Trump's budget bill could complicate 2026 tax filing season after IRS cuts, watchdog warns
Taxpayers will likely see effects of staffing reductions
The Trump administration's efforts to shrink the size of the federal bureaucracy to a mass exodus of probationary employees who had not yet gained civil service protections and were offered buyouts through a 'deferred resignation program.' More than 17,500 IRS workers took that route. The biggest cuts were in taxpayer services, the small business/self-employed office and information technology.
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The report noted that the Republican administration's proposed budget includes a 20 percent reduction in IRS funding next year. That's a 37 percent reduction when taking into account the supplemental funding in the Biden-era Inflation Reduction Act that Republicans previously stripped away.
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'A reduction of that magnitude is likely to impact taxpayers and potentially the revenue collected,' wrote Erin M. Collins, who leads the organization assigned to protect taxpayers' rights.
The 2026 tax season could be precarious
Collins said the 2025 filing season was 'one of the most successful filing seasons in recent memory,' though she warned that the 2026 season could be rocky.
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'With the IRS workforce reduced by 26 percent and significant tax law changes on the horizon, there are risks to next year's filing season,' Collins wrote. 'It is critical that the IRS begin to take steps now to prepare.'
She said that, halfway through the year, there were concerns that the IRS had not yet undertaken key preparation steps, including hiring and training seasonal and permanent employees.
Trump's package could add new layer of problems
The report warned about the possibility of understaffing to manage new provisions from Trump's legislative package if it's enacted.
'Several provisions will retroactively affect the 2025 tax year, thus impacting millions of taxpayers and requiring the IRS to quickly update tax year 2025 tax forms and programming for the 2026 filing season,' the report said.
Specifically, the House bill retroactively prohibits the IRS from allowing or making payment of Employee Retention Credit claims filed after Jan. 31, 2024.
The report also said the IRS historically receives more calls in years following significant changes in tax law, so it may need additional employees and improved digital tools to maintain its level of service.
Identity theft cases are still piling up
The IRS is dealing with delays in resolving self-reported identity theft victim assistance cases — taking up to 20 months to resolve, the report said.
As of the end of the 2025 filing season, the IRS was handling about 387,000 of these cases.
That is a slight improvement from the more than 22 months it took to resolve identity theft cases, as noted in last year's report, which outlined roughly 500,000 unresolved cases in its inventory.
'The cycle time remains unacceptably long,' Collins said. 'I continue to urge the agency to focus on dramatically shortening the time it takes' to resolved identity theft cases, 'so it does not force victims, particularly those dependent on their tax refunds, to wait nearly two years to receive their money.'
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Justice Department, driven by Trump policy, plans to go after naturalized U.S. citizens
In his all-out war on illegal immigration, President Donald Trump has branded immigrants as 'criminals,' 'invaders' and 'predators,' as his administration targets millions of Haitians, Latin Americans, gang members and foreign college students for deportation. Now, the president has directed the Justice Department to bolster its resources in a major crackdown on naturalized citizens suspected of unlawfully obtaining their U.S. citizenship. According to a recent memo, the department plans to focus not only on individuals who may have lied about a crime or having done something illegal during the naturalization process. But authorities also plan to focus on others who may have committed a crime after becoming citizens — a generally untested legal frontier. Citing Trump's policy objectives in the June 11 memo, the head of DOJ's Civil Division instructed government lawyers to go after naturalized citizens who pose a potential danger to national security, such as acts of terrorism or espionage, violated human rights, engaged in international drug trafficking or committed felonies that were not disclosed during the naturalization application. The DOJ list of priority targets, backed by Attorney General Pam Bondi, even includes naturalized citizens who have been convicted of defrauding the U.S. government, such as Medicare, Medicaid and COVID-19 loan programs. 'These categories are intended to guide the Civil Division in prioritizing which cases to pursue; however, these categories do not limit the Civil Division from pursuing any particular case,' Assistant Attorney General Brett A. Shumate wrote in the memo, pointing to an expansive interpretation of laws on the revocation of naturalization. A range of critics, including immigration and defense attorneys, say the Justice Department's new 'priorities for denaturalization cases' are extremely broad and vague — allowing the Trump administration to target any number of naturalized citizens for various offenses that may fall outside the scope of the law, before trying to deport them to their native country. Ultimately, a federal judge must decide on any government bid to revoke the status of a naturalized citizen, a long process involving likely appeals. 'Traditionally, the law was intended to apply to individuals who committed an unlawful act before becoming naturalized citizens—particularly if that act was not disclosed during the naturalization process or if there was a material misrepresentation on the application,' Miami immigration attorney Steven Goldstein told the Miami Herald. 'What appears to be happening now is an effort to broaden the law's scope, targeting conduct that occurs at any point after naturalization, based on interpretations laid out in the memo,' said Goldstein, a former federal prosecutor with the now-defunct Immigration and Naturalization Service. 'This administration has aggressively expanded the reach of immigration enforcement — and they've shown they're unafraid to defend these expansions in court.' The National Association of Criminal Defense Lawyers condemned the Justice Department's new directive. 'The Trump Administration's push to revoke citizenship is alarming, and raises serious Fourteenth Amendment concerns,' group president Christopher Wellborn said in a statement. 'Although the memo purports to target concealment of earlier offenses, the language suggests that any offense, at any time, may be used to justify denaturalization,' he said. 'This is particularly concerning given the administration's reliance on vague claims of gang affiliation in deportations.' The impact of the new DOJ policy aimed at U.S. citizens who were born in a foreign country is unclear. According to the Migration Policy Institute, a Washington, D.C., think tank, the United States has about 24.5 million naturalized citizens, a little more than half of the country's immigrant population. Historically, the Justice Department has zeroed in on Nazi collaborators, Communist party members and spies for denaturalization if they 'illegally procured' their U.S. citizenship, including 'by concealment of a material act or by willful misrepresentation,' according to federal law. Denaturalization was commonly used during the McCarthy era of the late 1940s and early 1950s, and expanded during the Obama administration and Trump's first term in office. The country's latest denaturalization case occurred in mid-June when a federal judge revoked the citizenship of Elliott Duke, an American military veteran from the U.K. who was convicted a decade ago of receiving and possessing child-porn images while stationed in Germany — a crime he did not disclose on his naturalization application before becoming a U.S. citizen in 2013. The issue became even more heated after the Trump administration raised the possibility of stripping Zohran Mamdani, the Democratic mayoral candidate for New York City, of his U.S. citizenship as part of the crackdown against foreign-born citizens convicted of certain offenses. The spurious allegation, known to be false, is that Mamdani may have concealed his support for 'terrorism' during the naturalization process. Mamdani, 33, who calls himself a Democratic socialist, was born in Uganda to ethnic Indian parents, became a U.S. citizen in 2018 and has attracted widespread media attention over his vocal support for Palestinian rights. Trump, during a visit last week to the new Everglades detention facility called Alligator Alcatraz, was asked about Mamdani's pledge to 'stop masked' Immigration and Customs Enforcement agents 'from deporting our neighbors.' Trump responded: 'Well, then, we'll have to arrest him.' Mamdani posted a statement on X: 'The President of the United States just threatened to have me arrested, stripped of my citizenship, put in a detention camp and deported. Not because I have broken any law but because I will refuse to let ICE terrorize our city.' Longtime North Miami immigration attorney Andre Pierre, who toiled for years on a landmark denaturalization case, said he has seen both Democratic and Republican administrations pursue aggressive immigration policies — but no president has made the issue as controversial and visible as Trump. Pierre said Trump ran for re-election on the campaign promise of ridding the country of illegal immigrants who have been convicted of committing crimes, along with gang members from El Salvador and Venezuela. But as soon as he was sworn in as president for a second term, he said, Trump started going after everyday, working-class Venezuelans, Haitians, Cubans and other immigrants with temporary protected status or humanitarian parole. 'A lot of people in these communities voted for for him and didn't think he was going to go that far,' Pierre told the Herald. Pierre said it was only a matter of time before the Trump administration would zero in on naturalized foreign-born citizens in the United States. But after reviewing the Justice Department's list of priorities for denaturalization cases, he came away dismayed. 'This memo is shocking,' Pierre said. 'But I don't see a lot of evidence supporting the kind of cases they want to go after.' Decades ago, Pierre represented a Haitian restaurant owner in Miami who applied for naturalization in November 1994, was approved in February 1996 and took the oath of allegiance and became a naturalized citizen in April 1996. But that fall, Lionel Jean-Baptiste was arrested on cocaine distribution charges, convicted at trial and sentenced to eight years in prison. Evidence showed that Jean-Baptiste committed the crime in March 1995 while his application for naturalization was still awaiting approval by the U.S. government — a fact that would ultimately undo his citizenship. 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Trump says August 1 tariff deadline 'not 100% firm', open to proposals
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