The Internal Revenue Service has announced two new initiatives to crack down on wealthy tax cheats, though it is struggling to bring on new personnel to meet its updated goals.
IRS will first focus on 1,600 millionaires it has identified as owing at least $250,000 in taxes each, Commissioner Danny Werfel said, using funds from the 2022 Inflation Reduction Act that initially provided the agency with $80 billion over 10 years.
The plan builds on an earlier initiative that was launched on a much smaller scale, and it will require dozens of dedicated revenue agents. The second priority will focus on taxes owed by “large partnerships,” which will include hedge funds, real estate investment partnerships, publicly traded partnerships, large law firms and other entities.
The agency will launch the initiative with a focus on 75 such partnerships, though it plans to quickly expand. With the assistance of artificial intelligence that has helped IRS identify organizations with high likelihoods of tax noncompliance, Werfel said the agency has become more adept at identifying patterns and trends it previously missed.
It will soon send mailers to 500 additional large partnerships it has identified as maintaining a “balance sheet discrepancy,” and will follow up to ensure compliance.
“We didn't have the resources and the personnel in place to do the appropriate follow up to a mailing of this size,” Werfel said. “And so now that we're positioning our resources in this effort, we are now ready to issue these types of alerts.”
The commissioner acknowledged, however, that IRS lags significantly behind where it must be to fulfill the promise of the Inflation Reduction Act. Among its climate and health care priorities, the act promised to return more than $100 billion to the U.S. Treasury by collecting a higher share of the taxes owed by wealthy Americans and corporations.
Using IRA funds, the agency has surpassed 90,000 employees for the first time in more than a decade. Much of that hiring, however, has focused on improving customer service and boosting call center staffing.
That has led to some successes—the agency boosted its phone answering rate from 10% in 2022 to nearly 90% this year and has newly opened or reopened 42 Taxpayer Assistance Centers—but has left it behind on the staff it needs to boost the revenue it brings in.
Despite its new funding, revenue agent staffing has actually decreased by 8%, or more than 650 employees, between the end of fiscal 2019 and March 2023, according to a recent inspector general report. IRS had planned to bring on 3,833 revenue agents in fiscal 2023, but as of March officials had recruited just 34.
Part of the issue stemmed from the Office of Personnel Management in 2022 flagging that IRS had violated internal policies with its employee promotion process. The agency subsequently faced a Treasury Department-mandated hiring freeze, which lasted for several months before IRS demonstrated it had resolved the issue.
“The overall hiring delays will have a significant impact on the fiscal 2023 revenue agent hiring effort,” the IG said. The auditors added the prioritized hiring in other areas detracted from bringing on revenue agents.
“As a result of the IRS Human Capital Office devoting resources to support the hiring surge, it prevented the [Large Business and International] and [Small Business/Self-Employed] Divisions from hiring more enforcement employees to increase audits of high earners and to replace employees lost through normal attrition,” the IG said.
Werfel said revenue agents were "the key position to handle audit work" and IRS has openings posted for all experience levels, ranging from General Schedule-5 to GS-14.
“We know we need to make more progress in our hiring efforts, and we will be accelerating these,” the commissioner said. He added the need was particularly acute due to the agency’s aging workforce and its relatively high turnover rate.
As an additional hurdle, new hires will need to go through extensive training before they are on the job.
Werfel said IRS can alleviate some of the concerns through internal realignment, meaning he will shift existing audit staff to the new priority areas. Additionally, he said, due to its technological advancements, existing staff will be working on audits and activities "with a higher likelihood of there being a balance due that that should be returned to the U.S. Treasury.”
A funding fight
IRS has been in a lengthy battle with congressional Republicans over its new priorities, as conservative lawmakers fought against the new funding and have since passed bills to revoke it.
The Biden administration has repeatedly vowed its boosted enforcement efforts would only impact corporations and those making more than $400,000 annually, a promise Werfel reiterated when speaking to reporters Thursday, but Republicans have insisted the increased vigilance will inevitably impact lower-income Americans.
As part of President Biden’s deal with House Speaker Kevin McCarthy, R-Calif., earlier this year to raise the debt ceiling, $20 billion of the IRS’ Inflation Reduction Act funding is expected to be redirected toward other spending priorities in fiscal 2024.
This story was first published on Government Executive.