filing season, the operations of it are actually going really well. When people call the irs, they're getting through. When people are using the direct file system with the irs, which lets you file your taxes like a turbo tax or an H and R block, but for free, directly with the irs, it's going really well, and tax revenue should be up this year. The IRS collected $5 trillion in taxes last year, and then the economy grew by 2.8%. Unemployment was relatively low. The United States had a really good economic year. That should mean that tax receipts are higher. And instead, based on their modeling, tax receipts are down 10%.

[Colby Ekowitz]

So what is behind that drop? You mentioned that tax officials are at least partially attributing this to all the actions taken by the Trump administration and Doge at the irs. They've laid off staff, they've clawed back modernization efforts, fired people in charge of compliance. But how exactly have these changes led to people, to taxpayers being less compliant this year?

[Jacob Bogage]

Because it's breaking down a lot of the systems that either make it easier for you to pay your taxes or make it clear that if you don't pay your taxes, the IRS is going to come after you. So if we take apart the IT systems or we have fewer people to answer the phone and I need help and I call the IRS and the person who answers the phone can't access my account, or the person who answers the phone says, sorry, our computers are down, call back tomorrow, I'm a busy person, Colby. I'm not calling back tomorrow. I'm going to do the best I can on our very confusing tax forms. I'm going to get on with my life and hope that I did it right. And if I end up underpaying, oops, I tried to do the right thing and you made it harder for me. And if I have people who are getting laid off from the compliance section, like tax examiners or investigators, or I tell those tax examiners or investigators, we are so under resourced, I need to triage what we can actually take care of. Stop worrying about the investigations you're doing now and go handle this other stuff that's higher priority. We which is exactly what is happening. I am signaling to people who are more apt to cheat that A, no one will be investigating you if you do cheat and B, if you get caught, we're probably not going to impose that much of a penalty on you. So we're making it harder for people to do the right thing and we're making it easier, easier for people to do the wrong thing and showing them that there won't be consequences even if you're caught.

[Colby Ekowitz]

Yeah. And so if the prediction of a huge drop in tax revenue actually turns out to be correct, like there are consequences for that, there is less money for the government to spend. Walk us through a little bit about what those consequences would be.

[Jacob Bogage]

Yeah, absolutely. So let's start here. If it's not 10%, there would be some reasons why. One, you can file penalty free for a six month extension. You can file your taxes in October. We're starting to see, especially in a high interest rate environment, some incentive to take an extension. So that's one. Two, we saw natural disasters this past year, especially in high net worth areas and in high tax states like in California, like In California. And not just in California, in wealthy parts of California. So that's businesses there, that is individuals and homeowners and families who would pay high balances of taxes and they're getting exemptions. So there are reasons why even if the projection the IRS has right now is 10%, there's a very strong likelihood it could net out lower and it would still be a revenue hit and that would still have effects. So let's talk about those effects. A one year drop in tax revenue does not necessarily mean, holy cow, let's start cutting spending everywhere. What it most likely means is we're going to borrow more as a country. And that's where it gets dicey.

[Colby Ekowitz]

Adding to our debt.

[Jacob Bogage]

Adding to our debt. Our debt right now is $36.2 trillion. If you add to the debt substantially, to the tune of $500 billion, all the people who lend us money look at that and go, huh? I think I'm less likely to get my money back. So I have to charge some sort of risk premium to make good on my investment. That's interest rates. So they charge the US Government higher interest rates. That means when people buy treasury bonds or they borrow from the US Government, the US Government has to charge higher interest rates. That is part of how we get inflation. When you get higher interest rates, you can't not pay them. You can't default on your loans. So that means there is less money. We call it crowd out. There is less money to invest in other things like hospitals and roads and bridges and highways and the military and all of the stuff that the government does because it gets crowded out by our debt financing that causes our national debt to go up and you create this doom loop. We have been in this doom loop for some time because of rising costs across the federal government, namely in social benefit programs like Medicare, Medicaid, snap, which are formerly known as food stamps. We're getting there with Social Security. If tax revenue drops this much and then taxpayer behavior changes such that over time we continue to collect less in taxes, that reinforces this doom loop and it starts to get really economically dangerous really fast.

[Colby Ekowitz]

Let's go back to it for a second, to the turmoil at the irs. And what has the Trump administration said about why they're making these cuts and trying to, I mean, they're trying to make the whole government smaller. But is there anything specific about the irs?

[Jacob Bogage]

The Trump administration hasn't said a ton specifically about the irs. But there are two dynamics at play here. One of them is what Republicans have said about the IRS for more than a decade, that the IRS is too big, that it's indicative of the fact that Americans pay too much in taxes. Well, the IRS has nothing to do with how much Americans pay in taxes. That's up to Congress and the president to pass the tax laws. All the IRS does is stand up the system so that you can either pay or get your refund. That's all they do. They don't do policy. And on the other hand, we have doge at the irs. They've come to the irs and what we've learned through our reporting is that they are really controlling a lot of the operations there. They are ordering the layoffs and who is being laid off. So both the quantity and the positions. They are ordering pauses in the IT modernization that the IRS was undertaking. They are ordering reorganizations of the senior leadership teams and as they say, moving fast and breaking things. The problem is when you break the accounts receivable of the United States, the United States is going to get less money. And I want to put a fine point on this, because this is not just an issue of fiscal policy. This is an issue of democracy. The tax system is our democracy. It is a manifestation of it, and it's a manifestation of our rule of law. Living in a democracy costs money. Collecting that money equitably and by the law, it's not only how we fund our democracy, it's a demonstration of it. And when you undermine the tax code, what you are doing is redefining how much people ought to contribute to the maintenance of our democracy.

[Colby Ekowitz]

After the break, Jacob tells us how the Trump administration is hoping to use taxpayer data to go after undocumented immigrants. We'll be right back.

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[Colby Ekowitz]

So, Jacob, beyond the tax revenue question, you've been reporting a lot on this possible deal between the IRS and the Trump administration that would have the IRS sharing addresses of suspected undocumented immigrants with ice, Immigration and Customs Enforcement. So that seems like a pretty significant shift in how the government is using both IRS and and taxpayer data to go after undocumented immigrants. Can you kind of walk us through the deal? And also is it actually happening?

[Jacob Bogage]

So the IRS is for the most part a completely independent and non political organization. That's why there's only two political appointees there. And that's why when we write about the irs, because there is so little policy that happens, it's basically all just like operations, we generally don't write about it as if it is an arm of the Trump administration. Which is what makes this potential deal with immigration enforcement officials so significant. Because your tax information is private, no one needs to know how much in earnings I'm reporting. No one needs to know how big my refund is if I get a refund. And we ask not just citizens to report that information. We ask everybody in the country who makes a living or who earns any income whatsoever to report that information, including and especially immigrants and undocumented immigrants who have payroll taxes deducted. And undocumented immigrants especially, pay a lot in taxes and get very little in return. They cannot get Medicaid, they cannot get Medicare, they cannot get Social Security. In many cases, they can't get food stamps or nutritional assistance. So they're paying, paying all of this money and subsidizing all of these services that American citizens are entitled to. This is a sea change in how our tax system has treated immigrants in this country. The IRS has promised for 30 years, if you file your taxes, they are private. And we do not collaborate with law enforcement or immigration officials to turn over that information voluntarily. The IRS makes these commitments to people with the understanding that their tax information, which is about their earnings, their health, their family structure, all of that is private. And that guarantee, if this agreement goes into effect, it's never going to be the same.

[Colby Ekowitz]

Yeah. I mean, is it. You touched on this a little bit, but is it legal for the IRS to hand over private information about individuals?

[Jacob Bogage]

Oh, Colby, Colby, Colby. Is it legal?

[Colby Ekowitz]

What is legal?

[Jacob Bogage]

Well, no, it's not the what is legal question. It's one of the most complicated laws on the books in this country is what IRS folks, call 6103. It's very, very long, and it is the privacy statute about what kind of information can get turned over. And the answer is almost none in almost zero circumstances to whom it can get turned over. The answer is to almost no one in almost zero circumstances. It's such an interesting law to read, and this is basically what I spent my Saturday doing.

[Colby Ekowitz]

Sounds fun.

[Jacob Bogage]

Yeah. So fun. It's really interesting to read, though, if you're a dork like me, because there are all these sections and subsections about what kind of information can be requested and during what time periods and by whom. And then at the end of every section, it's basically like. And this can never happen, right? Like, it sets forward all of these provisions about data sharing. And then basically, at the end of every section says, like, and here is a clause that makes it virtually impossible. And Immigration and Customs Enforcement basically went through 6103 and found the most relaxed provision and then tried to take the absolute broadest view. Immigration and Customs Enforcement went to the IRS and said, if we provide you the name and address of a taxpayer who we think has violated the law by being in this country unlawfully, will you then provide us the name and address of that taxpayer?

[Colby Ekowitz]

Huh?

[Jacob Bogage]

So think about that. They said, if we give you their name and address, can you then give us their name and address? The reason that is so weird is because the provision of law that they have selected for this collaboration says the only way the IRS is allowed to collaborate with you is if you can positively identify the name and address of this taxpayer.

[Colby Ekowitz]

So you don't have to have the correct address. You just have to have.

[Jacob Bogage]

No, you have to have the correct address. That's the weirdest, silliest thing about this, is that for IRS to legally be allowed to collaborate with ice, ICE has to provide the correct name and the correct address for a taxpayer.

[Colby Ekowitz]

Okay?

[Jacob Bogage]

And then the IRS in return, will provide the correct name and the correct address of a taxpayer.

[Colby Ekowitz]

And if ICE doesn't have the correct name and address but wants it, the IRS can't just give it to them. They just have to confirm something is right or wrong. So can ICE just keep essentially guessing until they get it right?

[Jacob Bogage]

Yeah, absolutely. And so how many times can you do that? Right? Can ICE come back and say, well, do you have a Jacob at 113 Maple? No. Go fish. Well, do you have a Jacob at 114 Maple? Actually, we do. And what it suggests is that ICE is struggling to positively identify individuals or where they live. They can't identify them either with the correct name or the correct address. And they need access to confidential data sources within our tax system to make those identifications.

[Colby Ekowitz]

What are officials at the IRS saying about this potential deal? Are they alarmed?

[Jacob Bogage]

They're apoplectic. I can't get into who my sources are and what kinds of people I'm talking to. But I can tell you that I was on the phone on Saturday with people who were alternatively cursing at me over the phone because they couldn't believe this was happening or were in tears. I mean, there was very little in between. And I would call people and say, are you hearing about this? And they would fly off the handle because to people who have administered the tax system, this is an abuse in their minds unlike anything they have seen in their lifetimes.

[Colby Ekowitz]

And how close does this deal actually?

[Jacob Bogage]

It's very close to happening. It's so close that we've seen portions of this draft. There are still some details to work out. But an agreement like this, if it's going to happen, we've reported it's not a matter of if, it's a matter of when.

[Colby Ekowitz]

So then what would the consequences be both for undocumented immigrants, but also for our entire tax system?

[Jacob Bogage]

It puts undocumented folks in a really difficult position because the last time there was large scale amnesty or an offering of legal status for undocumented folks, the Immigration act of 1986, one of the conditions of gaining legal status was having paid your taxes. It is very hard to gain legal status, whether it's a green card or citizenship or something else. If you have tax balances, do or you've been shown to be non compliant. So you're in this situation of under the Trump administration, I'm unlikely to get legal status, but I have my life here. And if I want to remain here, I have to show that I've been compliant. So what do you do? And the answer from IRS officials and from officials at DHS that I've talked to is what they expect is this agreement or this policy will just chase undocumented folks underground. It will disincentivize compliance in our voluntary tax system, which again covers not just citizens, but anyone who earned money in this country. And it will deprive them of benefits that they could potentially earn or the ability to show that they've been compliant with the law if and when they're able to attempt to gain legal status in this country.

[Colby Ekowitz]

Jacob, thank you so much.

[Jacob Bogage]

Thanks, Colby.

[Colby Ekowitz]

Jacob Bogage is a Congressional economic correspondent for the Post that's it for Post reports. Thanks for listening. Today's show was produced by Rennie Svirnovsky with help from Bishop Sand. It was mixed by Shawn Carter and edited by Peter Bresnan. Thanks to Mike Madden. I'm Cole Bakowicz. We'll be back tomorrow with more stories from the Washington Foreign.

[Host]

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