After returning from the IRS Tax Forum in New Orleans, Federal Tax Updates hosts Roger Harris, EA, and Annie Schwab, CPA, shared sobering observations about an agency in turmoil. With Commissioner Billy Long’s departure after just two months, 25,000 fewer employees, and a massive 900-page tax bill to implement, the IRS faces unprecedented challenges that will directly impact every tax practitioner and their clients.
The Two-Month Commissioner and Leadership Vacuum
Long’s tenure as IRS Commissioner lasted just two months before he was reassigned as Ambassador to Iceland, making him the seventh commissioner in recent years. While he wasn’t the shortest-serving (one commissioner lasted only two days), his departure raises serious questions about the agency’s stability and future direction.
“I don’t know where that is on the pecking order of ambassadorships,” Harris observes about the Iceland posting. “I’m thinking that probably wasn’t at the top of the list.”
Theories about Long’s departure vary widely. Schwab points to concerns that emerged during his confirmation, which passed on party lines with all Republicans supporting and all Democrats opposing. “I was concerned over the tax credits he was promoting prior to being confirmed. There’s also some talk about his involvement with the employee retention credit.” She also notes his “lack of experience” for the role.
Harris shares additional theories he’s heard, including resistance to sharing taxpayer data with other departments and an embarrassing gaffe at the NAEA conference where Long incorrectly announced tax season would start on Presidents Day. The IRS had to quickly walk back that announcement after social media backlash.
Treasury Secretary Scott Bessent now serves as acting commissioner, but this arrangement seems untenable. “We’re recording this right after he was in Alaska with the president meeting with Vladimir Putin,” Harris notes. “Today, they’re having meetings in the White House with Zelensky and the leaders from Europe.”
Most concerning is the complete absence of any successor names. “It’s odd that it’s been a week or so, and not a single name has surfaced,” Harris observes. With the lengthy confirmation process ahead, the IRS could operate under acting leadership for an extended period.
An Agency in Organizational Chaos
The leadership crisis sits atop deeper organizational dysfunction. The IRS lost approximately 25,000 employees through budget cuts and reorganizations, with senior executives departing in droves. Those remaining face an atmosphere of uncertainty that borders on the absurd.
At the New Orleans forum, Harris made a telling observation while standing across from the IRS booth. “I looked over there and said, I don’t know anybody over there.” For someone with extensive IRS connections, this represented a shocking change from previous years.
The human toll is evident in the chaos surrounding personnel decisions. “I talked to one person who said they got three different notices telling them they were out, but they’re still there,” Harris shares. Each notice came for different reasons, from wrong sender to incorrect signature, creating what he describes as employees receiving “the email that says you’re gone” multiple times while still reporting to work.
Schwab’s observations from the forum paint a picture of widespread anxiety. “There was a sense of concern. It just seemed like everybody was a little uptight or concerned or worried. It just wasn’t as free-flowing as some past years have been.”
The traditional commissioner’s address—a forum centerpiece—was replaced with what Harris described as “two of the IRS employees who still have a job, just presenting some technical stuff.” No executive presence, no strategic vision, just survival mode.
Understanding the 2025 Act: What Actually Changed
Individual Tax Provisions
The act makes permanent the individual tax rates from the Tax Cuts and Jobs Act, maintaining brackets from 10% to 37%. The standard deduction remains elevated and indexed for inflation—$15,750 for single filers, $23,625 for head of household, and $31,500 for married filing jointly in 2025.
The estate exemption is now set at $30 million for joint filers and $15 million for single filers. “That’s going to eliminate almost all of our clients from having an estate or gift tax,” Harris notes.
One significant change is the SALT (state and local tax) deduction, which increases from $10,000 to $40,000 through 2029 before reverting. “It’ll increase over time until 2029,” Schwab explains, “and then I guess they couldn’t explain how to fund anything past 2029.”
Family Benefits and Education
The child tax credit increases to $2,200 with the refundable portion made permanent. Employer-dependent care assistance jumps from $5,000 to $7,500. “That’s a nice increase for dependent care assistance,” Schwab notes. “I have two kids, and dependent care is outrageously expensive.”
A new provision creates “Trump Accounts” for children under 18, allowing $5,000 annual contributions. The government will fund a pilot program putting $1,000 into accounts for children born between 2025 and 2028. “It seems to be structured very much like what you would see in an IRA,” Schwab explains, “but these are specifically designed for minors.”
The act also expands 529 plan usage to include professional credentialing. “If you’re thinking about studying for the EA exam and you have a 529 plan, you can take money from that plan for the courses and testing,” Harris points out.
Business Changes
Major business provisions include making the Qualified Business Income (Section 199A) deduction permanent and restoring 100% bonus depreciation. The R&D expense deduction returns to immediate expensing for domestic research.
Critically, some reporting thresholds for informational returns will increase significantly. The 1099-MISC/NEC threshold rises from $600 to $2,000. “Clearly it’s time,” Schwab says. “I don’t know if $2,000 is the right place to be, but it’s certainly better than $600.” The 1099-K threshold returns to its prior threshold of $20,000 or 200 transactions.
New Provisions: Tips and Overtime
The most discussed new provisions create deductions for certain tips and overtime pay through 2028, both retroactive to January 2025. However, implementation remains unclear.
“What is a voluntary tip?” Harris asks, highlighting fundamental questions requiring clarification. Service charges present a particular challenge. “Obviously, service charges are a big point of contention. Is that voluntary just because you know you’re going to pay it?”
“The IRS has already announced it is not going to make changes to the information returns or the withholding tables,” Schwab explains. Workers expecting immediate paycheck increases must either adjust their W-4 forms manually or wait for refunds when filing their 2026 returns.
Harris clarifies a critical point about overtime many practitioners miss. “Let’s say you’re being paid $20 an hour and you work overtime. Your overtime pay is $30 an hour. People hear no tax on overtime and assume that means the $30 is tax-free.” But only the additional $10 qualifies for the deduction.
Energy Credits Phase Out
Republicans successfully targeted energy credits for elimination. “September 30th is the end of all those EV credits,” Schwab warns. Residential clean energy and energy-efficient home improvement credits expire at year-end 2025, with others phasing out through 2028.
Implementation Challenges and the October 2 Deadline
The IRS faces the monumental task of implementing these changes with depleted resources. The Treasury promised guidance by October 2nd, apparently based on a 90-day requirement in the legislation. But skepticism runs high.
System changes compound the complexity. “The W-2 is likely going to change,” Schwab notes. “There’s a spot for tips, but there’s nothing on the W-2 currently that shows what portion is overtime.”
What Practitioners Should Do Now
This combination of leadership vacuum, staff exodus, and complex implementation means tax professionals will likely have to field a lot of questions from taxpayers and face an interesting tax season ahead.
- Manage client expectations. Benefits from the new deductions for tips and overtime won’t appear automatically in paychecks. Clients must understand they’ll need to wait for their tax refunds or update their W-4 withholding.
- Prepare for delayed and incomplete guidance. The October 2nd deadline may bring some answers, but comprehensive guidance seems unlikely given the IRS’s current state. Build conservative timelines into all planning.
- Stay connected with professional networks. As Harris and Schwab demonstrate, peer insights and shared experiences may prove more valuable than official guidance in the near term.
- Consider previous episodes. Their discussion with Maggie Romaniello from the IRS Stakeholder Liaison office is particularly useful. “If you don’t know what Stakeholder Liaison does, you really need to pay attention,” Harris emphasizes.
The IRS will eventually work through these challenges, as it always has. But the path forward looks particularly rocky. As Harris jokes, “Keep your hopes up. You could be the next commissioner. There’s still an opening.”
While the comment draws a laugh, the reality is that the IRS’s problems are now every practitioner’s problems. Stay informed, stay flexible, and stay patient. We’re all going to need it.
Listen to the full Federal Tax Updates episode for Harris and Schwab’s full discussion of the IRS leadership crisis and detailed analysis of the OBBBA provisions.
And, for help with practice management, client service, and the many other complicated elements of running a firm, learn more about having your firm join the Padgett network.