Your Location: [intseo_breadcrumb]

America, We Have A Problem: The IRS Brain Drain

In the film adaption of the Apollo Thirteen incident in 1970, Mission Commander Jim Lovell tells NASA Mission Control Center, “Houston, we have a problem.” I watched the movie a couple weeks ago. The federal government had just reopened after its longest shutdown in American history. Tax filing season was about to open. Something hit me. 

The ill-fated space mission is a metaphor for a problem facing the country today: The IRS staffing crisis. But there are a couple of key differences, and they have nothing to do with the absence of Tom Hanks.

Commander Lovell reported an emergency to Mission Control by saying there was “a pretty large bang with a warning light.” The spacecraft’s Number 2 oxygen tank had exploded and ruptured, tearing off one side of the ultimately abandoned spacecraft. 

The IRS just had its own “large bang” emergency. Due to the 35-day government shutdown, the agency sent home 67,922 employees. Then, after nearly a month, it recalled more than 30,000 without pay  to prepare for tax filing season. At least 14,000 did not heed this recall and return to work, according to The Washington Post. 

Shutdowns have consequences. Not just for the IRS, but for individual  taxpayers—including small business taxpayers like me. In the short term, we’ll have a harder time getting questions answered as we prepare our tax returns. Some of us may say “hooray, no IRS staff at work, so no chance for an audit!” But without guidance, some taxpayers could end up paying more than they owe. And if more taxpayers cheat and underpay their taxes, that just means the rest of us will have to pay more, if not now then when all that extra debt comes due. 

Shutdowns have other consequences, too. The National Taxpayer Advocate told House staffers that it could take 12 to 18 months for the IRS to return to normal operations, reports The Washington Post. The article noted that the IRS must answer a backlog of 5 million pieces of correspondence, it delayed hiring and training staff for filing season, and it lost about 25 IT staffers every week throughout the shutdown.

For now, the immediate IRS crisis is resolved, but its structural problems remain. Years of budget cuts and poor morale have taken their toll. William Hoffman of Tax Notes reports that “Treasury lost an average of 5,797 employees per year between 2010 and 2016… while on average 1,618 per year joined the department.” Most of those workers were IRS employees, because over 80 percent of Treasury Department employees work at the IRS. 

Former IRS Commissioner John Koskinen estimates that up to 40 percent of the IRS workforce could retire this year. And a long-time IRS staffer asks, “If you were in your 60s, would you go back to work, knowing there could be another shutdown forcing you to work without pay, or would you retire?”

What happens when those IRS employees retire? Institutional knowledge retires with them, and  that loss diminishes the agency’s ability to enforce the tax laws fairly and efficiently and effectively collect revenue.  Government Accountability Office staffer James McTigue told Hoffman, “Highly trained and experienced revenue agents who work the most complex audits take many years to replace.”

Can the IRS attract the best possible talent to fill vacancies due to retirements? Generally speaking, private sector computer and information technology workers earn more than those in the IRS. Faced with ongoing budget constraints the government’s pay scale, the IRS has a hard time offering competitive salaries, especially at a time when the unemployment rate in the US is 4 percent. 

This competitive disadvantage in human capital acquisition exacerbates the long-standing challenges presented by IRS IT systems. Explained General Accounting Office staffer Dave Powner, “We have aging infrastructure, old systems, and we really need to get these systems replaced, primarily the main system that processes our tax returns and is responsible for the $3 trillion in annual revenue.” 

In recent years, the IRS has become accustomed to doing more with less. In FY 2017, for example, the IRS employed 76,832 full-time equivalent staff or contractors . That’s 14.9 percent less than  in 2012 despite increased responsibilities and a more complex tax law. But how long can it continue to do more with less, year after year, challenge after challenge? There could be another shutdown on February 15, for all we know. 

The IRS survived the latest fiscal challenge, but all is far from well. Now, the agency must try to repair the acute damage caused by the shutdown while it struggles with its long-term chronic problems. How much more should, or can, the nation tax its revenue system? 

The Tax Hound, publishing once a month, helps make sense of tax policy for those outside the tax world by connecting tax issues to everyday concerns. Have a question or an idea? Send Renu an email.