Tax Byte

The IRS personnel shake-ups continue. Approximately 7,000 probationary IRS employees who were terminated in February are set to return to work by April 14, but the agency has now launched three voluntary separation programs as part of a broader reduction-in-force (RIF) initiative. Acting IRS commissioner Melanie Krause has also resigned, making her the third IRS leader to do so in 2025. 

Court-Ordered Reinstatements

The reinstatement comes after federal court interventions forced the IRS to bring back the terminated workers. Initially, the agency placed these employees on administrative leave in March, a move that drew criticism from Judge William Alsup of the Northern California district court.

“The Court has read news reports that, in at least one agency, probationary employees are being rehired but then placed on administrative leave en masse,” Judge Alsup wrote in a court order. “This is not allowed by the preliminary injunction, for it would not restore the services the preliminary injunction intends to restore.”

The court orders stemmed from two cases: American Federation of Government Employees, AFL-CIO et al v. United States Office of Personnel Management et al (No.3:25-cv-01780-WHA) in California, which covered six federal agencies including Treasury, and State of Maryland et al v. United States Department of Agriculture et al (No. 1:25-CV-00748) in Maryland, which initially applied to 17 agencies but was later narrowed to employees who work or live in 19 states and Washington, D.C.

The timing of these reinstatements coincides with the peak of tax filing season. As of March 21, approximately 80 million individual tax returns—more than half the total expected—had been filed, with refunds averaging around $3,284 per person, up 4.6% from 2024.

Voluntary Separation Programs Launched

Even as these workers return, the IRS announced on Tuesday three voluntary separation programs as part of its RIF plan:

1. Treasury Deferred Resignation Program (TDRP 2.0): This “second and final” program offers paid administrative leave through September 30. Employees who apply will leave work between April 28 and September 30, although taxpayer-services employees cannot leave until June 30.
2. Voluntary Separation Incentive Program (VSIP): Employees accepted for this program must depart by May 31. Unlike TDRP 2.0, this program does not include administrative leave.
3. Voluntary Early Retirement Application (VERA): Available to employees enrolling in either of the first two programs who are at least 50 years old with 20+ years of federal service, or any age with 25+ years of service.

The IRS email announcing these programs indicated that the RIF “will result in staffing cuts across multiple offices and job categories.” According to multiple media reports, the IRS is preparing for an overall 25% reduction in force.

Leadership Changes

Adding to the agency’s turbulence, Acting IRS Commissioner Melanie Krause has announced her resignation, becoming the third IRS leader to step down since January 20. Several outlets have reported that Krause is resigning in response to the agency’s controversial agreement to release immigrants’ tax data to Immigration and Customs Enforcement (ICE).

Supreme Court Intervention

In a further development, the Supreme Court has blocked the California court order for the Trump administration to reinstate 16,000 probationary workers across six federal agencies, including the IRS. However, the separate Maryland court order means many workers will remain on paid administrative leave.

The impact of this Supreme Court decision on the IRS’s plan to return the 7,000 probationary employees to work by April 14 remains unclear.

As the IRS continues to navigate these complex personnel changes during a critical tax season, the agency faces the dual challenge of processing millions of tax returns while reorganizing its workforce for the future.