Last year, the Internal Revenue Service (IRS) was defrauded to the tune of $5.8 billion during tax season. (Those fraudulent payouts were for filings reflecting taxes paid for 2013.) Despite the government agency's insistence that it prevented $63 billion in fraud, much was made about the deep budget cuts and lack of resources that the agency was forced to endure.
Now, it looks like the agency will have even less manpower at its disposal: the budget cuts and growing criticism of the IRS mean that many of its Criminal Investigation agents are choosing retirement over working in an underfunded department.
IRS Budget Cuts
Partly due to the financial conundrum known as the Affordable Care Act, the IRS budget has progressively been shrinking over the last 4 years. (Imagine that: the agency that collects money for the federal government doesn't have enough money.) Not unlike the Federal Reserve, the IRS has come under scrutiny for aiding the political motives of the ruling party by targeting opponents of President Obama and the Democrats.
While some are understandably thrilled to hear that the IRS is downsizing, included among these cost-cutting casualties are the number of Criminal Investigation (CI) agents within the government. CI agents have been retiring en masse as their work is increasingly stymied by a lack of funds. They're not being replaced, either: even as hundreds of CIs retire from service each year, the IRS plans to add just 45 new agents this year, and none next year. Even as fraud has risen, the number of new tax fraud investigations has plunged more than 30% year-on-year.
By the start of 2016, the number of CI agents is projected to be 21% lower than in 2011. These are the highly skilled, impeccably trained financial detectives that follow the money trail to find fraudsters. CI agents are the "only [people] authorized to investigate federal tax crimes, including evasion and failing to file returns."
Moreover, they're about the scariest thing a white-collar criminal can encounter. Their intimidating demeanor is used as deterrent—if potential criminals are aware that a strong network of agents is out there looking for them, they're less likely to take the risk of committing fraud.
A study conducted by the Government Accountability Office (GAO) last year revealed that the IRS estimates of fraudulent tax returns could be off by billions of dollars. The report cites problems in the agency's methodology for calculating these totals, as well as the lack of resources. The GAO even suggested that the IRS has no way to accurately gauge the costs and benefits (as well the risks) associated with efforts to tackle the fraud.
Unless there are some unforeseen changes to how the agency operates, it's simply going to get easier for criminals to swindle the government (and ruin citizens' credit ratings) when it's time to file taxes.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.