Ambiguity around IRS Funds for New Enforcement Hires

Yes. You read the headlines right. Up to 700 new IRS enforcement hires are expected to begin work in the near future. And while some may believe that the government creating this volume of jobs within one agency without Congressional funding would be cause for celebration, others couldn’t disagree more. Take the instance of Rep. Jason Chafftez, chairman of the House Oversight and Government Reform panel’s opinion about Commissioner Koskinen’s recent announcement of the IRS’ plan to hire additional enforcement personnel.  A few weeks back Fox News reported that on May 6, 2016, Rep. Chaffetz wrote a letter to the Commissioner demanding to know the specifics of how the IRS is going to find the money to fund the hiring initiative less than three months after the Commissioner wrote a letter to Congress stating an “urgently needed” $1 billion budget increase to hire enforcement personnel.

Rep. Chaffetz’s reaction to the IRS announcement should not come as much of a surprise to those that have followed the IRS’ back and forth with Congressional Republicans. This is merely the latest in partisan bickering between the nation’s revenue collector and lawmakers following a number of IRS missteps, most notably the report on lavish IRS spending on agency parties and the targeting of conservative groups pursuing tax-exempt status. As a result, Congress reacted by slashing the IRS’ budget by about $1 billion over the past five years which has had a dramatic impact on IRS customer service and enforcement.

Admittedly, the Commissioner’s explanation of where exactly the IRS is acquiring the funding for the new hires is vague at best.  In his statement, Koskinen cites attrition and “certain efficiencies” as the source of the revenue but goes no further in outlining details.  Interestingly, however, Koskinen does go so far as to explain the rationale behind the funding allocation to enforcement by saying that money is specifically earmarked for certain expenses and cannot be allocated to different departments, i.e., the $290 million Congress recently gave the IRS for cyber-security and other technology improvements.

Despite any ambiguity around the allocation of funds to enforcement hires, there is no debate this function of the IRS has been hit hard by budget cuts. Referred to as one of the core competencies of the IRS Revenue Officer Staffing has fallen over 30% the last five years. The IRS’ inability to have an effective field presence threatens not only to diminish collection revenue but also to undermine voluntary compliance.

How does this affect you or your company? While the impact may not be too dramatic, an uptick in activity as a result of the new hires could mean that the IRS is likely to open more cases or work inactive cases as it has more hands to do so. Ultimately, being proactive when it comes to dealing with your tax issues is best practice as you don’t want to be caught by surprise while simultaneously racking up penalties and interest.