Key Takeaways

  • The Treasury Inspector General for Tax Administration (TIGTA) said the IRS fell short in its review of Form 941s, leaving the door open for fraudsters to file false claims and steal refund checks, even though agency management had been warned about the risk of such business fraud.
  • TIGTA reminded the IRS last year that an investigation found the agency had issued more than $93 million in fraudulent refund checks to 20 businesses. In the report, TIGTA said IRS staff failed to properly verify callers' identities and instead provided scammers with account, deposit, and other tax information, enabling the misconduct.
  • "IRS management was aware of the risk of erroneous refunds," TIGTA said, "but the agency did not take action to stop the scheme."

Deeper Dive

The report criticized staff handling calls to the agency's business security tax and practitioner priority service lines, noting the failures occurred before the Trump administration's historic overhaul of the agency this year.

The White House cut IRS staffing from 102,000 to fewer than 76,000 employees in the first half of 2025, with taxpayer services down 22%, National Taxpayer Advocate Erin M. Collins said in June. That figure includes employees who accepted early resignation offers and will continue receiving pay through September 30.

TIGTA said in July that about 26% of tax examiners and 27% of tax reviewers had left or planned to leave the agency.

"With the IRS workforce reduced by 26% and major tax law changes on the horizon, next year's filing season is at risk," Collins said in a June report.

The Trump administration acknowledged the risks of deep cuts to taxpayer services in its fiscal 2026 budget request and asked to hire 11,000 customer service employees.

At current staffing levels, "most taxpayers will be unable to reach the IRS by phone or get answers to tax compliance questions," the IRS said, "and even if they get through, they will face long wait times."

Meanwhile, the Trump administration has triggered unprecedented turnover in the agency's top job. Over the past eight months, the administration has rotated through seven commissioners, a position that typically carries a five-year term.

Dozens of senior career civil servants have left the IRS, many resigning after the announcement of a memorandum of understanding between the IRS and Immigration and Customs Enforcement regarding the use of tax data.

"During Trump's first term, turnover at the top was buffered to some extent by a bulwark of qualified, dedicated career civil servants in federal agencies," the Brookings Institution said in a report this month. "This time, the damage is far more severe."

"Career officials have so far shown remarkable resilience in carrying out their statutory duties to protect taxpayer data," Brookings said. "But with leadership losses, the guardrails are weakening—and so is the likelihood of a smoothly functioning filing season."

The IRS last month pledged steps aimed at preventing the filing of false Form 941s and illegal refunds, including improved training and increased use of electronic payments rather than issuing checks.

"Protecting taxpayer information and preventing fraudulent refunds are top priorities for the IRS," Kenneth Corbin, head of taxpayer services, said in a July 3 letter to TIGTA.