In back-to-back developments this May, Treasury Secretary Scott Bessent laid out a bold new direction for the IRS—one that combines aggressive budget cuts, sweeping automation, and the promise of tax reform, all under the banner of government efficiency.
But with a shrinking IRS workforce and rising concerns over collections, enforcement, and customer service, small businesses are left wondering: Who will answer our questions—and who will be knocking on our door come audit time?
IRS Efficiency or Operational Risk? A Breakdown of the Cuts
During a May 6 House hearing, Bessent doubled down on the IRS’s evolving strategy, pointing to what he described as $2 billion in IT budget cuts without disruptions.
Key Changes on the Table:
Automation of paper processing to reduce annual costs from $450 million to just $20 million by 2029
Elimination of unused contracts and licenses
Restructuring IRS phone banks to better align with seasonal demand
A renewed focus on AI for collections and audits
While Bessent described these changes as “long overdue,” some lawmakers across the aisle expressed skepticism about whether the cuts could undercut the agency’s ability to function.
AI in IRS Collections: A Double-Edged Sword?
Collections, privacy, and customer service remain the agency’s top priorities, said Bessent. However, reports suggest many collections agents were among those let go in the recent workforce reduction.
To fill the gap, the IRS plans to “enhance collections with AI”—a move aimed at reducing reliance on inexperienced agents and increasing efficiency.
“There is nothing that shows historically that bringing in unseasoned collections agents results in more collections,” Bessent said, comparing the mismatch to having “a junior high student do college-level coursework.”
What small businesses need to know:
AI may increase audit flags and notices, with fewer human agents to interpret context.
Expect a more data-driven audit process, especially for high-risk profiles.
Businesses should review records and filing accuracy now to avoid AI-triggered reviews.
Tax Reform on the Horizon: What to Expect
Bessent also revealed his support for making the 2017 Tax Cuts and Jobs Act permanent, suggesting that extending the cuts is “not enough.” While that may offer short-term relief for some businesses, concerns over long-term debt and deficit impacts dominated the hearing.
Concerns from Lawmakers:
Ranking Member Rosa DeLauro (D-CT): Called the tax plan “$4.5 trillion in unpaid cuts.”
Steny Hoyer (D-MD): Urged honesty about the debt implications of permanent cuts.
Steve Womack (R-AR): Questioned whether there’s truly “$2.5 billion worth of efficiencies.”
As budget negotiations continue, the reconciliation bill tied to the Trump administration’s tax agenda could reshape the business tax landscape for years to come.
What This Means for Small Businesses
The IRS may be shrinking, but that doesn’t mean oversight is disappearing. Instead, the agency is leaning into technology, automation, and AI—all of which could make tax compliance more complex, not less.
Key Takeaways:
Stay current on evolving IRS processes, especially around collections and audits.
Be proactive about documentation, recordkeeping, and error prevention.
Consult professionals who understand both tax reform and digital enforcement tools.
Don’t Get Caught Off Guard by IRS Changes
Book your consultation today to make sure your small business is protected, prepared, and positioned to thrive—even in a transforming tax environment.