Brain Drain at IRS Chief Counsel to Stymie GOP Tax Law Rollout

A smooth rollout of President Donald Trump’s multitrillion-dollar tax-and-spending law hangs on the IRS’s legal department, which lost hundreds of workers prodded by administration resignation offers.

Now the agency is trying to hire dozens back.

The brain drain means the office will have to prioritize guidance that’s most important to the administration’s agenda and leave other projects unfinished, former IRS officials said. The office also must enact the president’s deregulatory initiative by revoking guidance that is obsolete or deemed too burdensome for taxpayers.

“What it comes down to is prioritization,” said Michael Mundaca, assistant secretary for tax policy in the Obama Treasury Department. “The organization is going to have fewer people to get stuff done, so the stuff that gets done is high priority.”

Of the 17 divisions in the IRS Office of Chief Counsel, eight have managers who left this year, a Bloomberg Tax analysis shows. Four of the departures are in offices that handle guidance needed to implement the tax law.

Tax breaks on tips—which already has proposed regulations—and on overtime likely will take precedence, former officials said. Business taxpayers also are looking forward to new rules around changes to the tax treatment of research and development expenditures.

The office overall is down more than 350 workers out of an earlier 2,700, though now is looking to hire more than 60 attorneys, according to the government’s hiring platform, USA Jobs. Mandated office returns, hollowed-out leadership, and new permission structures were a few of the reasons IRS attorneys headed for the door.

The IRS and other agencies now face the uncertainty of a government shutdown Oct. 1 if Congress fails to reach a spending deal.

The White House ratcheted up pressure on Thursday, directing agencies to plan mass layoffs if no deal is reached, an escalation beyond normal shutdown protocols. It’s unclear how that could affect the IRS, though Treasury Secretary Scott Bessent said in August the agency would have no layoffs in the foreseeable future.

The legal division is central to most agency decisions, including the controversial moves this year to broaden access of taxpayer data to immigration officials. Attorneys also represent the IRS in disputes with corporate taxpayers, who tax professionals say are becoming bolder because of the resource-starved agency.

“With the IRS being largely neutered, the appetite for super aggressive tax planning has increased,” said Bob Wellen, a partner at Ivins, Phillips & Barker and former corporate associate chief counsel.

Interactive graphic: The IRS Office of Chief Counsel has a steep regulatory agenda ahead after the passage of the GOP’s massive tax package.

Changing Workforce

The leadership drain at the IRS Office of Chief Counsel mirrors the wider agency, which is on its seventh commissioner this year and faced an exodus of executives.

Ken Kies, assistant Treasury secretary for tax policy, is acting as chief counsel—the fourth person to hold the position this year. Kies replaced Andrew De Mello, a Trump loyalist who served only three months after abruptly replacing the previous acting chief. Political appointee Donald Korb is undergoing the Senate confirmation process for chief counsel.

Though IRS chief counsel didn’t face any reductions in force that other government agencies saw, those who took the voluntary resignation offer left holes that have slowed court cases and will likely delay the regulatory process.

And it’ll take some time for new hires to come on board and get up to speed at a critical time in the guidance process.

“With new hires, there’s a ramp-up period,” said Scott Vance, a Skadden Arps attorney who served as associate chief counsel for income tax and accounting before leaving in February. “The impact won’t be immediate.”

Beyond implementing the tax law, it’s typical for a new administration to put its stamp on regulations, which could cause offices to reevaluate in-progress projects.

For example, Vance’s former office oversaw the regulations for the corporate alternative minimum tax enacted in the Biden administration. The proposed implementation rules were 500 pages, and the Trump administration has signaled plans to rethink some of the package.

Picking Priorities

New tax laws often include deadlines for the IRS and Treasury to give transition rules for taxpayers to help them comply.

The tax breaks on tips and overtime—flagship campaign promises passed in the GOP’s tax legislation—are retroactive, adding more pressure to get guidance out quickly.

“There is going to be a triage whenever you lose people or don’t have enough resources,” Mundaca said. “And Treasury and IRS, frankly, never have enough resources.”

Clarity is also still needed on provisions of the Democrats’ 2022 tax law. Corporate taxpayers are clamoring for more guidance around the corporate alternative minimum tax and the withdrawal of a provision in the stock buyback excise tax, said Kelly Madigan, tax counsel for Tax Executives Institute.

“CAMT guidance has been very time-consuming for Treasury and IRS,” Madigan said.

The IRS’s incoming priority guidance plan will offer a glimpse into how the agency will implement the new law and the government-wide deregulation initiative. The plan is expected to be released in late September or early October.

The agency earlier this year sought feedback on obsolete or burdensome guidance to scale back regulations to comply with a Trump executive order. But this effort likely will take a backseat to implementing the tax law, Vance said.

Still, former IRS officials expect the office will be able to complete its biggest assignments, even if other projects are dropped. For major guidance projects, associate offices will lend their attorneys to wherever is needed, said Mark Schneider, who left his position as IRS associate chief counsel for corporate in September.

“There’s always challenges,” said Schneider, now a managing director at Alvarez & Marsal. “But I have every confidence that chief counsel will be up to the challenge and get the job done.”