Mass Layoffs at the Tax Agency May Slow Down Crypto Asset Regulation

Two key digital asset specialists at the Internal Revenue Service (IRS) — Seth Wilks and Raj Mukherji — are leaving the agency after receiving a “deferred retirement” offer from the Department of Government Efficiency (DOGE), headed by Elon Musk. According to CoinDesk, these experts, who worked at the IRS for just over a year, were the main architects of the new cryptocurrency taxation system in the United States. Their departure comes as part of a massive staff reduction at the tax agency, affecting more than 20,000 employees, and could significantly slow down the development of regulatory infrastructure for digital assets in the country.

Loss of Key Experts at a Critical Moment for the Industry

According to informed sources, Wilks and Mukherji will formally remain IRS employees for several more months, but since May 2, they have been effectively removed from work, being on paid administrative leave. This means that the development of critically important tax tools for the crypto industry may be suspended or significantly slowed down.

Seth Wilks came to the IRS from TaxBit, a company specializing in tax reporting for cryptocurrency operations, and Raj Mukherji was previously a tax specialist at Binance.US and ConsenSys — companies that hold key positions in the crypto industry. Their experience in the private sector and deep understanding of the technological aspects of blockchain made them irreplaceable experts in digital asset taxation.

“The departure of Wilks and Mukherji from the IRS is a serious loss for the tax service,” comments Janet Baker, a former adviser to the US Treasury Department on financial technology issues. “They possessed a unique combination of experience in the crypto industry and understanding of government processes, which is rare among civil servants. Replacing them will require significant time and resources.”

One of the key projects that Wilks and Mukherji were working on was the updated Form 1099-DA — a specialized tax document designed to simplify the declaration of digital asset operations for US citizens. This form was supposed to be an important step toward transparent and understandable cryptocurrency taxation, but now its development and implementation may face serious delays.

Massive Cuts at the IRS and the Role of Elon Musk’s DOGE

The departure of cryptocurrency taxation specialists is part of a broader initiative to reduce federal spending, led by the Department of Government Efficiency (DOGE) under Elon Musk’s leadership. According to The New York Times, more than 20,000 IRS employees have accepted “deferred retirement” offers, meaning they are on administrative leave until September, after which they will leave the agency.

Elon Musk, appointed as head of DOGE in January 2025, previously stated that his department would perform a significant part of the work needed to reduce the federal budget deficit by $1 trillion “within the specified timeframe.” The IRS became one of the first federal agencies to undergo massive cuts as part of this initiative.

“The scale of cuts at the IRS is unprecedented,” notes Robert Martinez, a professor of public policy at Georgetown University. “While improving the efficiency of government spending is a worthy goal, such sharp staff reductions can lead to serious gaps in expertise and the agency’s ability to perform its functions, especially in specialized areas such as cryptocurrency taxation.”

The cuts are occurring at a time when the cryptocurrency market is experiencing a new growth cycle, and the number of Americans owning digital assets has reached a historic high. According to recent studies, more than 40 million US citizens own cryptocurrencies, creating an unprecedented burden on the tax service in terms of monitoring and administering tax obligations.

Potential Implications for Cryptocurrency Regulation in the US

The departure of leading digital asset specialists from the IRS could have far-reaching consequences for cryptocurrency regulation in the United States, especially in the area of tax compliance and reporting.

“Without adequate leadership and expertise, the IRS will find it difficult to develop and implement effective tax rules for crypto assets,” believes Alex Sommers, founder of the consulting firm Crypto Tax Advisors. “This could lead to increased legal uncertainty for businesses and private investors, as well as potential losses in tax revenue for the government.”

One immediate consequence could be a delay in the development and implementation of new tax reporting tools, including the aforementioned Form 1099-DA. This could create additional complications for taxpayers who already face confusing and ambiguous cryptocurrency taxation rules.

In the long term, weakened tax oversight could lead to dual consequences. On one hand, it could create a more favorable environment for innovation and growth in the US crypto industry by reducing regulatory pressure. On the other hand, the absence of clear and fair rules could undermine trust in the industry and increase risks for investors.

“Effective regulation is a balance between consumer protection and encouraging innovation,” emphasizes Maria Lopez, director of the Center for Financial Technologies at Stanford University. “Cuts at the IRS could disrupt this balance, creating a vacuum that could be filled either by overly strict rules in the future or lead to insufficient protection for market participants.”

Some experts also note that reducing IRS resources directed at monitoring cryptocurrency operations could lead to an increase in tax evasion cases and other financial violations. This, in turn, could provoke a harsher reaction from regulators in the future, potentially harming legitimate market participants.

A New Phase in Crypto Taxation Development

The departure of leading digital asset specialists from the IRS marks the beginning of a new phase in the relationship between the crypto industry and US tax authorities. With reduced resources and expertise in the public sector, private companies and industry associations may take a more active role in developing tax compliance standards and practices.

“We see an opportunity for greater self-regulation of the industry,” notes James Wilson, executive director of the Blockchain Business Association. “Crypto companies and industry groups can collaborate to develop best practices and tools that will help market participants meet tax obligations even with limited guidance from the IRS.”

At the same time, some analysts suggest that the departure of experienced specialists from the public sector could lead to their transition to private crypto companies, potentially improving compliance with tax requirements in the industry through internal expertise.

“Often we see former regulators moving to the private sector, bringing valuable knowledge and experience with them,” comments David Chen, partner at the law firm Blockchain Legal Partners. “Wilks and Mukherji could have a significant impact on the crypto industry, helping companies develop robust tax compliance systems.”

In any case, the massive cuts at the IRS and the departure of key cryptocurrency experts signal significant changes in the US regulatory landscape. How these changes will affect the long-term development of the crypto industry and tax policy regarding digital assets remains to be seen.