The IRS has been deliberately and maliciously underfunded for the past two decades, and it’s not surprising they have ended up where they are.
I’m a professional tax preparer and advisor. This is exactly correct.
Early in my career, I learned exactly how small (small in the bigger picture, which is still multi-millions in sales), closely held businesses cheat on their taxes.
As a college grad and a not-yet CPA working at a CPA firm to get the experience needed for that last bit of sheepskin on the wall, I dug into plenty of sets of books to prepare monthly financial statements. We had one particular client who had components of his product produced in Japan, then imported by the container load for final assembly. The company routinely sent wire transfers to pay for these containers. There were typically two or three of these payments each month. The amounts were pretty much in a range, depending on the exchange rate with the Yen and exactly which products were in the container. At any rate, this was a common transaction and I knew how to record it on the books.
So one month, I see a wire transfer that is a bit different. It’s to a different company, but the amount is in the typical range for a container. I dutifully bring it to my boss’s attention, asking if maybe they are working with a new supplier. He tells me that it is the car the owner just bought for himself, but book it like a container purchase anyway.
And thus the lesson was taught and learned. Business owners cheat on their taxes, and with private companies, the accountants for those businesses are expected to facilitate that cheating.
I saw similar things happen at different jobs and with multiple different clients. Writing off vacations as travel expenses. Writing off family dinners as a business meeting. Writing off a personal party as a charitable contribution (complete with charitable documentation from the religious organization where the party was held). Writing off home improvements as repairs for the business warehouse.
I can pretty much guarantee that the stuff I saw is penny ante stuff compared to the really big boys. And that is where the dearth of auditing over the last two decades has cost all of us.
Large, complex businesses are hard to audit. And with the poor funding for the IRS, those audits don’t happen. Money has to be re-directed to keeping antiquated computer systems running and the massive volume of individual returns processed. Toss in a pandemic which gives many people incentive to simply quit a job where they are routinely disrespected by their major constituency (the people of the country), and the general inability to work from home for security reasons (do you really want IRS employees taking your return home to process it remotely from there?) and you have a recipe for near-disaster levels of problems.
What are the economics of adding 87k IRS agents? The economics are that those agents more than pay for themselves in increased collections, a smaller tax gap, and having enough people to actually do the job the IRS needs to do. Frankly, they probably need that much money again to really get the agency working the way it should.
–Peter
PS - I should follow this up with a shout out to the vast majority of my clients over the years who DON’T cheat on their taxes. Of course, many have little to no opportunity to cheat because they don’t run a business. All of their income and some deductible items are reported to the IRS, which makes cheating nearly impossible.