By Richard Rubin and Brian Schwartz

WASHINGTON -- It's Michael Faulkender's turn in the hot seat atop the Internal Revenue Service, a notoriously hard D.C. job that has somehow gotten tougher.

Faulkender, the deputy Treasury secretary and this year's fourth acting IRS commissioner, faces pressure from every direction. Above, President Trump is questioning the tax-exempt status of some universities and other groups, blurring lines intended to separate the IRS from politics. Below, the agency's senior ranks are thinning after waves of departures.

In front of Faulkender is the challenge of implementing the administration's vision for shrinking and revamping the IRS. The basic idea: Rapidly replace people with computers and reduce reliance on contractors for technology and support. That is the agenda pushed by Elon Musk's Department of Government Efficiency, and it isn't substantially changing with Faulkender's arrival, despite friction between Musk and Treasury Secretary Scott Bessent over Faulkender's appointment.

The new IRS strategy carries risk. The administration is attempting fast changes to a government function that touches hundreds of millions of Americans. Technology failures or call-center backlogs can derail the tax-filing season, and agency veterans worry that weaker enforcement will erode compliance if tax cheats think they can avoid detection.

"We're committed to improving the efficiency" of the IRS, Faulkender said in a statement. "For the last 35 years, we've been five years away from the IRS being modernized. Under the direct leadership of Treasury, the modernization will be done in two years at a fraction of the cost."

Big operational problems haven't materialized yet. The tax-filing season went smoothly even during internal turmoil without major glitches or delays. Revenue received around the April 15 deadline easily surpassed last year's marks. Still, continued tumult could upend the agency's ability to fulfill its mission by the time next year's filing season rolls around.

"Americans should be worried about the turmoil," said Doreen Greenwald, president of the National Treasury Employees Union, which represents IRS workers. "When the IRS is underfunded and lacks the necessary resources, it sends the wrong message to people who don't pay their fair share of taxes -- that they can get away with it."

The IRS notified employees in two departments on Friday of future layoffs.

Through a spokeswoman, Faulkender declined an interview request. He's a former University of Maryland finance professor who worked on nontax issues at Treasury during Trump's first term. He's expected to serve until the Senate confirms Billy Long, the former Missouri congressman tapped by Trump to run the agency who is still awaiting his confirmation hearing.

Danny Werfel, Biden's IRS pick, left Jan. 20. He said Faulkender has the opportunity to be a calming presence for agency workers.

"If the IRS is going to work effectively, the amount of uncertainty that we've seen, or the amount of turbulence needs to stabilize," said Werfel.

Tech-based enforcement

The administration's tech-over-people concept stretches into enforcement. There, nonpartisan experts and officials appointed by both parties consistently argue that new employees generate more money than they cost and that apparent savings actually increase budget deficits. The IRS started rebuilding its enforcement staff in 2022 after years of flat funding, and those new workers were getting trained and assigned to cases when Trump took office. IRS officials say skilled auditors are needed to find and stop sophisticated tax dodging by corporations and high-income individuals.

The Trump administration is partly rejecting that premise. The Treasury Department described the surge of enforcement hiring under President Joe Biden as wasteful, and many of the more than 7,000 probationary employees fired this year were enforcement staffers working on audits and collections.

Treasury's new goal is to double collections and compliance with fewer people, and officials are working on a plan for that. Instead of hiring more people, Treasury is trying to improve the software and tools that existing enforcement employees use. That approach is unproven.

"Technology is not a perfect substitute for people," said Janet Holtzblatt of the Urban Institute, a former federal official who studies tax administration. "Detection is not enough without the auditors who will follow up with the taxpayers and discuss the unobservable factors that affect the amounts that they claimed (or didn't claim) on their tax returns."

The focus on modernizing IRS technology continues work that has been going on for months, led by Treasury special adviser Sam Corcos as part of the DOGE effort. One key project would build an easier way to unify fragmented data systems.

Corcos, co-founder of a health-tracking technology company called Levels, aims to reduce reliance on contractors. Some IRS technology executives have been put on leave or pushed out. Under Corcos and Treasury, the IRS is trying to use in-house engineering talent. That has long been a challenge, because the federal government can't match private employers' salaries.

Corcos has privately mused to IRS colleagues that he's crafting an executive action requiring tech officials to have at least five years of tech work or a bachelor's degree tied to a related field, according to a person who recently spoke to Corcos. Under that approach, IRS tech employees without either qualification could be fired within a year.

Technology can replace some staffing -- but not completely or immediately. The IRS still needs people to run call centers and walk-in centers, answering questions from taxpayers who can't get what they need from IRS online services. In the past, the IRS has moved in fits and starts on technology, struggling with some projects and going cautiously with others before retiring systems that are old but functional.

The agency still accepts many forms on paper, requiring people to open and process mail. Some taxpayers, particularly older or less tech-savvy ones, prefer paper, and some IRS actions aren't digital yet. The Treasury Department says the IRS spent $450 million on paper processing last year and is aiming to reduce that to below $20 million.

Faulkender's rise follows an unusual leadership turnstile that saw three acting commissioners come and go between Inauguration Day and April 18. The tax agency has shed tens of thousands of workers and spurred controversy with an agreement to share data with immigration authorities.

Unusual episode

The oddest IRS episode played out starting on April 15, when Trump put Gary Shapley in the top job. Shapley is the IRS criminal investigator who publicly criticized the government's handling of the Hunter Biden tax case. He had already started as deputy criminal-investigations chief at IRS and an adviser to Bessent.

Following Shapley's appointment, confusion swept through the agency. Bessent argued to Trump that he wasn't given enough input and was convinced Shapley's rise was influenced by Musk.

Shapley had the understanding that he was getting the job but was unaware of Bessent's concerns and of the tension between Musk and Bessent about his appointment, said a person familiar with the situation.

Gavin Kliger, part of Musk's DOGE brigade, assisted Shapley with onboarding processes for the leadership role, according to a person familiar with the matter. Shapley then brought Kliger to at least one senior meeting that Kliger wasn't invited to, according to people familiar with the matter.

Three days after Shapley took over, he returned to his prior posts, Kliger lost access to IRS systems and Faulkender was named acting commissioner; all those are signs of Bessent asserting control.

With Kliger out and other senior executives leaving, a new IRS team is taking shape under Faulkender. On the rise inside the IRS is Dottie Romo, a procurement official who is now the acting chief operating officer.

Write to Richard Rubin at richard.rubin@wsj.com and Brian Schwartz at brian.schwartz@wsj.com

(END) Dow Jones Newswires

April 27, 2025 12:00 ET (16:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.