TIGTA Advises IRS To Improve Hiring Plans for Those Auditing High Earners & Large Businesses - But Debt Limit Bill May Change This

In July 2021, the House of Representatives, Committee on Appropriations, requested that TIGTA “review the IRS’s strategy to recruit and train employees to conduct audits of high earners and large businesses that underreport income as well as to collect taxes from taxpayers who have the ability to pay their outstanding debts, while also protecting taxpayer rights in the course of its enforcement efforts.” 

IRS Enforcement Function Full-Time Equivalent Employees Have Declined From Fiscal Years (FY) 2010 Through 2021
Due To Budget Decreases.

The devotion of considerable resources to the hiring surge also kept the agency's Large Business and International and Small Business and Self-Employed divisions from replacing employees lost to normal attrition, the report said. 

This reduction to enforcement function staffing levels has affected the total enforcement revenue collected by the IRS. This audit was initiated to evaluate the IRS’s strategy to recruit employees to conduct audits of high earners and large businesses. A separate report on the IRS’s examination training strategy will be issued later this fiscal year.

This reduction to enforcement function staffing levels has affected the total enforcement revenue collected by the IRS. This audit was initiated to evaluate the IRS’s strategy to recruit employees to conduct audits of high earners and large businesses. A separate report on the IRS’s examination training strategy will be issued later this fiscal year. 

The Inflation Reduction Act (IRA) provided the IRS with approximately $45.6 billion dedicated to enforcement activities. The IRS has initiated planning efforts to hire these employees, with the majority working in the IRS’s Large Business and International (LB&I) and Small Business/Self-Employed (SB/SE) Divisions. 

Reductions to IRS enforcement function staffing levels over the last decade have affected the total enforcement revenue collected. The IRS estimated that the gross annual Tax Gap for Tax Years 2014 to 2016 was $496 billion, and projects that for Tax Years 2017 to 2019, it will increase to $540 billion per year. A reduction in the number of enforcement function employees may affect the IRS’s ability to maintain sufficient audit coverage of entities and individuals contributing the most to the Tax Gap and limit its efforts to collect the taxes taxpayers acknowledge they owe but have not paid. 

The IRS Estimates That, With Existing Hiring Actions And Expected Attrition, The LB&I Division Could Hire Approximately 450 Positions And The SB/SE Division Could Hire Approximately 2,300 Positions Without Exceeding Their Authorized Staffing Levels.

However, the hiring surge of 10,000 employees to assist in reducing the tax return filing backlog for the Wage and Investment Division’s Submission Processing and Accounts Management functions has prevented the LB&I and SB/SE Divisions from hiring more employees to increase audits of high earners. Further, the LB&I and SB/SE Divisions have not maintained their authorized staffing levels with normal attrition and the hiring of new employees to replace those who have left the business units. 

A draft of the SB/SE Division’s FY 2023 hiring goals includes additional revenue agent hires. Increased examination hiring is also part of the LB&I Division’s overall hiring plan for FY 2023. The IRS issued the IRA Strategic Operating Plan in April 2023. The plan estimates that, through the end of FY 2024, there will be a total growth of approximately 20,000 employees funded by the IRA. Approximately 7,000 full-time equivalent employees are planned for enforcement business units. This report presents a pre-IRA snapshot of IRS enforcement hiring efforts.

However,the $20 billion in IRS funding cuts included in the debt limit deal reached by President Joe Biden and House Speaker Kevin McCarthy would be part of the largest-ever rescission of previously authorized funding, the chair of the House tax panel said Tuesday, May 30, 2023 in urging colleagues to support the bill.

However, The Hiring Surge Of 10,000 Employees To Assist In Reducing The Tax Return Filing Backlog For The Wage And Investment Division’s Submission Processing And Accounts Management Functions Has Prevented The LB&I And SB/SE Divisions From Hiring More Employees To
Increase Audits Of High Earners.

Further, the LB&I and SB/SE Divisions have not maintained their authorized staffing levels with normal attrition and the hiring of new employees to replace those who have left the business units. 

A draft of the SB/SE Division’s FY 2023 hiring goals includes additional revenue agent hires. Increased examination hiring is also part of the LB&I Division’s overall hiring plan for FY 2023. The IRS issued the IRA Strategic Operating Plan in April 2023. 

Now All of Those Aspirational Objectives to Guarantee
Fairness in The Tax System Are ALL GONE
as a Result of the Debt Limit Bill!

The $20 billion in IRS funding cuts included in the debt limit deal reached by President Joe Biden and House Speaker Kevin McCarthy would be part of the largest-ever rescission of previously authorized funding, the chair of the House tax panel said Tuesday, May 30, 2023 in urging colleagues to support the bill.

The Bill Calls For Not Only a Clawback of $1.4 Billion
of IRS Spending Planned For Fiscal 2023
But Also an Additional  $10 Billion Reduction
In IRS Funding In Each of Fiscal 2024 And 2025,
According To A White House Source and Republicans.

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According to Law360, the level of Internal Revenue Service resources used for a hiring surge of workers to help address the agency's backlog of tax returns kept the agency from adding workers to audit more wealthy taxpayers, according to a watchdog report released Monday.

The devotion of considerable resources to the hiring surge also kept the agency's Large Business and International and Small Business and Self-Employed divisions from replacing employees lost to normal attrition, the report said. The LB&I and SB/SE divisions will house the majority of enforcement workers the agency plans to hire to audit high earners and large businesses, the Treasury Inspector General for Tax Administration's report, dated Thursday, said.

"As a result, LB&I and SB/SE division management have been unable to keep up with hiring new employees to replace those who have left their business units and will be unable to complete as many audits of high earners and large businesses as planned," the report said.

TIGTA's report said it was a snapshot of IRS hiring work before the Inflation Reduction Act, which provided the IRS $45.6 billion for enforcement as part of a nearly $80 billion funding increase.

The report advised the IRS' deputy commissioners for services and enforcement and operations support to work together to develop a plan to effectively manage changes in hiring volume and to improve IRS-wide communication channels to lessen the impact of large hiring surges. The agency agreed with both recommendations, according to the report.

Budget cuts caused the IRS' number of full-time equivalent enforcement employees to plunge 30 percent between the 2010 and 2021 fiscal years, the report said. 

The Treasury Inspector General for Tax Administration (TIGTA) has released an audit requested in July 2021 by the House Appropriations Committee and addressing the IRS' strategy to recruit and train employees to conduct audits of high earners and large businesses that underreport income. (Audit Report No. 2023-10-025)

The legislative mandate also wanted such employees to collect income taxes from taxpayers who have the ability to pay their outstanding debts, while also protecting taxpayer rights in the course of its enforcement efforts.

TIGTA pointed out that enforcement function full-time equivalent employees have declined by 30% from fiscal years 2010 through 2021. "This reduction to enforcement function staffing levels has affected the total enforcement revenue collected by the IRS," the audit said.

The audit made clear that the IRS was counting on the $45.6 billion "dedicated to enforcement activities" provided for in the Inflation Reduction Act of 2022. "The IRS has initiated planning efforts to hire these employees, with the majority working in the IRS' Large Business and International (LB&I) and Small Business/Self-Employed (SB/SE) Divisions," TIGTA said.

According to the audit, the IRS has estimated that the gross annual Tax Gap for Tax Years 2017 to 2019, will be $540 billion per year. "A reduction in the number of enforcement function employees may affect the IRS' ability to maintain sufficient audit coverage of entities and individuals contributing the most to the Tax Gap and limit its efforts to collect the taxes taxpayers acknowledge they owe but have not paid," the audit said.

The IRS also estimated that, with existing hiring actions and expected attrition, the LB&I Division could hire some 450 positions and the SB/SE Division could hire approximately 2,300 positions and stay within authorized staffing levels. However, the hiring surge of 10,000 employees to help tackle the tax return filing backlog "has prevented" these two divisions from hiring more employees to increase audits of high earners, TIGTA said. "Further, the LB&I and SB/SE Divisions have not maintained their authorized staffing levels with normal attrition and the hiring of new employees to replace those who have left the business units," the audit said.

The IRS Strategic Operating Plan, which was issued in April, estimates that through the end of FY 2024, there will be a total growth of approximately 20,000 employees funded by the IRA. Approximately 7,000 full-time equivalent employees are planned for enforcement business units.