IRS turmoil: Leadership churn, worker exodus and threats to groups' tax-exempt status roil agency

WASHINGTON (AP) — The height of tax season was the height of turmoil at the IRS.

The agency shuffled through three acting directors over the course of a week. It’s preparing to lose tens of thousands of workers to layoffs and voluntary retirements. And President Donald Trump is weighing in on which nonprofits should lose their tax-exempt status, an incursion into the agency’s typically apolitical stance that threatens to further erode trust in federal institutions and weaponize enforcement efforts.

Just three months into Trump’s second term, the government’s fly-under-the-radar tax collector has become the latest platform for the Republican administration’s vision to cut and control the federal bureaucracy. Tax policy experts fear that taxpayer services and collection efforts will face prolonged delays as a result of the rapid changes.

The quick turnover in leadership and other changes are likely to dampen employee morale at the IRS and hurt the agency’s ability to serve taxpayers in a timely manner, says Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center.

“Leadership sets the tone, particularly in this environment,” she said.

Already, she notes, the agency has lost decades of institutional knowledge from nonpartisan career civil servants who have left over policy disagreements and layoffs.

Chaos embroils agency amid leadership turnover

The upheaval unfolded as Americans dutifully filed their taxes ahead of the April 15 deadline and as a legion of IRS employees undertook work to process returns and dole out refunds. The latest filing season data shows the agency accepted more than 117 million returns this tax season and issued $228.7 billion in refunds.

“We’re committed to improving the efficiency of the Internal Revenue Service,” said the agency’s newest acting commissioner, Michael Faulkender. “For the last 35 years, we’ve been five years away from the IRS being modernized. Under the direct leadership of Treasury, the modernization will be done in two years at a fraction of the cost.”

Meanwhile, the IRS, like other federal agencies, is hemorrhaging employees over cuts spearheaded by the Department of Government Efficiency, all while the agency churns through acting leaders as it awaits the installation of a permanent leader.

Douglas O’Donnell, the Trump administration’s first acting IRS commissioner, announced his retirement in February as furor spread over DOGE gaining access to IRS taxpayer data. Melanie Krause, the second acting commissioner, resigned early this month over a deal between the IRS and the Department of Homeland Security to share immigrants’ tax data with Immigration and Customs Enforcement.

Gary Shapley, an IRS whistleblower who testified publicly about investigations into Hunter Biden’s taxes, was acting commissioner for a matter of days before being replaced by Faulkender, who was elevated just last week. The New York Times reported that Treasury Secretary Scott Bessent had complained to Trump that Shapley had been installed without his knowledge and at the behest of Trump adviser Elon Musk.

Trump’s nominee for IRS commissioner, former U.S. Rep. Billy Long of Missouri, is still waiting for a confirmation hearing but faces controversies of his own. Most recently, Senate Democrats have called for a criminal investigation into Long’s connections to alleged tax credit loopholes. The lawmakers allege that firms connected to Long duped investors into spending millions of dollars to purchase fake tax credits. Long did not respond to an Associated Press request for comment.

Punishing enemies and rewarding friends

Among other concerns at the agency are fears that Trump will weaponize the IRS against his enemies — and reward his friends.

Some of the Democratic Party’s core political institutions, including fundraising platform ActBlue and the protest group Indivisible, are preparing for the possibility that the federal government may soon launch criminal investigations against them.

Trump said last week at the White House that the administration is looking at the tax-exempt status of Harvard University, which has defied the government’s attempts to limit activism on campus, and environmental groups. He also mentioned the ethics watchdog organization Citizens for Responsibility and Ethics in Washington.

“It’s supposed to be a charitable organization,” Trump said of CREW. “The only charity they had is going after Donald Trump. So we’re looking at that. We’re looking at a lot of things.”

Jonathan S. Masur, an administrative law professor at the University of Chicago Law School, said it’s unlawful for the president to unilaterally take away organizations’ tax-exempt status.

“It’s illegal for starters. The Supreme Court has established that that step is not allowed,” he said, adding that he anticipates that the court system will “very quickly block” any such move from the president.

The Trump administration is also watching out for allies of the president.

Treasury official David Eisner sent an email in March to a top IRS official regarding Mike Lindell, the founder of MyPillow and one of the chief proponents of the lie that the 2020 election was stolen from Trump.

“The ‘My Pillow guy’ and a high-profile friend of the President recently received an audit letter, from what I understand, his second in two years,” Eisner wrote in the email, which was viewed by the AP. The president “is concerned that he may have been inappropriately targeted,” Eisner wrote.

Bringing immigration enforcement to the IRS

Among other changes in recent weeks are concerns about the IRS’ engagement with the Department of Homeland Security over enforcing a new data-sharing agreement signed earlier this month by Bessent and Homeland Security Secretary Kristi Noem. The agreement will allow ICE to submit names and addresses of immigrants inside the U.S. illegally to the IRS for cross-verification against tax records.

That agreement is being litigated in federal court.

U.S. District Judge Dabney Friedrich will soon decide whether to refuse or grant a preliminary injunction in a lawsuit filed by nonprofit groups. The groups argue that immigrants in the country illegally who pay taxes are entitled to the same privacy protections as U.S. citizens and immigrants who are legally in the country.

The Treasury Department says the agreement will help carry out Trump’s agenda to secure U.S. borders and is part of his larger nationwide immigration crackdown, which has resulted in deportations, workplace raids and the use of an 18th-century wartime law to deport Venezuelan migrants.

Holtzblatt said the agreement is indicative of the turmoil at the IRS.

“There’s an emphasis on improving technology and sharing information,” but it’s unclear for what reason, she said.