Opinion – Jennifer Gatherwright: IRS reform requires a scalpel, not a chainsaw

Having represented taxpayers in IRS controversies throughout Cincinnati and Northern Kentucky for 23 years, I have gained perspective from the trenches. The majority of my law firm’s clients are self-employed and small business taxpayers. We don’t have marble floors in our office, but occasionally there is a spot of mud from our clients’ work boots. If Elon Musk and his Department of Government Efficiency (DOGE) truly want to improve the IRS for working Americans, they should consult tax practitioners like myself who understand where reform is genuinely needed.

IRS reform should be accomplished with a scalpel, not a chainsaw, and it should be targeted specifically at the Examination Division. The other IRS divisions function reasonably and effectively with their allocated resources. IRS collection officers are collecting taxes, but they are not seizing people’s homes for back taxes, a common misconception. IRS criminal agents are investigating drug dealers, Ponzi schemes, and large-scale tax evasion – not ordinary citizens or even minor tax evaders, another common misconception.

DOGE’s indiscriminate termination of new IRS employees across all divisions – including vital customer service areas like Account Services and the Taxpayer Advocate – is dangerously shortsighted. These cuts will directly harm working Americans by decreasing service quality and increasing waiting times. We are already feeling these effects locally, with several experienced Appeals officers accepting DOGE’s early retirement offer.

The Real Problem: Examination Division Practices

It is my belief that the Examination Division’s brutish policies generate most of the contempt that Americans feel toward the IRS. The issue is not the number of audits but their substance, which has grown increasingly punitive. Simply reducing the auditor headcount will not eliminate all audits or prevent catastrophic outcomes for the unlucky taxpayers who will continue to be subjected to audits. If Musk and DOGE want meaningful IRS reform, they should focus on revising examination policies and procedures.

IRS auditors are explicitly trained to treat different classes of taxpayers differently. The agency even maintains separate examination departments for small businesses versus large corporations. This creates a fundamental inequity in how deductions are evaluated.

For example, if Procter & Gamble deducts $100,000 for employee coffee, this expense goes unquestioned during an audit. The corporation simply shows vendor invoices and proof of payment. Conversely, if Bob Smith general contractor expenses $500 of Starbucks on his credit card and tells the auditor he brought coffee and doughnuts to project meetings for his workers, an IRS auditor would typically not allow that expense. The IRS would require the Starbucks receipts, not just the credit card statements and even if Bob did have the receipts, the auditor would say how does the IRS know Bob did not drink the coffee himself. When Bob points out that two $250 transactions clearly indicate quantities beyond personal consumption, he still receives no deduction. P&G’s deduction passes unchallenged while Bob is effectively treated as dishonest because he cannot definitively prove who consumed the coffee.

Unreasonable Record-Keeping Requirements

IRS record-keeping requirements also create massive hurdles for small business taxpayers who lack corporate accounting departments. Most small businesses are unaware of the extensive documentation they are required to maintain. Two recent audit examples illustrate this problem:

A successful realtor who earned $1 million in commissions during the tax year failed to maintain a written mileage log. The auditor, not a new one in this case, disallowed the realtor’s entire mileage deduction – her largest expense. It is inconceivable that someone could sell $16 million in real estate without driving. Yes, the taxpayer should have kept a mileage log, but a reasonable solution was possible. Years ago, an auditor might have allowed the realtor a portion of the mileage based on the number of commissions earned and some auditors still would, but most auditors are now trained to disallow everything. In this case, the auditor also sent the realtor a letter threatening a $25,000 criminal fine and a year in prison for inadequate record-keeping. To be clear, auditors lack the authority to file criminal charges, and no criminal agent would ever investigate this realtor over a mileage log. I gave the letter the eyeroll it deserved, but my client was understandably frightened and angry.

In another examination, an electrician had his deductions for $350,000 in electrical supplies disallowed because he maintained only credit card statements rather than individual receipts for multiple daily purchases from the same supplier throughout the year. The auditor also suggested the taxpayer might have used these supplies in his own home – an absurd proposition given he could have wired a small town with that many supplies. The proposed tax, penalties, and interest exceeded the taxpayer’s annual profit. Though we reduced the assessment at Appeals, this caused additional stress and legal fees for the taxpayer. This auditor has been around for years, over-assessing taxpayers and infuriating accountants far and wide. The best we can hope for is that she is promoted and sent someplace else.
 
Reform That Actually Works

Taxpayers facing these kinds of examinations are cheering for DOGE to dismantle the IRS. These examinations do not create tax compliance. Instead, they create government-hating tax protesters who learn to hide their income after they realize the IRS will not accept their legitimate business expenses as deductions.

Instead of the mass firings and official statements about weakening the IRS that are already encouraging tax evasion – over the past month, the question I have heard most often is whether people should be more aggressive on their tax returns or stop paying taxes altogether – the IRS should reduce its record-keeping requirements for small businesses and allow reasonable minimum expense deductions. With fairer, more efficient examinations, the IRS could conduct more audits with smaller, more accurate assessments.

This would balance the need for government funding with working-class tax burdens.

Jennifer Gatherwright is an attorney with Gatherwright Freeman & Associates who has twenty years of experience with small and middle-market companies to help clients achieve their business goals. Through her tax practice, she has represented clients in all 50 states and has achieved national recognition for her experience in the field of tax controversy. She is a graduate of Chase College of Law and of the University of Cincinnati with a masters in tax accounting. She and her family live in Northern Kentucky.