Forced Attrition Will Make Tax Evasion Great Again

By

DAVID P. WEBER

ROBERT A. WARREN

TIMOTHY J. FOGARTY

VILSON DUSHI

The 2025 filing season is off to an exciting start, and not because of anything inherent to tax administration. On January 20 President Trump signed a presidential memorandum freezing federal hiring for 90 days for most vacant federal positions not involving the military, immigration, or national security. For extra measure, he singled out the IRS for extra scrutiny by making the lift of the hiring freeze conditional — occurring only after the Treasury secretary, director of the Office of Management and Budget, and the administrator of the Department of Government Efficiency (DOGE) confer and determine that it is in the national interest to do so.¹ The Office of Personnel Management (OPM) and OMB issued additional guidance that same day and reiterated that, under the presidential memorandum, OMB, OPM, and DOGE had 90 days to present a plan to reduce the federal workforce.²

The excitement did not end on January 20 with the indefinite hiring freeze and the specter of imminent deep staff reductions. Eight days later, OPM sent an email to all federal employees (including those at the IRS) announcing a deferred resignation program that offered most employees willing to quit their jobs the option of staying on the payroll, but not working, until September 30.³ To us, this looked like a phishing email. But the OPM immediately issued written guidance on this unprecedented offer that outlined the same general terms, meaning if federal employees resigned by February 6, they would get to stay on the books until September 30 by being put on administrative leave.⁴

On February 4, several government unions sued to block the deferred resignation program,⁵ and OPM issued another memorandum⁶ defending the program that appears to borrow the question-and-answer format of the old Baltimore Catechism familiar to Roman Catholic schoolchildren from the 1960s and 1970s.⁷ Perhaps not convinced by the arguments made in the February 4 OPM memorandum, a federal judge stayed the program indefinitely on February 10.⁸ The judge lifted the stay on February 12 after concluding that the plaintiffs (a group of four government employee unions, including the lead plaintiff American Federation of Government Employees, AFL-CIO) did not have Article III standing and that the court lacked jurisdiction over the matter.⁹ OPM closed the deferred resignation program the same day,¹⁰ and news reports indicate that approximately 75,000 federal employees took the buyout.¹¹ Within days of the decision, news leaked that the Trump administration was planning to fire approximately 200,000 probationary employees,¹² including 7,000 at the IRS.¹³

This article explores how the deferred resignation program is troublesome from both a legal standpoint and an IRS operational perspective. It also addresses how the program, along with the hiring freeze and expected downsizing, will negatively affect tax administration.

I. Legal Issues Involving the Deferred Resignation Program

There are several issues, taken together, that question whether the actions of the administration regarding the deferred resignation program are legally or constitutionally permissible.¹⁴

Point 1: The Antideficiency Act prohibits spending money agencies do not have.

The Antideficiency Act prohibits executive department federal agencies from obligating funds that have not been appropriated.¹⁵ This law was enacted to codify the separation of powers and to explicitly provide that the power of the purse belongs solely to Congress. The separation of powers over spending has existed since the ratification of our present Constitution between 1787 and 1788:

This power over the purse may, in fact, be regarded as the most complete and effectual weapon with which any constitution can arm the immediate representatives of the people, for obtaining a redress of every grievance, and for carrying into effect every just and salutary measure.¹⁶

From the time the deferred resignation program was offered to federal employees, through the day it was closed, this act would have prohibited each agency head or cabinet department from contractually agreeing to pay federal employees through September 30, because Congress had only appropriated funds through March 14. The Senate did pass a continuing resolution extending government funding through September 2025 shortly before the March 14 government funding deadline, but that is beside the point.¹⁷ The founders of our nation saw control over public finances as an essential safeguard against a future president serving as a monarch;¹⁸ the deferred resignation program was illegal throughout the entire period it was offered. As Alexander Hamilton observed, “Where the purse is lodged in one branch, and the sword in another, there can be no danger.”¹⁹

Point 2: The constitutionality of dismissing federal employees en masse is questionable.

Similar to the will of Congress as expressed through the Antideficiency Act, it is questionable whether the administration has the legal power to dismiss entire subsets of federal employees who chose not to enter the deferred resignation program and to dismantle congressionally created executive departments or independent agencies without the approval of Congress. Indeed, a group of litigants including the National Treasury Employees Union recently brought suit against the Trump administration in federal district court, alleging that the “mass firing of employees and the attempt to force resignations across the federal civilian workforce violate separation of powers principles.”²⁰

While the National Treasury Employees Union complaint alleges a constitutional violation under the separation of powers, the wholesale dismissal of federal employees, particularly probationary employees with no purported appeal rights, would also violate the Fifth Amendment’s guarantee of due process and takings protections.²¹ The Supreme Court first fashioned remedies for constitutional torts against the executive branch in Bivens v. Six Unknown Named Agents,²² which involved a violation of the Fourth Amendment. The Court has since then expanded the Bivens doctrine to include violations of the Fifth Amendment in Davis v. Passman.²³ Davis and its progeny would be applicable here, under either the due process or taking provisions of the Fifth Amendment.

Point 3: Federal employees have appeal rights.

Federal employees usually have a right of appeal to the Merit Systems Protection Board, which serves as the administrative body to review discipline or dismissal of federal executive department employees. Employees may then seek additional review in the federal courts. However, federal employees in the one-year probationary period for the competitive service, or two years for the excepted service, have reduced appeal rights if they are dismissed for unsatisfactory performance or conduct.²⁴ The regulation requires that there be:

information in the notice as to why the employee is being terminated[], as a minimum, consist[ing] of the agency’s conclusions as to the inadequacies of his [or her] performance or conduct.²⁵ [Emphasis added.]

As reported by the press, the notices of removal provided to thousands of federal employees did not contain details about inadequacies of performance or conduct, likely because the real reasons for termination had nothing to do with the performance or conduct of individual employees.²⁶ Critically, if the basis for removal from federal service during probation relates not to performance or conduct but rather to conditions that existed before employment (that is, the need to shrink the government, cut government bloat, or address fiscal responsibility), even probationary employees are entitled to appeal and review by the Merit Systems Protection Board.²⁷

The administration’s failure to follow basic procedures under the law or regulations is grounds for a probationary employee to seek Merit Systems Protection Board review.²⁸ Federal employees who prevail in their Merit Systems Protection Board or federal court challenges to removal from federal service are entitled to a variety of remedies, including reinstatement, back pay, attorneys fees, compensatory damages, and sometimes even punishment of the responsible management official.²⁹ These remedies, because of the size of the workforce being dismissed from federal service, may be numerically large in dollar value, all to the harm of the public fisc.

Point 4: The Administrative Leave Act may prohibit long-term administrative leave.

While in the past, the Administrative Leave Act was regularly violated concerning individual employees (usually for misconduct investigations), the act now makes it unlawful for any federal agency to place a federal employee on administrative leave for more than 10 days a year.³⁰ The act, which the administration is obligated to follow, prohibits the wholesale placement of tens of thousands of federal employees on administrative leave for a period that greatly exceeds 10 days. Interestingly, in August 2024 a U.S. district court judge for the District of Columbia, in a departure from past D.C. Circuit precedent, mused that the placement of federal employees on paid administrative leave might constitute an adverse employment action, at least within the federal employment discrimination context.³¹ Although this provision has been violated in the past to address individual acts of misbehavior, the magnitude of its use here would certainly trigger questions of its legality.

Point 5: The terms of the deferred resignation program agreement may be unenforceable.

It is axiomatic that a valid contract must be enforceable by the parties.³² Yet the deferred resignation program agreement provided to federal employees said: “Employee forever waives, and will not pursue through any judicial, administrative, or other process, any action against [AGENCY] that is based on, arising from, or related to Employee’s employment at [AGENCY] or the deferred resignation offer, including any and all claims that were or could have been brought concerning said matters.” This broad waiver of the enforcement of rights by federal employees would appear to make the agreement invalid. As noted by the Federal Circuit in Torncello, “One of the most elementary propositions of contract law [is] that a party may not reserve to itself a method of unlimited exculpation without rendering its promises illusory and the contract void.”³³

Similarly, the deferred resignation program agreement contains other illusory terms. For example, the agreement claims that federal employees will be granted administrative leave until September 30 but provides that there may be rare exceptions for certain employees, without specifying for whom those exceptions may apply or defining the term “rare.”

Point 6: The contract may be void because it violates public policy.

A contract is also void to the extent that it violates established public policy, such as existing law to the contrary.³⁴ The classic example given in university classrooms is that an agreement between a hitman and a client cannot be enforced if the hitman does not perform — because murder is illegal under state and federal law.³⁵ Thus, the deferred resignation program agreement is void because it violates public policy as well as the Constitution’s separation of powers, the Antideficiency Act, and the Administrative Leave Act. This element of contract law is well accepted by the federal courts, including the District of Columbia Circuit.³⁶

II. IRS Operational Issues Involving the Deferred Resignation Program

Irrespective of the legal issues discussed above, reducing IRS personnel will significantly impair the agency’s ability to serve its dual mission of providing taxpayer service and enforcing the tax laws. The Trump administration would do well to remember the following facts.

Fact 1: The IRS is understaffed compared with U.S. population growth.

Despite media reports of rampant hires, the IRS is understaffed when compared with U.S. population growth. As shown in Table 1, total staffing levels at the IRS dropped 29.6 percent from fiscal 1992 to 2023, from 117,945 to 82,990. At the same time, the U.S. population increased 38.9 percent, expanding from 256.2 million to 355.7 million. The trends are less pronounced but not less concerning when comparing fiscal 2014 through 2023. In that case, the number of IRS employees decreased by only 1.3 percent, while the U.S. population increased by 11.2 percent. Table 1 shows that even after the IRS hired 30,915 new employees in fiscal 2022 and 2023,³⁷ its staffing levels remain well below that of 1992, the last year of the first Bush administration.

While staffing reductions surely affect all aspects of IRS operations, from customer service to enforcement, we now focus on how those reductions have affected the hiring of the three core enforcement employee positions: revenue agents (the employees trained to conduct field audits), revenue officers (the employees who collect delinquent taxes and tax returns), and special agents (criminal investigators who investigate tax fraud, money laundering, and related financial crimes). As noted in Table 1, the numbers of all three key enforcement positions are down by at least 31.9 percent (72.2 percent in the case of revenue officers) from 1992 to 2023. When comparing fiscal 2014 with 2023, all three positions are still down by double digits.

The difference between current and historical staffing levels is even more dramatic if we compare what IRS staffing would have been if agency staffing levels had grown consistently with U.S. population growth between 1992 and 2023. As shown in Table 2, the IRS would have had 163,826 employees in 2023 if it had grown by the rate of U.S. population growth, a deficit of 80,836 compared with the actual staffing level of 82,990, which may indicate that the IRS only has about half the staff it needs to serve the public. When considering the three critical enforcement positions of revenue officer, revenue agent, and special agent, it appears that the IRS has only about 20 percent, 35 percent, and 50 percent, respectively, of the staffing levels it would expect during normal growth based on the U.S. population.

Fact 2: Human capital is a major management challenge for the IRS.

The Treasury Inspector General for Tax Administration named human capital as one of nine major management challenges facing the IRS in 2025, along with tax compliance and enforcement, tax fraud and improper payments, and taxpayer service.³⁸ Concerning the human capital challenges in particular, TIGTA said the IRS has had trouble recruiting candidates and, once recruited, onboarding them because of communication bottlenecks and security checks.³⁹ Compounding the hiring challenges is the fact that approximately 8 percent of employees separate from the agency annually, presumably because of retirement.⁴⁰

As noted in Table 3, during fiscal 2022 and 2023, the IRS hired 30,915 new employees. However, the agency also lost an estimated 21,562 employees during that same time, leaving a net gain of 9,353 employees. The IRS also hired 21,737 internal hires for new positions in the IRS during fiscal 2022 and 2023.⁴¹ Combining the number of employees hired both externally and internally (30,915 plus 21,737) shows that the IRS had 52,652 employees who had less than two years in their current position at the end of fiscal 2023. That indicates that, out of a total workforce of 82,990 at the end of fiscal 2023, 63 percent of IRS employees had taken on new roles within the past two fiscal years. This high turnover suggests that the IRS can ill afford to lose a large swath of its new employees and still provide acceptable taxpayer service and a reasonable level of tax enforcement.

Fact 3: IRA funding did not result in the hiring of 87,000 new IRS agents.

When Congress appropriated an extra $80 billion in funding to the IRS through the Inflation Reduction Act in 2022, some Republicans accused the Biden administration of creating a new “Stasi,”⁴² and then-Speaker Kevin McCarthy warned that a “new army of 87,000 IRS agents will be coming for you.”⁴³ Both dire prophecies did not materialize. Instead, the Republicans were able to rescind $21.6 billion of the original $80 billion appropriation, leaving approximately $57.8 billion as of March 2024. Then, the American Relief Act of 2025 froze another $20.2 billion of IRS enforcement funds, leaving an approximate net balance of $37.6 billion of the original $80 billion.⁴⁴

TIGTA is required to report to Congress every quarter on how the IRS is using the additional IRA funding. The last report was published on September 30, 2024, and covers all IRA spending activity through June 30, 2024.⁴⁵ As per this report and summarized in Table 4, the IRS has expended only $6.85 billion⁴⁶ of the allocated funding on the following programs.

Only 11.7 percent of the expended funds ($0.8 billion/$6.85 billion) went to enforcement. This seems a paltry amount to be spent if one wanted to create an army of IRS agents.⁴⁷

III. Conclusion

In this article, we have made two basic points. First, we believe that the Trump administration’s bold effort to downsize the federal workforce to pursue its political agenda is an illegal overreach that may prove very costly to the federal government. Second, we believe that downsizing the IRS is a uniquely bad policy.

From a legal point of view, the effort to reduce the size of the public sector strikes at the heart of both the Constitution and civil service arrangements, some of which have origins over a hundred years old. Regarding the former, the effort to cause the current worker exodus is only a small skirmish in a larger effort to expand presidential power. This will be written about by many others. The latter is a negation of much of what it means to work in the public sector, as well as a negation of basic rights given to all employees. It is as if public sector employees should be differentially punished for work on behalf of causes believed necessary to the public interest.

It has been lately and regularly said that elections have consequences. We accept the idea that federal spending reflects the priorities of the party in power. The current Congress and president prioritize spending cuts and believe that by cutting staffing, the remaining employees — and the handpicked employees brought in to replace displaced workers — will better reflect the political values of the administration. But the belief that pared-down agencies can do more with less is magical thinking. A better interpretation is that the current administration believes that much of the work being done does not need to be done.

In some cases, it appears entire agencies will disappear and the surviving programs will be reassigned to other agencies. Only time will tell if this reaps higher levels of efficiency. However, the president ran on a platform of “draining the swamp” and reducing the role of the federal government in the affairs of everyday Americans. This may work at the U.S. Agency for International Development, but it will not succeed at the IRS.

The IRS has a unique role in the political landscape. It touches the lives of almost all Americans. No one likes paying taxes (including the authors of this article), but doing so is both a legal and a social responsibility. The IRS serves a dual role of providing service to compliant taxpayers and enforcing the tax laws against those who are noncompliant. The IRS is failing on the tax enforcement front because it does not have the resources necessary to close the $600 billion tax gap, which is the amount of tax dollars the IRS fails to collect every year, primarily because of taxpayer fraud and lack of enforcement resources.⁴⁸ It is hard to understand how deferred resignations, the firing of probationary employees, and rhetoric about sending IRS personnel to the border enhance the IRS’s capability to perform its critical dual missions.⁴⁹

The argument that the IRS can substitute technology for labor has not forcefully been put forward by defenders of the massive reduction in employees. Still, it should be considered. Yet the broad-based reductions across so many agencies have not been preceded by any sort of analysis about this possibility. To the extent that enforcement is concerned, every case is unique, so much so that it is difficult to imagine that the skills of human beings could be effectively replaced.

The IRS is unique among agencies in that a larger workforce has been shown to pay for itself in ways that do not depend on the long-term improvements to society that create justifications for other governmental agencies. The payback is immediate and proven in the cash collected.⁵⁰ Reductions here seem a classic case of cutting off one’s nose to spite one’s face. We made the conservative case that IRS employment has not even kept pace with population growth. The credibility of this argument does not need one to believe that every agency should scale this way. However, the IRS’s workload clearly parallels the number of returns filed. Since people do not seem to be getting more honest, the need for enforcement runs in the same direction.

The failure to consider the special contribution of the IRS to the integrity of governmental coffers may be nothing more than the effort to attack everything, all at once, so that opponents, with so much to object to, do not know where to begin. How otherwise can so many be discharged for poor performance without any effort to look into individual cases? One must suspect that the failure to exempt the IRS has something to do with the vituperative disputes over the expansion of the IRS budget that occurred during the last years of the Biden administration.⁵¹ This opens the question of who an IRS with more resources would prioritize enforcement actions against.

Even apart from their dubious legality, the unfortunate consequence of voluntary buyouts is that they tend to be taken by an organization’s better employees. For those with better marketability, obtaining positions elsewhere, often at higher compensation, is essentially free money. Those less employable elsewhere are likely to stay. This translates into poorer agency performance over time. If the idea is to then justify further retrenchments, this would be a good way to initiate a death spiral.

Many citizens are honest by nature. They need help figuring out how to be so when confronted with the complexity of tax law. However, a not insignificant set of people are honest only because of the fear of getting caught and facing the consequences. A weakened IRS plays into the hand of the latter. The greatest beneficiaries of proposed workforce reductions at the IRS are the relatively few who believe tax collection is a political act.