IRS Faces Stiff Hiring Challenges, Ex-Officials Say

By: Jonathan Curry

An 87,000-employee hiring spree for the IRS sounds great on paper, but actually getting that many new workers through the door is another matter, according to two former officials.

“Bringing on new personnel will probably be the most significant challenge the IRS is facing on what to do with this new funding,” former IRS Chief Counsel Michael J. Desmond, now at Gibson, Dunn & Crutcher LLP, predicted November 3 on a webcast sponsored by RSM US LLP.

David Kautter of RSM, who served as acting IRS commissioner and Treasury assistant secretary for tax policy during the Trump administration, noted that the agency is competing for talent in a “very tight labor market.” He especially questioned how the IRS would be able to hire the enforcement personnel needed to provide closer scrutiny of complex business returns and high-net-worth taxpayers.

Desmond observed that hiring was already a challenge for the IRS even before the Inflation Reduction Act (P.L. 117-169) gave it $80 billion in funding to work with. On the processing side, the IRS regularly had the experience of trying to hire thousands of employees to work in its processing centers, yet it’s able to hire only a fraction of that, he noted.

Given how far the IRS’s level of taxpayer service has fallen and how apparently insurmountable its paper processing backlog has been, the agency’s most pressing priority is to fill jobs in its taxpayer service and return processing functions, but those will probably be among its most difficult hiring challenges, Desmond said.

The IRS recently announced it had hired 4,000 customer service representatives so far this year using the direct-hire authority it received earlier this year. It was granted the special authority to hire 10,000 employees in its accounts management and submission processing units in 2022 and 2023.

Hiring the kind of talent needed to examine complex business returns and sophisticated transactions will be the next big challenge for the IRS, Desmond said.

But the hiring prospects aren’t all bleak, according to Desmond. He said the agency’s effective work on cybersecurity and cryptocurrency tax enforcement could be a “real attractive hiring magnet” for hiring prospects intrigued by the idea of working at the agency for a few years, even though the IRS can’t compete on salaries with the private sector.

That’s also likely to be true in the IRS Office of Chief Counsel, where Desmond said that the opportunity to work for the agency for a few years offers the chance for someone to get “very deep experience in very technical areas.” That’s an even more enticing prospect now that there are some substantive new tax provisions enacted as part of the Inflation Reduction Act, he added.

IRS Commissioner Charles Rettig recently said the IRS’s efforts in that area have gone “exceptionally well.” Speaking October 21 at the Freeman Law International Tax Symposium, he said that when the agency set out to hire 200 attorneys in the chief counsel’s office earlier this year, it received more than 1,300 applications.

“When I came on board, my hope was that we would get back to where it’s essentially a calling card to say, ‘Hey, I worked at IRS,’” Rettig said.

Even for those attractive roles, it will still be challenging for the IRS to hire on the scale it envisions, Desmond said. “Hopefully, the IRS can pivot and really lean on those unique opportunities that the experience of the government can provide as something of a recruiting tool,” he added.

Fortunately, hiring difficulties should also be less of a problem on the IT side, Desmond said. Now that it has the funding, the IRS can use its existing contractor relationships to ramp up its IT modernization work instead of hiring those personnel directly, he explained.

No Surprise Here

Desmond’s sentiments were recently echoed by incoming acting IRS Commissioner Douglas O’Donnell, who said at the American Institute of CPAs National Tax Conference that hiring with the extra $80 billion on hand is “exceptionally important.”

To make the progress that the agency wants to make in areas like taxpayer service, modernization, and enforcement, it needs to hire large numbers of qualified people across the entire organization. “Every bit of work we do, we’re going to be looking to hire,” O’Donnell said November 1.

Those new hiring initiatives also need to contend with the agency’s high attrition rate, according to O’Donnell, who noted that the IRS is losing about 8,000 employees each year because of retirement or switches to other careers. Keeping those veteran employees around to train new hires is critical: “I cannot overstate the importance of the folks that are in the building that are doing the work — they know how to do it,” he said.

A July 20 IRS report estimated that 52,000 of the IRS’s roughly 83,000 personnel would be eligible to retire or resign over the next six years.