Tag: irs

The Internal Revenue Service (IRS) intends to raise its enforcement personnel by 40 percent by the end of this fiscal year, with revenue agents seeing the largest workforce increase.

For fiscal year 2024, the IRS plans to boost enforcement staff by a net 5,462 employees, according to a Jan. 29 report by IRS watchdog Treasury Inspector General for Tax Administration (TIGTA). This would take the total number of enforcement personnel at the tax agency to 18,960 by the end of fiscal 2024, which is 40 percent higher than the staffing at the beginning of October 2023.

Out of the 5,462 net additions, 4,704 will be revenue agents who are tasked with conducting “face-to-face audits of more complex returns.”

The tax agency intends to add a net 493 special agents for the year, who are armed officials investigating “potential criminal activities.” Staffing of revenue officers will rise by 265 employees. Revenue officers are tasked with collecting delinquent taxes and securing delinquent returns.

By fiscal 2024-end, revenue agents will comprise close to 70 percent of the enforcement personnel. Armed special agents will make up 13.5 percent and revenue officers will account for 16.4 percent.

The Inflation Reduction Act (IRA) provided the IRS with $79.4 billion in supplemental funding that is available for the agency until September 2031. By the quarter ended Sept. 30, 2023, the agency had used $3.5 billion of the funds.

The IRS spent $1.4 billion out of the $3.5 billion IRA funds on its employees, “nearly doubling expenditures in this object class category in the fourth quarter.”

Most of the labor costs were accounted for by taxpayer services, which the TIGTA said “helped support the IRS’s efforts to hire additional customer service representatives to answer taxpayer telephone calls, as well as employees to staff Taxpayer Assistance Centers for the 2023 filing season.”

The IRS employed 89,767 people by the end of fiscal 2023. In addition to hiring staff to improve taxpayer services, the tax agency “focused on expanding enforcement on taxpayers with complex tax filings and high-dollar noncompliance to address the tax gap.”

“Tax gap” refers to the difference between taxes owed and paid to the government. The IRS claims the tax gap rose to $688 billion in 2021 alone, which is $192 billion more than estimates from 2014–16 and $138 billion more than 2017-19.

In October, IRS Commissioner Danny Werfel pointed to the tax gap to justify the importance of “increased IRS compliance efforts on key areas.” At the time, he said that the agency would use IRA funding to strengthen compliance on “high-income and high-wealth individuals” as well as businesses.

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One of the Internal Revenue Service’s fangs has quietly grown much sharper, as the interest rate charged on the underpayment of federal income taxes has soared from 3% to 8% in less than two years. If you’re not sure if you’re hitting the right pace, it’s time to double-check your situation to make sure you don’t throw any more money into Uncle Sam’s rathole than you must. 

While many taxpayers focus on the annual April deadline, the federal income tax actually works on a “pay as you go” basis, in which the government demands recurring bites out of your income, with those bites rising and and falling in proportion to what you’re earning over the course of the tax year. If the math comes out wrong enough when you file, the IRS will penalize you by demanding you pay interest on money you were supposed to have forked out earlier.

In August, the IRS announced that the interest penalty charged against underpayments was rising to 8% for the calendar quarter that started Oct. 1. The rate isn’t set on a bureaucrat’s whim — per the Internal Revenue Code, it’s calculated each quarter by adding 3% to the “federal short-term rate.” Thus, the higher rate is a reflection of the surge in interest rates. As recently as the first quarter of 2022 — when the Fed’s zero interest rate policy was still in place — the rate was just 3%.  For the first three quarters of 2023, it was 7%.  

Most people whose income is almost entirely derived from regular employment satisfy the pay-as-you-go system through the income tax that employers withhold from each paycheck. Assuming they’ve filled out their IRS W-4 forms correctly, those workers typically don’t run afoul of underpayment penalties. However, regular employees who receive big bonuses or equity compensation might find the regular withholding formula doesn’t cough up enough money to please the IRS. If you want to play with the numbers on your own, you might check out the IRS’s online Tax Withholding Estimator — though ZeroHedge sure isn’t guaranteeing its accuracy. 

For many people, avoiding underpayment penalties requires making quarterly estimated tax payments directly to the IRS, or significantly adjusting their employee withholding. That’s true of anyone with significant income from anything other than regular employment, including the self-employed, gig economy workers, and people with substantial investment income from things like interest, dividends and capital gains. Note: The 2023 surge in yields on money market funds and some bank accounts may cause a surprise underpayment penalty for those who’d grown accustomed to earning near-zero on their cash. 

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IRS hiring 3,700+ tax enforcers to audit higher earners but a watchdog worries about audits for those under $400,000 due to unclear “high-income” definition.

The Internal Revenue Service (IRS) is looking to hire over 3,700 additional tax enforcers as it ramps up its audit crackdown of higher-earning taxpayers, though a watchdog warns that Americans making less than $400,000 could get caught in the dragnet because the agency doesn’t have a clear definition of “high-income.”

The IRS said on Sept. 15 that it had opened over 3,700 positions nationwide to assist  with “expanded enforcement work” that focuses on complex partnerships, large corporations, and high-income earners.

The compliance positions will be open in more than 250 locations across the United States and are part of a “sweeping, historic” tax enforcement crackdown that leverages cutting-edge technology, including artificial intelligence, to catch tax evaders more effectively.

The hiring will be for higher-graded revenue agents, with the IRS calling on people in the financial services industry—such as tax accountants, forensic accountants, auditors, and controllers—to apply.

The IRS is flush with cash from a recent congressionally-mandated infusion of $60 billion in new funding, with some of the money already having bolstered the tax agency’s ranks substantially. Recent reports indicate that hiring is up around 13 percent over the past year, allowing the IRS to hit a decade-high of nearly 90,000 staffers.

But while the recent batch of new hires was focused on taxpayer service positions, the newly announced hiring thrust is looking to give the IRS more enforcement muscle.

“This next wave of hiring will help the IRS add key talent like tax accountants to help reverse a decade-long decline of audits for the wealthy as well as complex partnerships and corporations,” IRS Commissioner Danny Werfel said in a statement.

“These new employees will be focused on higher-income and complex tax areas like partnerships, not average taxpayers making less than $400,000,” Mr. Werfel added.

But Mr. Werfel’s pledge not to target Americans earning under $400,000 rings hollow, given a recent watchdog report that called into question the ability of the IRS to make good on this pledge because it either lacks a clear definition of “high-income” or uses outdated tax examination activity codes that put the threshold for high earners at $200,000.

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