“87,000 What?”: Demystifying IRS “Agents”

This article is an objective analysis of a topic that has quickly gained media attention and speculation. As always, there are two sides (some would argue three, or more) to every story.

There is a lot of discussion around the possibility that the Internal Revenue Service (“IRS”) is expected to hire 87,000 agents whose sole responsibility will be to audit the tax returns of middle-class families as a budget component of the recently enacted Inflation Reduction Act (“H.R. 5376” or “Act”). The rumor has garnered headlines and has become a topic of conversation around offices and dinner tables.

Let’s provide some context and a breakdown of what this 87,000 figure actually means.

Revenue Agent vs. Revenue Officer vs. Special Agent

“Agent” is a broad term that is easily misunderstood when associated with the IRS. Most generally would understand IRS “agents” to refer to either IRS revenue agents or special agents. Currently, there are approximately 10,000 IRS employees who have “agent” in their job titles – it is highly unlikely the IRS will hire an additional 87,000 employees who fit this category.

Revenue Agents

Revenue agents (referred to as internal revenue agents) are employees of the IRS who perform audits of tax returns. Their primary goal is to ensure taxpayers pay amounts legally owed under the Internal Revenue Code (“IRC”), based upon a civil examination of a taxpayer’s records for the year(s) under examination. Depending on the result of an audit, a taxpayer may be assessed tax due along with penalties and interest on past due amounts. Revenue agents do not carry firearms and have no arrest authority. They can, however, refer a civil examination to the Criminal Investigation Division (often referred to as “CI”) for further investigation if they uncover evidence of a potential criminal violation of the Internal Revenue Code. More on this below.

If a friend or colleague indicates they are “being audited,” it is likely they, or their representative, will be communicating with a revenue agent, who will conduct the examination of their filed tax return(s) and records. Data published in the 2021 Internal Revenue Service Data Book shows that less than 1% of individual income tax returns reporting annual income between $25,000 and $500,000 are examined.¹

Tax examiners, a different IRS employee title, also review tax filings by individual taxpayers, but the returns reviewed by tax examiners are generally simpler relative to those reviewed by revenue agents (i.e., less sources of income, deductions). Tax examiners, like revenue agents, can make proposed adjustments to an individual’s tax return and assess interest and penalties on amounts owed.

Revenue Officers

Revenue officers are tasked with collecting delinquent taxes and obtaining past-due tax returns from taxpayers.² This includes assessing a taxpayer’s ability to pay taxes based upon the taxpayer’s financial records.

Revenue officers are also responsible for garnishing wages, levying bank accounts, and seizing a taxpayer’s property to satisfy delinquent tax obligations.³

Special Agents

Special agents (referred to as IRS-CI special agents) are sworn federal law enforcement officers throughout all 50 U.S. states and U.S. territories. There are also “special agent attachés” located internationally in 11 countries.⁴ IRS special agents are members of the IRS-CI and are tasked with investigating potential criminal violations of the Internal Revenue Code (i.e., criminal tax evasion, filing false tax returns, etc.) relating to both legal and illegal income sources.

IRS special agents investigate potential financial crimes for possible referral to the Department of Justice. Certain members of Marcum’s Forensic, Valuation & Litigation Support services group are former members of this unit.

Many IRS criminal investigations are connected with other illicit activities (i.e., “non-tax crimes”) including, but not limited to, drug trafficking, political corruption, money laundering, and terrorism financing. As Alphonse “Al” Capone infamously discovered, income from illegal sources is considered taxable income. Accordingly, if these enterprises willfully fail to report profits from criminal activities on their federal income tax returns (if they even file one), they may be subject to prosecution for tax evasion (or a different IRC criminal violation) and, if found guilty, sentenced in accordance with federal sentencing guidelines.

IRS special agents contribute substantially to the successful prosecution of both tax and non-tax crimes. The IRS Criminal Investigation Annual Report for Fiscal Year 2021 cites the following statistics:

• Tax Crimes: 1,372 investigations initiated, 850 prosecutions recommended, and 633 sentenced.
• Non-tax Crimes: 1,209 investigations, 1,132 prosecutions recommended, and 635 sentenced.
• All IRS criminal division investigations: 7% sourced from IRS civil revenue agent referrals.

IRS special agents are trained in the use of firearms. Money (especially in large sums) can make human beings act irrationally. Firearms and other types of protection may be necessary when serving a warrant.

IRS Workforce

The IRS Data Book for fiscal year 2021 reports that the IRS had 94,711 total full-time equivalent positions in 2010 (down from a peak of 116,673 in 1992), which further declined to 78,661 in 2021.⁶ 2021 staffing included (expressed in full-time equivalents):

• Revenue Agents – 8,321
• Tax Examiners – 8,758
• Revenue Officers – 2,783
• Special Agents – 2,004

The four categories above comprised 21,866 – roughly 28% – of the 78,661 full-time equivalent positions for fiscal year 2021.

If the IRS were presently hiring 87,000 new agents, this would represent approximately a 400% increase relative to FY 2021 levels.

IRS Funding

Page 14 of the Act begins the section regarding IRS funding. There is no mention of the number of employees the IRS is expected to hire as a result of the bill – because the legislation was passed in connection with Congress’ budget reconciliation process, which determines the allocation of federal funds.

Outlined in this section of the Act is the amount of funding allocated by Congress to the IRS for various purposes, as listed below. Note, all of the below figures are “to remain available” until September 30, 2031. In other words, these funds have been appropriated by Congress to be spent over the next 10 years.

• Taxpayer Services – $3.2 billion
• Enforcement – $46 billion (approximately 58% of the total $79.6 billion appropriated)
• Operations Support – $25 billion
• Business Systems Modernization – $4.8 billion
• Task Force to Design “Direct File” Tax Return System – $15 million
• Treasury Inspector General For Tax Administration – $403 million
• Office of Tax Policy – $105 million
• United States Tax Court – $153 million
• Treasury Departmental Offices – $50 million
• Total – $79.6 billion (approximately)

So where does this oft-cited “87,000” figure come from? The American Families Plan Tax Compliance Agenda published by the U.S. Department of the Treasury in May 2021 included an IRS proposed funding plan for the next 10 years. Page 16 of that report includes a proposal for funds of approximately $79.2 billion (very close to the $79.6 billion allocated in H.R. 5376, as noted above). Table 3 on page 16 of the proposal indicates that such an allocation of funds would allow the hiring of an estimated 86,852 full-time equivalent (“FTE”) employees (approximately 87,000) over the next decade.

Analysis of Enforcement Budget

Of the IRS’s $13.7 billion in operating costs in 2021, approximately $5 billion⁷ was spent on enforcement. The $46 billion from H.R. 5376 appropriated over 10 years for IRS enforcement translates into doubling the current enforcement budget if spent equally over the ten-year period. This information is offered to provide a different context of the IRS’ planned increase in resources compared to current levels.

Conclusion

Did Congress, through H.R. 5376, appropriate more federal funds to the IRS than in recent years? Yes. Those funds will presumably be used to hire additional staff at all levels, including revenue agents, revenue officers, special agents and other professional staff – not just “agents.”

While some of the estimated 86,852 FTE employees budgeted for will replenish staffing attrition due to retirement, career changes, etc., the hiring of approximately 87,000 FTE employees over a ten-year period can be construed as a significant expansion of the IRS.

If the IRS doubles its annual enforcement budget and, accordingly, its enforcement workforce, it will equate to an approximately 22,000 full-time equivalent increase in the four categories of enforcement personnel described above, based upon 2021 levels. While much attention has been given to the size of the enforcement workforce in terms of number of full-time equivalent employees, the efficiency of enforcement personnel through investments in technology, automation, etc. may be more relevant.

Sources

1. Internal Revenue Service Data Book (FY 2021), Table 17.
2. https://www.jobs.irs.gov/resources/job-descriptions/business-tax-enforcement#. Accessed August 2022.
3. Revenue Officers need approval from appropriate IRS personnel before carrying out these collection actions.
4. https://www.jobs.irs.gov/resources/job-descriptions/irs-criminal-investigation-special-agent. Accessed August 2022.
5. IRS: CI Annual Report 2021. Page 4.
6. Internal Revenue Service Data Book (FY 2021), Table 31.
7. IRS Data Book (FY 2021), Page 71 (Table 30).