The Internal Revenue Service is looking toward automated solutions to cover the recent workforce reductions implemented by the Trump Administration, Department of the Treasury Secretary Bessent told a House Appropriations subcommittee.

The Internal Revenue Service is looking toward automated solutions to cover the recent workforce reductions implemented by the Trump Administration, Department of the Treasury Secretary Bessent told a House Appropriations subcommittee.

During a May 6, 2025, oversight hearing of the House Appropriations Financial Services and General Government Subcommittee, Bessent framed the current employment level at the IRS as “bloated” and is using the workforce reduction as a means to partially justify the smaller budget the agency is looking for.

“We are just taking the IRS back to where it was before the IRA [Inflation Reduction Act] bill substantially bloated the personnel and the infrastructure,” he testified before the committee, adding that “a large number of employees” took the option for early retirement.

When pressed about how this could impact revenue collection activities, Bessent noted that the agency will be looking to use AI to help automate the process and maintain collection activities.

“I believe, through smarter IT, through this AI boom, that we can use that to enhance collections,” he said. “And I would expect that collections would continue to be very robust as they were this year.”

He also suggested that those hired from the supplemental funding from the IRA to enhance enforcement has not been effective as he pushed for more reliance on AI and other information technology resources.

There “is nothing that shows historically that by bringing in unseasoned collections agents … results in more collections or high-end collections,” Bessent said. “It would be like sending in a junior high school student to try to a college-level class.”

Another area he highlighted where automation will cover workforce reductions is in the processing of paper returns and other correspondence.

“Last year, the IRS spent approximately $450 million on paper processing, with nearly 6,500 full-time staff dedicated to the task,” he said. “Through policy changes and automation, Treasury aims to reduce this expense to under $20 million by the end of President Trump’s second term.”

Bessent’s testimony before the committee comes in the wake of a May 2, 2025, report from the Treasury Inspector General for Tax Administration that highlighted an 11-percent reduction in the IRS workforce as of February 2025. Of those who were separated from federal employment, 31 percent of revenue agents were separated, while 5 percent of information technology management are no longer with the agency.

When questioned about what the IRS will do to ensure an equitable distribution of enforcement action, Bessent stated that the agency is “reviewing the process of who is audited at the IRS. There’s a great deal of politicization of that, so we are trying to stop that, and we are also going to look at distribution of who is audited and why they are audited.”

Bessent also reiterated during the hearing his support of making the expiring provisions of the Tax Cuts and Jobs Act permanent.

By Gregory Twachtman, Washington News Editor

A taxpayer's passport may be denied or revoked for seriously deliquent tax debt only if the taxpayer's tax liability is legally enforceable. In a decision of first impression, the Tax Court held that its scope of review of the existence of seriously delinquent tax debt is de novo and the court may hear new evidence at trial in addition to the evidence in the IRS's administrative record.

A taxpayer's passport may be denied or revoked for seriously deliquent tax debt only if the taxpayer's tax liability is legally enforceable. In a decision of first impression, the Tax Court held that its scope of review of the existence of seriously delinquent tax debt is de novo and the court may hear new evidence at trial in addition to the evidence in the IRS's administrative record.

The IRS certified the taxpayer's tax liabilities as "seriously delinquent" in 2022. For a tax liability to be considered seriously delinquent, it must be legally enforceable under Code Sec. 7345(b).

The taxpayer's tax liabilities related to tax years 2005 through 2008 and were assessed between 2007 and 2010. The standard collection period for tax liabilities is ten years after assessment, meaning that the taxpayer's liabilities were uncollectible before 2022, unless an exception to the statute of limitations applied. The IRS asserted that the taxpayer's tax liabilities were reduced to judgment in a district court case in 2014, extending the collections period for 20 years from the date of the district court default judgment. The taxpayer maintained that he was never served in the district court case and the judgment in that suit was void.

The Tax Court held that its review of the IRS's certification of the taxpayer's tax debt is de novo, allowing for new evidence beyond the administrative record. A genuine issue of material fact existed whether the taxpayer was served in the district court suit. If not, his tax debts were not legally enforceable as of the 2022 certification, and the Tax Court would find the IRS's certification erroneous. The Tax Court therefore denied the IRS's motion for summary judgment and ordered a trial.

A. Garcia Jr., 164 TC No. 8, Dec. 62,658

The IRS has reminded taxpayers that disaster preparation season is kicking off soon with National Wildfire Awareness Month in May and National Hurricane Preparedness Week between May 4 and 10. Disasters impact individuals and businesses, making year-round preparation crucial. 

The IRS has reminded taxpayers that disaster preparation season is kicking off soon with National Wildfire Awareness Month in May and National Hurricane Preparedness Week between May 4 and 10. Disasters impact individuals and businesses, making year-round preparation crucial. In 2025, FEMA declared 12 major disasters across nine states due to storms, floods, and wildfires. Following are tips from the IRS to taxpayers to help ensure record protection:

• Store original documents like tax returns and birth certificates in a waterproof container;
• keep copies in a separate location or with someone trustworthy. Use flash drives for portable digital backups; and
• use a phone or other devices to record valuable items through photos or videos. This aids insurance or tax claims. IRS Publications 584 and 584-B help list personal or business property.

Further, reconstructing records after a disaster may be necessary for tax purposes, insurance or federal aid. Employers should ensure payroll providers have fiduciary bonds to protect against defaults, as disasters can affect timely federal tax deposits.

IR-2025-55

A decedent's estate was not allowed to deduct payments to his stepchildren as claims against the estate.

A decedent's estate was not allowed to deduct payments to his stepchildren as claims against the estate.

A prenuptial agreement between the decedent and his surviving spouse provided for, among other things, $3 million paid to the spouse's adult children in exchange for the spouse relinquishing other rights. Because the decedent did not amend his will to include the terms provided for in the agreement, the stepchildren sued the estate for payment. The tax court concluded that the payments to the stepchildren were not deductible claims against the estate because they were not "contracted bona fide" or "for an adequate and full consideration in money or money's worth" (R. Spizzirri Est., Dec. 62,171(M), TC Memo 2023-25).

The bona fide requirement prohibits the deduction of transfers that are testamentary in nature. The stepchildren were lineal descendants of the decedent's spouse and were considered family members. The payments were not contracted bona fide because the agreement did not occur in the ordinary course of business and was not free from donative intent. The decedent agreed to the payments to reduce the risk of a costly divorce. In addition, the decedent regularly gave money to at least one of his stepchildren during his life, which indicated his donative intent. The payments were related to the spouse's expectation of inheritance because they were contracted in exchange for her giving up her rights as a surviving spouse. As a results, the payments were not contracted bona fide under Reg. §20.2053-1(b)(2)(ii) and were not deductible as claims against the estate.

R.D. Spizzirri Est., CA-11

The IRS issued interim final regulations on user fees for the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The text of the interim final regulations also serves as the text of proposed regulations.These regulations reduce the amount of the user fee imposed to $56.

The IRS issued interim final regulations on user fees for the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The text of the interim final regulations also serves as the text of proposed regulations.These regulations reduce the amount of the user fee imposed to $56.

Background

In 2021, the Treasury and Service established a $67 user fee for issuing said estate tax closing letter. This figure was based on a 2019 cost model.

In 2023, the IRS conducted a biennial review on the same issue and determined the cost to be $56. The IRS calculates the overhead rate annually based on cost elements underlying the statement of net cost included in the IRS Annual Financial Statements, which are audited by the Government Accountability Office.

Current Rate

For this fee review, the fiscal year (FY) 2023 overhead rate, based on FY 2022 costs, 62.50 percent was used. The IRS determined that processing requests for estate tax closing letters required 9,250 staff hours annually. The average salary and benefits for both IR paybands conducting quality assurance reviews was multiplied by that IR payband’s percentage of processing time to arrive at the $95,460 total cost per FTE.

The Service stated that the $56 fee was not substantial enough to have a significant economic impact on any entities. This guidance does not include any federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.

T.D. 10031

NPRM REG-107459-24

The Tax Court appropriately dismissed an individual's challenge to his seriously delinquent tax debt certification. The taxpayer argued that his passport was restricted because of that certification. However, the certification had been reversed months before the taxpayer filed this petition. Further, the State Department had not taken any action on the basis of the certification before the taxpayer filed his petition.

The Tax Court appropriately dismissed an individual's challenge to his seriously delinquent tax debt certification. The taxpayer argued that his passport was restricted because of that certification. However, the certification had been reversed months before the taxpayer filed this petition. Further, the State Department had not taken any action on the basis of the certification before the taxpayer filed his petition.

Additionally, the Tax Court correctly dismissed the taxpayer’s challenge to the notices of deficiency as untimely. The taxpayer filed his petition after the 90-day limitation under Code Sec. 6213(a) had passed. Finally, the taxpayer was liable for penalty under Code Sec. 6673(a)(1). The Tax Court did not abuse its discretion in concluding that the taxpayer presented classic tax protester rhetoric and submitted frivolous filings primarily for purposes of delay.

Affirming, per curiam, an unreported Tax Court opinion.

Z.H. Shaikh, CA-3

The start of the school year is a good time to consider the variety of tax benefits available for education. Congress has been generous in providing education benefits in the form of credits, deductions and exclusions from income. The following list describes the most often used of these benefits.

Exclusion From Income

Scholarships. A student enrolled in an educational program may receive a scholarship or fellowship to pay for all or part of the student‘s tuition and fees. These amounts are not included in the student‘s (or the parent’s) income. Need-based education grants, such as a Pell Grant, and tuition reductions are also excluded from income. However, amounts paid for work on campus may be taxable as compensation for services. Payments to cover room and board as opposed to tuition are also subject to tax.

Loan cancellation. Most students take out loans to pay for education expenses. Normally, if a debt is cancelled, the debtor has taxable income. However, if a student loan is canceled or reduced, the cancelled amount is not included in income.

Employer assistance. If you receive educational assistance benefits from your employer under an educational assistance program, you can exclude up to $5,250 of those benefits each year. Courses do not have to be related to your job. If they are related, further tax benefits may be available.

Education plans. Generally, amounts paid to establish an education plan, account or savings bond are not deductible. However, income on the account can grow tax-free (unlike a bank account, for example), and distributions of income from the account are not taxable if they are used for tuition and other qualified education expenses. These general rules apply to a Coverdell Education Savings Account (an education IRA), a qualified tuition program (QTP or “529 plan”), and certain U.S. savings bonds. In the last category or Series EE bonds issued after 1989 and Series I bonds.  A qualified tuition program is established by a state and may provide payments for prepaid tuition or an account with tax-free earnings.

Tax Credits

LLC and AOTC. A lifetime learning credit (LLC) of up to $2,000 is available education expenses for a dependent for whom you claim an exemption. More recently, parents can claim an American Opportunity Tax Credit (AOTC) of up to $2,500 for college expenses paid for each eligible student. The current, enhanced level of the AOTC is scheduled to expire at the end of 2012, but the Obama administration has asked Congress to make it permanent. 

Dependent care. Parents can take a credit for dependent care expenses paid so that they can work. Expenses for care do not include amounts paid for education. Expenses for a child in nursery school, pre-school, or similar programs for children below the level of kindergarten are expenses for care. Expenses to attend kindergarten or a higher grade are not expenses for care. However, expenses for before- or after-school care of a child in kindergarten or a higher grade may be expenses for care, so that a credit can be claimed.

Deductions

Some deductions can be taken directly against gross income, in determining adjusted gross income. These are adjustments to income or “above-the-line“ deductions. Other deductions can only be taken as an itemized deduction. An above-the-line deduction is more valuable.

Above-the-line. Tuition expenses of up to $4,000 can be deducted directly against income. Tuition that also qualifies for one of the education tax credits, however, can be used only once, either for a credit or this above-the-line deduction. Ordinarily, interest paid is a nondeductible personal expense (other than home mortgage interests). However, interest paid on a student loan interest is deductible and can also be taken as an adjustment to income.

Itemized. Not all education-related expenses are deductible. However, a taxpayer may be able to claim a deduction for the expenses paid for your work-related education. The deduction will be the amount by which qualifying work-related education expenses exceed two percent of adjusted gross income. These expenses are added to other itemized deductions, to determine whether the taxpayer will itemize or claim the standard deduction.

Gift tax

Generally, a person making a gift must pay gift tax if the gift exceeds a specified amount ($13,000 currently). However, tuition paid directly to an educational institution to cover tuition for someone else’s benefit (e.g. a grandchild) is not taxable gift irrespective of amount. Prepaid tuition plans can qualify for this benefit.

A variety of educational benefits are available. In some cases, a deduction or a credit (but not both) may be available for the same payment. Thus, it is important to determine the exact requirements for each benefit and the amount of the benefit. Our office can help you determine how to maximize these benefits.