When we aren’t keeping an eye on the Supreme Court, Congress, or the Market, we watch for trends in the agencies regulating the retirement savings business. We mentioned changes at FINRA last winter that caused us to think that more enforcement action may be on the way and changes in how the DOL handles exemptions from prohibited practices may show a trend towards greater scrutiny. So, we definitely perked up when we noticed something new at the IRS.
When we aren’t keeping an eye on the Supreme Court, Congress, or the Market, we watch for trends in the agencies regulating the retirement savings business. We mentioned changes at FINRA last winter[1] that caused us to think that more enforcement action may be on the way and changes in how the DOL handles exemptions from prohibited practices may show a trend towards greater scrutiny. So, we definitely perked up when we noticed something new at the IRS.
According to Forbes, “The IRS is hiring thousands of new workers. Just weeks after the tax agency announced plans to ramp up its focus on millionaires, complex partnerships, and large corporations, details about related new positions have been made public. The IRS is hiring 3,700 new employees nationwide in more than 250 locations. The hiring is focused on higher-graded revenue agents. It's a second wave of hiring thanks to the Inflation Reduction Act.”[2] Jeepers, that’s a lot of agents.
Industry analysts have noted that the increased funding for the IRS through the Inflation Reduction Act amounted to about $80 million. In light of what some call a “windfall”, the IRS produced a strategic plan which said it would aim to deploy those monies in towards: 1) helping tax payers with transactions (payment and receipt) with the IRS; 2) improving the speed of tax payer issue resolution; 3) expanded enforcement on high dollar tax payers and corporations; 4) improving technology and analytics; and 5) improving the IRS’s workforce to better match the demographics of the country and meet evolving needs.[3] When it released its report in April of 2023, the specifics on hiring were slight. Missing details included the total number of agents and staff the IRS planned to hire as well as to what purpose they would be put. Previously, the IRS had said it would hire “20,000 new employees by the end of fiscal year 2024. That would include 7,239 hires in enforcement and 6,489 in taxpayer services and surely offset some attrition in the agency’s ranks from retirements.”
It's notable that the first major step the IRS has taken is to reform its ranks, which had significantly dwindled. “According to a report from the Congressional Budget Office (CBO), total appropriations for the IRS fell by 20 percent between 2010 and 2018… while the total number of employees at the agency fell by 22 percent over the same period. What’s more, the total number of employees dedicated to enforcement declined by 30 percent from 2010 to 2018, from about 50,000 to 35,000.”[4] However, the IRS’s announcement in September of 2023 shows that the increased hiring is just the start of a wider campaign.
Does this mean that the IRS will step up its scrutiny and enforcement of retirement plans and tax-deferred accounts? The law firm of Skadden Arps said maybe. “At a minimum, corporations, partnerships and high-income individuals who are under constant audit should expect larger audit examination teams as well as investigation of more issues. For larger corporations, partnerships and high-income individuals that have not yet been audited, or are not under constant audit, we anticipate a greater likelihood of being selected for audit due to an increase in IRS staff and technology flagging potential issues.”[5]
[1] https://www.bcgbenefits.com/blog/finra-enforcement
[4] https://www.pgpf.org/blog/2023/07/would-increased-funding-for-the-irs-narrow-the-tax-gap
These articles are prepared for general purposes and are not intended to provide advice or encourage specific behavior. Before taking any action, Advisors and Plan Sponsors should consult with their compliance, finance and legal teams.
Before leaping into the unknown, we recommend a thorough examination of your plan. Because we are experts in the field, we know the marketplace and know what your existing vendor is capable of offering. Through this examination, we can help you optimize the service you receive.
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