As record numbers of experienced IRS personnel transition out, our tax system is encountering one of the biggest challenges it has seen in many years. These changes affect everything from how quickly you receive your refund to implementing new tax laws. Beneath the headlines about budget cuts and staffing shifts, there’s a deeper story about the inner workings of our nation’s tax machinery.
A recent Federal Tax Updates podcast featured Terry Lemons, who spent 26 years at the IRS, including 11 years as Chief of Communications and Liaison. As someone who advised IRS leadership and served under six different commissioners, Lemons has a unique perspective on an agency that touches virtually every American yet remains widely misunderstood.
From Journalism to the IRS
Before joining the IRS in 1998, Lemons worked as a journalist and Washington Bureau Chief for the Arkansas Democrat-Gazette. His path to the IRS began with covering Bill Clinton’s presidential campaign in 1992.
“I managed to get in on the ground floor of covering Bill Clinton’s presidential race,” Lemons explains. “The president got elected and the newspaper had to add people in Washington.”
Lemons and his wife moved to Washington, where Lemons said he had a “ring-side seat” to everything President Clinton did in Washington. But as his family grew, Lemons found himself at a career crossroads. The demanding hours of journalism weren’t family-friendly, and the newspaper industry faced challenges. Meanwhile, the IRS was recovering from difficult Senate Finance Committee hearings that led to the Restructuring Act of 1998.
“An opportunity presented itself in the press shop at the IRS,” Lemons recalls. “They were looking for somebody with a journalism background, and it turned out to be a good fit.”
The Commissioner’s Influence
During his time at the IRS, Lemons worked with six different commissioners, each bringing unique priorities and management styles to the agency.
“The commissioners have a huge influence at the IRS,” Lemons explains. “To use a football analogy, the commissioner really is kind of the head coach and general manager for the agency.”
Different commissioners focused on other priorities. Commissioner Charles Rosati, whom Lemons describes as “an amazing visionary,” focused on reorganizing the IRS after the 1998 Restructuring Act. Later, Commissioner Mark Everson prioritized strengthening compliance efforts in the early 2000s.
While some commissioners came from tax backgrounds, others brought management expertise. Following the agency’s problems in the late 1990s, legislation specifically called for professional managers to lead the IRS. Regardless of background, Lemons notes that effective commissioners share a critical quality: the ability to listen.
“You can’t come into the job assuming you know everything,” he observes. “It’s such a big agency with complex IT systems. Coming in, listening, and understanding, that’s a hallmark of good commissioners.”
From Law to Implementation
The journey from proposed legislation to practical implementation shows why the IRS’s internal expertise matters more than most people realize. What seems like a simple legislative change often requires complex coordination between multiple departments.
“When you have a tax law change, it’s got to touch many different parts of the agency,” Lemons explains. “That new tax law has to be interpreted by the lawyers at the IRS and chief counsel, the Treasury Department attorneys look at it, and once they give their reading on it, it goes over to the taxpayer service area.”
From there, the requirements move to IT for systems programming, while communications teams develop explanations for both taxpayers and tax professionals.
The Employee Retention Credit (ERC) is a great example of how complex this process can be. Created during the pandemic to help businesses maintain their workforce, it became one of the most challenging tax provisions to implement.
“The ERC was one of the most complex tax laws the IRS has ever encountered,” Lemons notes. “It was well-intentioned, but problems developed with it.”
Even seemingly simple proposals create implementation challenges. For example, potential legislation making tips tax-free would require extensive work behind the scenes.
“Congress doesn’t have to think about that. They just say no tax on tips,” podcast host Roger Harris observes. “But then you have to figure out how to keep crazy people from making everything they earn a tip.”
Lemons agrees: “The attorneys are going to have to sit down and figure out the definitions of tips and the exclusions. There’s a lot of nuance.”
Institutional Knowledge at Risk
The current wave of departures from the IRS raises concerns about losing critical institutional knowledge. While the 2024 filing season ran relatively smoothly, there are worries about what lies ahead.
“With the buyouts going on right now, a lot of people taking them are late in their careers,” Lemons explains. “The thing that’s really concerning are the people underneath that. There’s also a lot of juniors taking that buyout.”
Harris compares the situation to sports teams. “It’s always better to have a team full of seniors than freshmen. You can be talented as a freshman, but you’re not going to be as effective as you will be as a senior.”
History provides a sobering reminder of what can happen when the IRS’s core functions falter. Lemons recently wrote an article for The Hill contrasting the smooth 2024 filing season with the disastrous breakdown in 1985, when a rushed technology implementation caused significant problems.
“The refund process broke for millions of taxpayers,” Lemons recounts. “Instead of getting a refund in eight days or three weeks, those refunds didn’t go out for six, seven, eight months.” Many taxpayers had to file second returns because the IRS lost their originals.
Most Americans’ primary interaction with the IRS is receiving their tax refund, often the largest single payment they receive yearly. If that process breaks down, the consequences will be severe.
The Essential Partnership with Tax Professionals
Throughout the conversation, Lemons emphasizes the vital relationship between the IRS and tax professionals. This partnership is even more critical during periods of transition.
“The IRS cannot run the tax system without tax professionals,” Lemons stresses. “It is the classic symbiotic relationship. Half the people in the nation have help preparing their tax returns with a tax pro. The system would not work without the tax professional community.”
This relationship will serve as a key indicator of the agency’s stability in the coming year: “That is going to be one of the barometers, one of the so called canaries in the coal mine to watch: how does that relationship between the tax pros and the IRS play out over the next year or so, as these budget cuts and staffing cuts are coming in?”
Looking Ahead with Cautious Optimism
Despite serious concerns, Lemons balances his perspective with recognition of the agency’s proven resilience.
“The employees of the IRS are remarkable,” he notes. “If you go back through history, whenever Congress has put a big item on the agency’s plate, the agency delivers. In times of national emergency and during the pandemic, the IRS has a legacy of delivering under very tough circumstances.”
The coming year will test whether this resilience can withstand the current challenges. Lemons calls it “a fascinating one to watch,” although he suggests tax professionals might want to “have a bottle of Rolaids handy just in case.”
For tax practitioners, staying informed about these changes directly impacts client service and compliance capabilities. Despite its flaws and challenges, the IRS serves an essential function: “At the end of the day, we’re the ones providing the revenue to make things possible, like the nation’s defense, education, and all the things the government does.”
To hear more of Terry Lemons’ insights about how the IRS functions and what practitioners should watch for in the coming year, listen to the whole conversation of the Federal Tax Updates podcast.