IRS Has Hired 34 Agents to Audit High Income Earners Instead of the Targeted 3,833 Hires
The Inflation Reduction Act allocated substantial more funds to the IRS to audit high income earners. So far, the IRS has not been able to find many to help in the effort.
The report indicates the IRS is way behind its efforts to hire revenue agents. Their Small Business/Self-Employed division attempted to hire 1,788 agents during fiscal 2023 and through August 2023, they had hired 19. The Large Business and International division was even worse. They attempted to hire 2,045 agents and were only able to hire 15 agents.
The report had an interesting chart showing their estimated amount of annual tax gap for the years 2014-2016. The charts show about $500 billion of annual tax revenue not paid to the government with close to $400 billion of this from underreporting of income. About $60 billion was from underpayment and $40 billion from those not filing a tax return.
Individuals make up about $278 billion of the underreporting shortfall, with employment taxes at $82 billion, corporate taxes at $37 billion and estate taxes at $1 billion.
The Taxpayer First Act of 2019 required the IRS to provide a comprehensive training strategy for their employees. As of yet, they have not implemented any new comprehensive training. Their goal is to create the Internal Revenue Service University (IRSU) to help implement the training. We shall see how that gets done.
On page 16 is an interesting graph showing the number of audits by income range. In FY 2022, there were a total of 45,605 audits started of which 34,044 were for taxpayers with taxable income under $200,000. During FY 2023, the numbers dropped to 28,996 and 63% of the audits were for taxpayers under $200,000 of taxable income.
The percentage of audits for those with taxable income over $1 million did increase from 11% in FY 2022 to about 19% in FY 2023 with the majority of the increase for taxpayers with income over $5 million.
It will be difficult to find enough agents to handle high income audits. CPA firms in general have a hard time finding enough employees and most would rather work for a CPA firm than the IRS.