The Internal Revenue Service (IRS) is struggling to hire a workforce commensurate with the super-sized budget expansion that it recently received. According to a report from the Treasury Department, qualified candidates just aren't jumping forward to work for the tax cops. It's yet another example of how the IRS’s budget boost was hastily implemented, poorly designed, and dangerous for taxpayers.
The Inflation Reduction Act (IRA) implemented a $80 billion funding boost to the IRS that was supposed to more than pay for itself. Estimates from the Congressional Budget Office (CBO) projected that the extra tax revenue to be gained exceeded two and a half times its initial cost. The Biden administration’s projections were even more optimistic, projecting gains five to ten times higher. But since that initial period of optimism, there has been plenty of evidence that suggests these rosy projections are way off base.
Just recently, as Congress deliberated on the omnibus appropriations bill, it was argued that the bill’s cuts to IRS enforcement funding would have a negative impact on the deficit because fewer enforcement funds would undermine its ability to bring in more revenue. These concerns assumed that the IRS could meet its hiring goals in the first place. New reports confirm that this is not the case.
The Biden administration’s strategy document outlining how it planned to use the IRA funding called for the hiring of 87,000 new personnel, including new “revenue agents capable of complex global high net-worth examinations and building the technological infrastructure to support a new information reporting regime.”
CBO initially estimated that the funding boost would enable the IRS to collect $204 billion in added revenues, though this projection was reduced to $180 billion after Treasury Secretary Janet Yellen directed that the IRA funding should not be used to increase audits on taxpayers earning less than $400,000, relative to historical levels. But even as CBO’s estimates became more bearish, the IRS claimed just last month that the funding and staffing surge will generate $560 billion more.
As inflation leads to higher cost-of-living adjustments for federal workforces, the IRS may not be able to hire as many people with the funding provided. This challenge is exacerbated by the IRS’s high rate of attrition.
Government Executive reports that even though the IRS has been given “expedited hiring authority” to provide more flexibility in filling positions, it is actually taking longer to fill an IRS position than the average for the federal government. But the situation is even worse than that.
The Treasury Inspector General for Tax Administration (TIGTA) recently found that the IRS has encountered significant hurdles in attracting qualified candidates for roles it planned to fill. TIGTA notes that even the first wave of specialists the IRS hoped would spearhead its crusade against the wealthy have yet to be hired and onboarded, as applications have been “far below the IRS targeted goal.”
Moreover, given its track history, it is unlikely that the IRS will be able to significantly speed up its on-boarding and training process, especially with their high rate of turnover. If IRS Commissioner Daniel Werfel does not have flexibility to shift enforcement funding to modernization or taxpayer services – both of which could also improve compliance and boost tax receipts in a much more taxpayer-friendly way than through audits – then Congress should do so through legislation.
The ambitious enforcement hiring goals outlined in the IRS's budget boost appear unrealistic, and this casts doubt on the agency’s ability to rake in the additional tax receipts the administration had counted on. This raises the worrisome prospect that the IRS’s audit net will sweep up middle-income earners, continuing a trend from 2023 when 63 percent of new audits were aimed at those earning less than $200,000 – a reminder that Yellen’s directive was both vague and limited to the use of the IRA funding.
These problems underscore the need for a broader reassessment of priorities and strategies within the IRS . As well, they highlight the importance of ensuring that revenue projections from CBO and Treasury align with practical realities. Ultimately, reallocating funding from enforcement to modernization and taxpayer services could be a more effective strategy to improve compliance and generate revenue in the long run.
