When I worked as senior counsel with the IRS Chief Counsel’s office based in San Francisco, I received a call from a revenue agent asking for my help. In a few weeks, the agent would be meeting with the taxpayer’s three attorneys in San Jose, a city about 30 miles south of my office location, and she wanted the government’s attorney beside her for legal support. The government functions predictably but sometimes awkwardly when there are insufficient resources to carry out its mission. You know what I mean if you’ve tried to call the IRS helpline the last few years. I requested $50 to reimburse my cost for gas and parking to attend the audit. The government operates on a fiscal year ending in September. And, in the final months before the fiscal year end, the government carefully monitors its remaining funds to ensure that the most critical expenditures are covered. Given the financial tightrope in these last few months of the fiscal year, my request for $50 was denied. I volunteered to travel to attend the meeting to support my client, the IRS agent, covering the cost on my own. Request denied. Traveling on government business and incurring an expense that is not approved would mean my trip was unauthorized. In short, I was prohibited from traveling to support the agent. I ended up attending the meeting via telephone conference call. And, anyone who has ever attended a meeting as the only party on a telephone line knows that it’s a hot mess.
IRS Budget Cuts
In a 2018 article, the Washington Post reported that a Republican-controlled Congress had punished the IRS with budget cuts because they believed the agency had politicized its work by targeting conservative groups for extra scrutiny. Emily Horton, a researcher with the Center on Budget and Policy Priorities, a progressive think tank, was quoted in the Washington Post article noting that if the IRS doesn’t have the resources to adequately enforce the tax law, it “could become even more costly and tilted to wealthy individuals and large corporations — who can afford to hire high-priced accountants and lawyers — than current projections indicate.” In July 2020, the Congressional Budget Office reported that the IRS’s appropriations had fallen by 20 percent in inflation-adjusted dollars since 2010, resulting in the elimination of 22 percent of its staff. The amount of funding and staff allocated to enforcement activities declined by about 30 percent since 2010.
The Global High Wealth Unit
In 2009, the IRS Global High Wealth (“GHW”) unit was formed, a few years before Congress started to draw down the IRS through lower budget appropriations. The focus of this new, elite unit of agents was to take a holistic approach in addressing the high wealth taxpayer population whose overall tax picture was far more complex than normal. If the GHW unit was to be the tip of the IRS’ spear to address inequity in tax law based on taxpayer income levels, Congressional scraps in budgeting for the IRS blunted the spear’s edge.
In an April 2019 article, ProPublica reported that the IRS had planned to assign 242 examiners to the GHW unit by 2012. But, by 2014, it had only 96 auditors. By 2018, the number of auditors had fallen to 58. Let’s put the number of agents assigned to GHW into perspective. In fiscal year ending 2020, the IRS employed just 8,234 revenue agents. So, roughly 60 agents out of 8,000 total revenue agents staffed this new elite wealth squad. The power of the purse took the legs out of the grand vision of the IRS GHW unit.
The Inflation Reduction Act of 2022
The Inflation Reduction Act of 2022 increased the IRS budget by roughly $80 billion over 10 years. The IRS will certainly hire more revenue agents with this additional funding. But, consider that historically the annual workforce attrition for the IRS is 7.3%. Currently, the IRS is comprised of about 80,000 employees which means that it can expect about 5,600 employees to leave its ranks every year. Even if the IRS hires 8,000 new employees each year for the next 10 years, it will not swell its ranks. And, it will be some time before these new employees understand how government works and become adequately trained to unravel the byzantine tax transactions employed by the high wealth taxpayer population. Many of the most experienced revenue agents have retired (or are eligible to retire within the next few years) leaving a huge knowledge gap at the IRS. Who will be left to train all these new recruits?
As a former attorney with the IRS, I see challenges and opportunities ahead for my former client with this welcome increase to its historically anemic budget. But, in the private sector, I’ve heard most people express their concern that the IRS will unleash its power to pummel taxpayers with a hoard of new agents and guns. Wrong. I’ve worked with the top IRS and Chief Counsel executives in Washington, DC all the way down the organizational ladder to newly hired agents. Each and every government employee whom I’ve worked with for 26 years strives to improve the tax system and help taxpayers. There’s enough in life to keep us worried. Don’t fall for the false hype about the IRS.
What Does the Future Hold?
Focusing on the GHW unit, what can we expect in the near future for this elite group of auditors? Like the rest to the IRS, the GHW unit will undoubtedly grow. From its current makeup of 2 territory managers (“TMs”), it will probably expand to 6 or 8 TMs. Each TM manages several groups of agents. Currently, the GHW unit falls within the Large Business International Division. But, if the IRS really wants to turn GHW to the tip of its tax spear it may move it outside of LBI Division and allow it to form its own operating division. With growth in its staffing numbers, a more supportive organizational structure and a decent enforcement budget, the “wealth squad” may finally grow and become the entity envisioned back in 2009.
Conclusion
Federal tax is a complicated and nuanced area of the law. Those facing tax concerns or complications should contact an experienced tax attorney to help them navigate this area of the law.
