The IRS is preparing for a significant $500 billion drop in revenue as more taxpayers may choose to forgo filing their returns following layoffs at the Department of Government Efficiency, according to a recent report.
Taxpayer behavior has shifted since President Donald Trump took office and implemented extensive federal budget cuts through Elon Musk’s DOGE initiative. As a result, the IRS has "noticed an uptick in online discussions from individuals stating their intention not to pay taxes this year," the Washington Post reports, citing three sources familiar with tax projections.
The report further notes that many taxpayers are "betting that auditors will not scrutinize their accounts" due to DOGE’s plan to downsize the IRS workforce by nearly 20 percent by May 15.
Targeted layoffs have primarily affected new hires in taxpayer services and enforcement divisions, leading to the agency dropping investigations into high-value corporations and taxpayers, the newspaper states. The IRS currently employs approximately 90,000 workers nationwide, according to agency data.
Officials from the Treasury Department and IRS anticipate a decline of more than 10 percent in tax receipts by the April 15 deadline compared to 2024 filings. This shortfall would amount to more than $500 billion in lost revenue, according to sources who shared nonpublic IRS data with the Post.
To put this figure into perspective, the U.S. military budget was approximately $820 billion last year.
The Independent has reached out to the Treasury Department for comment.
IRS officials reportedly attempted to warn the incoming Trump administration about DOGE’s planned budget and staffing cuts in January. A presentation reviewed by the Post, given by tax officials to Trump’s incoming Treasury Department team, cautioned that "aggressive reductions to budget and personnel capacity risk backlogs, delays, reduced receipts, and diminished capacity to build next-generation digital capabilities."
Earlier this month, experts cautioned against cutting the IRS workforce. Former IRS commissioners, in an op-ed for the New York Times, argued that reducing agency resources would make the IRS "dysfunctional."
"Aggressive reductions in the IRS’s resources will only make our government less effective and less efficient in collecting the taxes Congress has imposed," the former commissioners wrote.
Other factors may also contribute to the potential revenue decline, including the Los Angeles wildfires. Taxpayers in affluent areas affected by the fires could delay filing until October, Timur Taluy, CEO of tax-prep service File Taxes Online Service Federal & State, told the Post. Some taxpayers may also take advantage of a penalty-free six-month filing extension during economic uncertainty.
However, experts told the newspaper that neither of these factors accounts for the entire $500 billion revenue shortfall.
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