IRS takes center stage in political controversies, partisan battles

Yahoo

22-04-2025

The IRS has become ground zero for some of the most heated political battles of President Donald Trump's first 100 days in office.
The tax collection agency is the site of controversies ranging from the use of taxpayer data for an immigration crackdown, the tax exempt status of a major American university that has refused to comply with Trump's demands, access to Americans' financial information by a government cost-cutting panel, and an audit review request for one of Trump's friends.
The IRS has long been a hot spot of partisan rivalry but is increasingly becoming the face of Washington's political polarization, experts say.
At the policy level, the IRS has endured one of the hardest political pendulum swings between successive administrations of any government agency, going from a massive operational refurbishment and hiring spree during the Biden administration to layoffs and unobstructed attrition under Trump that could cut as much as 40 percent of the agency's workforce.
'The controversies at the IRS right now are unheard of if you take them all into account at the same time,' Vanessa Williamson, a senior fellow at the Brookings Institution and taxation scholar, told The Hill.
'We've seen issues with the politicization of the IRS and we've seen workforce cuts before, but these are really on another order and they're all happening at once.'
On Friday, acting IRS commissioner Gary Shapley left his position atop the agency after a disagreement between presidential adviser Elon Musk and Treasury Secretary Scott Bessent, who reportedly complained to President Trump that he was left out of the decision to appoint Shapley.
Shapley gained favor with Republicans in 2023 after criticizing a Biden administration investigation into the business activities of Hunter Biden, the president's son.
In February, Senate Finance Committee member Chuck Grassley (Iowa) sent a letter to Bessent praising Shapley's 'bravery, courage, expertise and integrity.'
Shapley's exit continues a merry-go-round at the top of the IRS. In the 91 days since Trump has been in office, no fewer than four people have helmed it.
Before Shapley, who was replaced by Deputy Treasury Secretary Michael Faulkender, IRS career agents Melanie Krause and Douglas O'Donnell each served as acting commissioner.
Before taking office, Trump announced he would replace Danny Werfel, who was the last Senate-confirmed commissioner and whose background in operations management, as opposed to private sector legal practice, was specifically suited to the Democratic project of modernizing the agency. Werfel resigned in January before Trump took office.
Werfel's ousting was unusual. IRS commissioners serve five-year terms to detach them from the electoral cycle, and they usually serve beyond their terms.
Charles Rettig, who was Werfel's predecessor, was appointed to lead the agency by Trump during his first term but served for most of Biden's presidency as well.
During Trump's first 100 days, the IRS has been rocked by controversy after controversy.
Arguably the two most significant pertain to the vast amounts of data that the IRS keeps on American taxpayers, including bank account information, data on business operations, Social Security numbers, pieces of personal identification, and heaps of other sensitive financial data.
The presidential cost-cutting panel led by Elon Musk known as 'DOGE' has reportedly gotten access to this legally protected data, leading policymakers to ask why and even setting off public protests.
'I don't like Elon's intervention in our government, nor his budgeting, nor anything to do with any of the data that he gets to see,' Scott Mayer, a New York City resident who was out protesting in front of a Tesla showroom over the weekend, told The Hill. 'We're trying to point out that his intervention really does not belong in our government.'
While the Treasury and White House have reportedly agreed to limits on DOGE's access to IRS data, critics have been up in arms.
'The presence of DOGE affiliates at the IRS could create even bigger risks to taxpayer privacy,' attorneys with the Tax Law Center at New York University wrote in February. 'These concerns are heightened when viewed together with personnel changes at DOJ's Tax Division.'
Data sharing between the IRS and Immigration and Customs Enforcement (ICE) as part of a wider immigration crackdown by the Trump administration reportedly led to the resignation of top IRS officials and produced an outcry from rights groups.
'Congress was clear that immigration officers cannot obtain tax data from the IRS to locate immigrants,' Nandan Joshi, who sued to block the data agreement for the Public Citizen Litigation Group, said in a statement at the end of last month. 'Trump administration officials should respect the limits that Congress imposed instead of looking for ways to skirt them.'
Other IRS controversies revolve around the uses of the agency to punish political foes and reward political allies, something the tax agency isn't allowed to be used for.
Trump has threatened to revoke Harvard University's tax-exempt status after the university declined to comply with an order from the administration to crack down on alleged antisemitism.
'Perhaps Harvard should lose its Tax Exempt Status and be Taxed as a Political Entity if it keeps pushing political, ideological, and terrorist inspired/supporting 'Sickness?'' Trump wrote on social media on April 15.
Harvard President Alan Garber said the orders from the Trump administration aren't really about fighting antisemitism but have more to do with controlling the intellectual climate at the university.
'Although some of the demands outlined by the government are aimed at combating antisemitism, the majority represent direct governmental regulation of the 'intellectual conditions' at Harvard,' he wrote in an April 14 letter to staff, students and alumni.
'We will not accept their proposed agreement,' he said.
Former Harvard president and Treasury Secretary Larry Summers responded to Trump's threat by suggesting that resignations were in order over the conduct.
'Any self-respecting Treasury Secretary would resign rather [than] have the Department be complicit in the weaponization of the IRS against a political adversary of the President,' he wrote.
On the flip side, administration officials are also facing reports that they've used the IRS to do political favors. Treasury official David Eisner asked the IRS to review an audit the agency was performing on MyPillow CEO Mike Lindell, whom Eisner described as 'a high-profile friend of the President,' according to the New York Times.
IRS officials referred the request from Eisner to the agency's inspector general, according to the Times.
In addition to the numerous political controversies now roiling the agency, the IRS has made a 180-degree turn from the Biden to Trump administrations at the level of administrative policy.
Democrats gave the IRS $80 billion in 2022 as part of the Inflation Reduction Act (IRA), most of which was meant to increase tax enforcement on large corporations and the rich.
The tax collector even set up a new unit in its Large Business and International Division specifically to target tax avoidance among complex partnerships, a business designation that has proliferated in recent decades and where the government fails to collect a significant portion of the revenue it is owed.
Republicans over the course of the Biden administration were able to claw back and eventually freeze out nearly the entirety of those enforcement funds, much of which would have gone to hiring auditors.
Under Trump, the agency has announced wave after wave of layoffs at the tax collector, getting rid of trial employees and then announcing additional cuts for tax compliance staff. By the end of its staffing reduction, the IRS could lose 40 percent of its workforce, going from a staff size of around 100,000 employees down to 60,000, according to a report by the Federal News Network.
Biden's bill was supposed to lead to transformational change for the IRS.
'Now what we're seeing is transformational change to the IRS but in a different direction,' Janet Holtzblatt, a former deputy director in the Treasury's office of tax analysis, told The Hill.
Every year, the agency fails to collect around $700 billion in taxes, an amount known as the 'tax gap' that could actually be as large as $1 trillion, according to former commissioner Charles Rettig.
The IRS has a long and murky history of both suspected and proven involvement in political battles, even though it's against the law.
Former FBI officials James Comey and Andrew McCabe both found themselves receiving a rare and invasive type of audits in 2022 after incurring the wrath of President Trump.
A controversy involving the head of the IRS exempt organizations division during the Obama administration enraged conservatives, who felt unfairly targeted by the IRS.
Allegations about the misuse of the IRS by former President Richard Nixon came to light during the Watergate scandal.
The U.S. has one of the most complicated sets of tax laws in the world, spanning millions of words and tens of thousands of pages, excluding myriad pages of case law. It even contains alternative tax codes that kick in when the mainline tax code has been so successively exploited by sophisticated taxpayers that they've reduced their taxes to effectively nothing.
Historians of taxation say this makes it susceptible to politicization.
'Taxes are more boring in other countries,' Brookings' Vanessa Williamson said. 'But it's also been more boring in the past in the United States. In the mid-20th century, tax policy was not a major part of the campaign platform of either party. That's hard to imagine now.'
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