GAO says IRS needs to improve its human capital management

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The Internal Revenue Service needs to do a better job of managing its employees in the wake of budget cuts that have forced the IRS to severely reduce tax audits, or else it could be putting its mission at risk, according to a new report from the Government Accountability Office.

The report pointed out that fewer individual and corporate tax returns have been audited in recent years, simply because the IRS doesn't have the people it needs to enforce existing tax laws while implementing new laws. Even though lawmakers voted to increase the IRS’s budget to deal with implementing the Tax Cuts and Jobs Act last year, billions of dollars in taxes still go unpaid every year. Enforcing tax laws, the GAO noted, is a high-risk area that’s critical to promoting voluntary compliance and collecting unpaid taxes.

The key to addressing those challenges is the IRS workforce, and “cultivating a well-equipped and engaged workforce requires strategic human capital management that will help IRS focus its current and future hiring needs,” according to the report.

The GAO pointed out that the IRS has scaled back its strategic workforce planning activities in recent years. IRS officials told the GAO that resource constraints and fewer staff with strategic workforce planning skills due to attrition have required the agency to largely abandon its strategic workforce planning activities.

But several indicators, such as increasing rates of retirement eligible employees and declining employee satisfaction, have led the IRS to decide that continuing to make short-term, mostly nonstrategic human capital decisions was unsustainable. One way the IRS tried to address these issues was to develop a strategic workforce plan along with an associated workforce planning initiative. Implementation of that initiative implementation is behind schedule and on hold, though. The IRS blamed the delay on a combination of personnel resources redirected to implement the Tax Cuts and Jobs Act, lack of workforce planning skills within its Human Capital Office, and delayed deployment at the Treasury Department related to a new workforce planning system. As a result, the IRS lacks information about what mission critical skills it has on board, where the skills gaps are found, and what skills will be needed in the future.

IRS staffing levels have declined each year since 2011, but the declines have been uneven across different areas. The GAO found the reductions have been most significant among those who performed enforcement activities, where staffing declined by around 27 percent (fiscal years 2011 through 2017). The IRS attributed the staffing declines mainly to a policy decision to strictly limit hiring. IRS officials told the GAO that declining staffing was a big contributor to decisions to scale back activities in some program and operational areas, especially in enforcement, where the number of individual returns audited from fiscal years 2011 through 2017 declined by nearly 40 percent.

That means the IRS has skills gaps in some mission-critical occupations, the GAO noted, and the agency's efforts to address these skills gaps don’t target the occupations in greatest need, such as tax examiners and revenue officers. However, the results of an interagency working group effort that started in 2011 to address skill gaps among IRS revenue agents and other occupations with skills gaps across the government could hold some important lessons for addressing skills gaps in other mission critical occupations at IRS.

The IRS's Human Capital Office has limited staffing capacity to hire employees in hard-to-fill positions, which presents risks for the IRS’s ability to implement the Tax Cuts and Jobs Act. The IRS is working on different ways to improve its hiring capacity, but hasn’t yet decided how each activity will be evaluated and how it will contribute to increased hiring capacity. Changes in the IRS’s hiring processes have been confusing to managers and contributed to hiring delays, the GAO noted. It believes clear guidance on hiring request requirements would better position IRS to avoid the risk of hiring delays for mission critical occupations.

The GAO made six recommendations to the IRS, including implementing its delayed workforce planning initiative, evaluating actions to improve its hiring capacity, and addressing changes in its processes that have contributed to hiring delays. The IRS agreed with the GAO's recommendations. The GAO also recommended the Treasury clarify its guidance to IRS on its upcoming workforce planning system. The Treasury agreed with the recommendation.

“Key to addressing IRS’s challenges is its workforce,” wrote Jeffrey J. Tribiano, deputy commissioner for operations support at the IRS, in response to the report. “Cultivating a well-equipped, diverse, flexible, and engaged workforce requires strategic human capital management.”

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Tax audits Tax planning IRS GAO Treasury Department