Fixing the IRS: Where do we Start?

It’s no secret that the IRS makes mistakes, sometimes serious mistakes.  It may have been secret before (at least for the average taxpaying citizen) regardless of the Treasury Inspector General for Tax Administration (TIGTA) reports that highlight the agency’s deficiencies.  But in recent months the IRS has been under intense media scrutiny, bringing these reports out into the open in mainstream media outlets.

The problems at the IRS are the result of:

  • ineffective training
  • weak leadership
  • poor judgment
  • inexperienced employees
  • an overly-complex tax code
  • simple human error
  • insufficient funding

This is by no means a comprehensive list.  And it’s easy to lump them all together and imagine one comprehensive solution.  There are some who think all the problems can be fixed by increasing funding to the IRS.  They see this as the root of all employee development, training, and managerial issues.  This is perhaps the primary argument of IRS sympathizers; however, I’m not so sure there is an all-in-one solution for cleaning up at the IRS.

To use a recent example, why don’t IRS Revenue Officers (RO) always follow legal guidelines when seizing taxpayer property to cover unpaid taxes?  This is probably the most serious collection action that the IRS can take.  And besides going to prison, this is what taxpayers fear more than anything.  So, why do they get it wrong sometimes?  We can probably rule out “complex tax code” because the procedures for seizure of property are clearly laid out in the Internal Revenue Manual (IRM) so an RO has only to follow the steps.  But any of the other listed reasons could realistically apply.

Although I think it is impossible to narrow it down to one root problem, it is clear that there is quite a bit of overlap.  For example, an inexperienced employee is more likely to make simple human errors and use poor judgment in his work.  And lack of/ineffective training is a symptom of poor leadership.  This overlap is a good thing when contemplating solutions because it means that addressing one issue will automatically improve another.  It also means that once we get started on the task of fixing the IRS, we’ll already be closer to our goal than we think.

The IRS' Human Capital Problems

TIGTA’s latest audit report discusses the issue of human capital at the Internal Revenue Service.  Human capital consists of the skills, abilities, and contributions of the employees in an organization, and it is interconnected with key functions like hiring, training, and retention.  In this day and age, any discussion of human capital in our government necessarily must also include a discussion of funding.  Sure, human capital has always been an investment, but these days there is so little money to invest.

I think one of the most alarming issues identified in this report, at least from the perspective of a tax attorney, has to do with staffing.  The IRS is quickly losing its most valuable employees.  I don’t know if the IRS will ever be able to significantly reduce turnover with the rank and file.  Phone operators and other service center employees don’t get paid much and their jobs tend to be very stressful.  These just aren’t career / lifetime positions.  But that’s not the primary concern when it comes to staffing.  The bigger issue is the inevitable loss of managers and executives since changes in leadership can have an impact on all other IRS jobs.

This is what I found in TIGTA’s report that really blew me away:

[M]ore than one-third of all executives and almost 20 percent of nonexecutive managers are currently eligible for retirement. IRS data indicate that within five fiscal years, nearly 70 percent of all IRS executives and nearly one-half of the IRS’s nonexecutive managers are projected to be eligible for retirement. Overall, about 40 percent of the IRS’s employees will be retirement eligible within five fiscal years.

Executive positions are not easy to fill; it is critical that the IRS finds the right people to take over when the current executives retire.  In short, it takes a lot of human capital to ensure there will be enough human capital to go around in the future.  They will have their hands full during the next 5 years.