Staffing Hurdles Could Slow Impact of IRS Audit Boost

The Internal Revenue Service‘s intended ramping up of enforcement on wealthy people, large corporations and complex partnerships may not have a meaningful impact in the short term because of challenges in hiring and training people to do the work.

The IRS faces challenges in hiring and training staff with the experience necessary to carry out its plan to boost audits of wealthy people, large corporations and complex partnerships, former IRS commissioners said.

The agency said in a report last month that it intends to substantially increase audit rates for rich individuals, complex partnerships and big corporations in the 2026 tax year relative to tax year 2019 levels. Its plans include boosting the audit rate for large corporations with assets of more than $250 million to 22.6% from 8.8%, according to the report, a supplementary update to the IRS’ strategic operating plan for spending funds provided by the Inflation Reduction Act . The agency also intends to audit 16.5% of people with total positive incomes over $10 million, up from a rate of 11%, the report said.

Hiring for that enforcement work may be difficult, though, since experienced people need to do it, former agency commissioners told Law360. The agency is also hard-pressed to compete with private-sector employers on pay and benefits.

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.