Limited Resources Leads to Limited Enforcement: Locating the Source of Recent IRS Struggles

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According to the Treasury inspector general for tax administration, the IRS’ Exempt Organizations Division received 199,689 applications for tax-exempt status between 2010 and 2012. In 2012 alone, the agency received 73,319.  How many IRS agents does it take to carefully review and process these applications?

While the exact number may be difficult to identify, we can be sure it is not 150 -- the number of agents the IRS currently allocates to handle and process tax-exempt applications.  This number falls far short of the number adequate to the task.  To make matters worse, processing of tax-exempt applications is not the only responsibility of these agents.  The same IRS agents are also required to process various other requests filed with the IRS’ Exempt Organization Division, including requests for reclassifications of public charity status, private foundation determinations, and other ancillary issues. 

Alexander Hamilton, in Federalist #30 wrote,

How is it possible that a government half supplied and always necessitous, can fulfill the purposes of its institution, can provide for the security, advance the prosperity, or support the reputation of the commonwealth? How can it ever possess energy or stability, dignity or credit, confidence at home or respectability abroad? How can its administration be any thing else than a succession of expedients temporizing, impotent, disgraceful? How will it be able to avoid a frequent sacrifice of its engagements to immediate necessity?

The problem with the IRS’ EO Division is that it is half-supplied to do the voluminous tasks mandated by Congress.  In such a state, the IRS will always be challenged to, as Hamilton suggested, possess adequate energy, stability, dignity and credit, instilling confidence and respectability both home and abroad.  Thus, Congress needs to provide more funding or the tasks need to change in the form of the way the IRS monitors compliance with, and enforces, the tax laws affecting exempt organizations.  Given the nation’s current budgetary constraints, the latter appears to be a wiser long-term solution.