Successfully hiring and training many new, specialized enforcement tax professionals will be key to the agency’s ability to conduct a lot more of the audits it plans to by 2026, said former Internal Revenue Commissioner Charles Rettig, now a partner at Chamberlain Hrdlicka White Williams & Aughtry. However, he said the IRS will have to meet multiple workforce-related challenges.
For one, the agency is struggling to slow attrition of experienced workers, and losing experienced employees makes transferring knowledge to new employees harder, though retired staff often return to help, he said. Rettig also said the private sector is way ahead of the federal government in compensation and benefits offered.
“It will take considerable time for even the most successful hiring efforts to be impactful,” he said.
Daniel Werfel, the agency’s current commissioner, told reporters Thursday after speaking at a conference in Washington, D.C., that the agency lacks the flexibility the private sector has with regard to salary offers.
“We have to bring other reasons to the table in terms of … why someone might want to come to the IRS,” he said.
While the IRS can’t match pay, it has seen some hiring success, Werfel said.
“Because the IRS is in a position where we’re building and rebuilding, because we’ve laid out what I believe is a nonpartisan vision for where we’re going in the future, I think that’s part of what has contributed to our success in hiring the way we have,” he said.
While the private sector can also hire people faster and the agency loses people as a result, direct hire authority “evens the playing field,” Werfel said.
The IRS initially received a funding increase of nearly $80 billion from the Inflation Reduction Act, including $45.6 billion for enforcement. President Joe Biden signed the measure into law in 2022, but in 2023, he signed the Fiscal Responsibility Act , which stripped $1.4 billion of the funding increase, and agreed with then-House Speaker Kevin McCarthy to cut $10 billion more of IRS funding in each of the 2024 and 2025 fiscal years.
The agency’s report last month said progress has already been made since the Inflation Reduction Act’s passage in hiring enforcement staff. Over 4,000 enforcement workers have been hired since the law’s passage, bringing the total enforcement workforce to about 39,000, the report said. Enforcement hiring, including of workers dedicated to high-income earners and big and complex partnerships, is a priority for 2024, and continued hiring and training of new enforcement employees is a priority for 2025, the report said.
According to the report, the Inflation Reduction Act funding will cover an increasing number of full-time-equivalent enforcement roles each fiscal year from 2024 to 2029. The yearly totals of those funded positions range from 4,088 in fiscal 2024 to 33,000 in fiscal 2029, according to the report.
However, the IRS’ Large Business & International Division lost over half of its primary high-income and high-wealth audit staff between 2010 and 2023, according to a U.S. Government Accountability Office report released in February. Further, agency officials said workers needed a minimum of three years of experience to competently audit the highest-income returns, according to the report.
Former Internal Revenue Commissioner John Koskinen told Law360 that for new workers, learning all they need to about the complexities involved with large partnerships, corporations and wealthy people could mean their training might take about two years.
“It’s also possible that the new hires will begin with the more straightforward audits, freeing up more experienced employees to move to the more complicated challenges,” he said.
Werfel has said the agency is turning both to newly hired experts and artificial intelligence technology to boost scrutiny of returns filed by wealthy corporations and individuals. His remarks followed announcements by the agency in February that audits would start on three to four dozen corporations, partnerships and people regarding personal use of corporate jets and that it would step up enforcement against more than 125,000 high-income taxpayers who failed to file returns between tax years 2017 and 2021 by sending them compliance letters. The agency has also said it had, as of December, launched audits of 76 complex partnerships.
Technology such as AI can help the IRS decide what issues and returns to examine, Everson said, but can’t replace people when it comes to conducting the types of audits the IRS wants to pursue.
“The judgment of seasoned experts is essential when you’re dealing with these three segments of the taxpayer population,” he said.
Fundamentally, the agency should update its research before increasing these audits, Everson said, even though that might delay ramping up audit rates to big numbers. A lot of estimates regarding the tax gap are based on old data, he said. The gross tax gap is the difference between tax owed and tax voluntarily and timely paid, and the IRS said in October that it estimated the figure grew to $688 billion for the 2021 tax year.
“To me, the first priority is to do the research to say, where are we going to look?” he said. “And then you develop, you hire the people as best you can.”
