Earlier this summer (in June of 2025), the National Taxpayer Advocate (Erin Collins) issued her annual report to Congress on the IRS' performance and status. Unfortunately, there was not much good news in terms of making your professional 1099 compliance life easier if you are in Accounts Payable, Tax, or are an independent CPA. 

First, January kicked off with the IRS at around 103,000 employees. Since then the IRS workforce has been cut down significantly. According to a July 2025 IRS report it is down to around 76,000 personnel (or roughly a 25% cut). This means however, that the IRS workforce is as of today still as large as it was in the 2019-2020 time period. Notably that was a time when no one thought their organizations had nothing to fear from IRS penalty notice or audit. There is no question that your individual odds of being audited as a private citizen are much lower today than they were last year. That is not true however from a professional perspective. The reason why is because the IRS has a strategic mandate that very much involves you in your job at accounts payable, tax, or maybe as an independent CPA. It’s budgets have been and remain targeted on closing the tax gap. That is the difference between what the federal government is owed from taxpayers such as your organization, and what it takes in.

There are two primary components of the tax gap: tax dodging by the billionaire class, and the under reporting of income amongst businesses and corporations (like the ones you might work for or represent). Given how society is structured, it is highly unlikely the wealthy are about to be targeted in terms of tax compliance. That leaves the 1099 world as the low-hanging fruit for remedying the tax gap (something that becomes particularly important in terms of attempting to balance the budget amidst tax cuts).

The larger strategic reality governing the IRS means that even as it takes its own cuts, they are plowing available funds into enforcement directed primarily against medium to large sized organizations while at the same time cutting back on services that make doing your job in Accounts Payable or Tax easier. We have seen this so far in 2025, with the largest cuts going to tax support.

We have been corporate tax attorneys for decades and have been down this road before. Most notably was what happened during and following the financial crisis of 2008-2009. The IRS budget was cut, service quality and tax support worsened, but enforcement remained high as applicable to what you face in Accounts Payable, Tax, or as an independent CPA. This pattern is also holding true in 2025. For instance, as a percentage of its workforce the large business/organization side of the IRS is seeing cuts in workforce numbers proportionately less than have those endured by many other IRS divisions. Thus, you must plan on continuing to deal with the onerous compliance and reporting tasks surrounding forms like the W-9 and 1099s that take up way more of your time than they should and that leave your organization vulnerable to negative interactions with the IRS.

All of that is important for a number of reasons. One is seemingly mundane, but incredibly important. That being the slowed pace of regulation writing. Regulations are important. They help to explain how changes in the law (like those big W-2/1099 changes created by the July 2025 tax bill) are to be implemented. When IRS budgets are cut it means fewer experienced personnel are available to draft new regulations. That causes the entire process to bog down and become overly extended. None of which is good for you when you are trying to update policies and procedures to comply with new Internal Revenue Code Sections. For instance, your facts and circumstances and your analysis grounded in the law are what matters when making a decision to report or not report payments made to vendors and/or dealing with the IRS. You need accurate guidance to accomplish those tasks. Lacking that guidance it becomes more likely a mistake can be made. You make a mistake in that process and it can lead to your company or organization facing backup withholding notices, penalty notices, or audits. All of that is very expensive. Worst case scenario it can even cost you your job. Given then that you are doing something that has real consequences, something where IRS support isn't where it needs to be, and where you are largely on your own - you want to be careful.

You need to rely on guidance from trusted professionals or if you are going the self-help route, then only rely on existing IRS guidance as the source for your decision-making (like treasury regulations, publications, revenue procedures, code sections). Then apply those rules to your unique facts and circumstances. This has to be stated because online search is worse than ever, and part of the reason it’s worse than ever is because of A.I. - which as you may have heard has been way less than accurate.  For instance, the BBC and Bloomberg have recently needed to bring on additional people to correct errors created by A.I. In May 2025 the Chicago-Sun Times published its Summer 2025 reading list and the newspaper relied on A.I. to write the article. The problem was that the first 10 books listed don’t even exist – A.I. just made them up. The New York Times reported in May of 2025 that A.I. is making so many mistakes in technically complicated fields legal (which includes tax) that you shouldn’t be using it all in regards to what you do other than in the simplest tasks.

A.I.’s issues here shouldn’t be surprising either. AI does not have enough original human content to make for adequate training sets. It is therefore often training on AI generated material. In other words, this is massive, institutionalized garbage in, garbage out. Recent studies bear that out. For example in June of this year Apple published the results of its look at the large language models used by A.I. This study found they can’t reason like a human because LLM’s are basically pattern matchers that break as soon as they step outside their training sets.

By the way, we've seen this first hand. As an any good tax attorney we want to test things out real time prior to handing out advice. As many of you know we are not just speakers and bloggers but also provide 1099/1042-S and State reporting related guidance to organizations across the country. As part of their subscriptions our subscribers don’t just get to ask us questions about tax compliance and reporting issues they are having. They also get access to our proprietary database containing thousands of previously answered questions, articles, and tax tips. As such, we tested one A.I. by asking it to find an old post and other articles on the same broad theme. When we checked the list of articles supplied none of them existed. The lesson is clear. A.I. will just make stuff up if it can’t find what it’s looking for. This should be concerning at your organization if it is making a push for what amounts to general purpose AI, which is bound to lead to mishaps.  

Of course, management might not care. “Goals” in the company you work for might include specific call-outs as to how you will integrate AI into your work processes, how you will use AI to leverage your work so you can do more in less time, and how AI has enabled you to be more efficient. There might even be tremendous pressure to integrate AI into every aspect of internal business processes like those done in Accounts Payable. This isn't to say A.I. isn't helpful in many fields of work. It's just that in this one (and when it comes to the LLM's) unless the individual using it is familiar with the underlying issue, there’s no way to tell if the A.I. answer to your query is correct or incorrect. You should really think of A.I. as the equivalent of hiring a high school student to do research for you – meaning you better be overseeing that assignment and double-checking all their findings (not really saving you time).

Even if you have no interest in having an on-call tax attorney answering your 1099 questions be careful when you are finding your own answers to those tricky 1099 compliance and reporting situations you will face. Always rely only on trusted advice from professionals (or the actual black letter law and rules and regulations as promulgated by the IRS) to back why you choose to report or not report a given payment to a given vendor when you do so early next year. Remember also that we are always here and ready to help!