The commissioner of the Internal Revenue Service vowed Wednesday that this is the last year his agency will impose a hiring freeze — not because the IRS’s budget situation has gotten any better, but because several consecutive years of hiring restrictions have brought the demographics of its workforce severely out of whack and left it with very few young employees in its ranks.

The issue of a greying federal workforce certainly isn’t unique to the IRS. But Commissioner John Koskinen said the figures for his agency have grown particularly stark over the last several years, so it’s long-past time for at least a hiring thaw. In an agency that was once seen as bright job opportunity for new college graduates, only 650 of its 87,000 employees are 25 or younger, and just 1,900 are under 30. On the other end of the spectrum, more than half of the IRS’s employees are over age 50, and one-quarter of the workforce will be eligible for retirement by next year.

“Essentially, the IRS is facing its own version of the baby bust,” Koskinen told the National Press Club Tuesday. “The situation makes it extremely difficult, if not impossible for the IRS to develop the next generation of leaders. We estimate that by next year, 41 percent of our front-line managers and 61 percent of our executives will be eligible to retire. With those departures go knowledge and expertise that will be impossible to replace, especially if our severe underfunding continues.”

As it is, much of the IRS’s current leadership is made up of relatively new faces as 46 percent of the executives who were serving in 2010 have since left, and some divisions have seen turnover rates as high as 80 percent.

“The changes are so significant that we could hang a sign outside saying, ‘under new management,'” Koskinen said. “But tax issues aren’t simple, and neither are the core skills we need to run the IRS. When we hire a tax auditor, it takes years for them to reach full productivity and it can take even longer for those who work on the toughest corporate cases that involve multiple industries and national boundaries. That’s one of the reasons we’ve decided that even in this tough budget environment, we have to continue to train our employees to ensure they’re as prepared as possible.”

Not just people, but IT needs funding

Koskinen did not specify how much new hiring the agency plans to do in fiscal 2016. But the past several years of hiring restrictions were seen as unavoidable since a vast majority of the agency’s budget is taken up by personnel costs. Accordingly, since Congress has cut its funding by $1.2 billion since 2010, its workforce has shrunk by 16,000 positions. The IRS estimates this year’s cuts alone — $346 million — will mean it will not collect $2 billion that would normally wind up in the Treasury because of routine audits and law enforcement actions.

“It’s a classic example of being penny-wise and pound-foolish,” Koskinen said. “It’s also leading to a significant impact on taxpayer service. This year, we were forced to substantially reduce our hiring of the seasonal help we usually bring in during the filing season, and six out of ten people who call us can’t reach a customer service representative. This is truly an abysmal level of service.”

Koskinen said the funding shortfalls also have meant that despite a decade-long series of programs to upgrade IRS technology systems, the agency has not been able to keep up with its modernization needs, and, for now, has a smattering of modern IT running alongside myriad antiquated systems.

“We have many applications running now that were developed when John F. Kennedy was President,” he said. “The only good thing you can say about them is that the code they use has been out of date for so long that it has the unintended effect of creating problems for any hackers who might try to figure out how the system actually works. But this ancient technology compromises the stability and reliability of our information systems and leaves us open to more system failures and potential security breaches. While IRS systems have held up well, this is a major area of concern for us in this era of daily headlines about major breaches at large companies and institutions.”

While Koskinen made clear that he doesn’t think the IRS is being funded at the levels necessary to meet the missions Congress has assigned it to perform, he said his agency would be unwise to use any extra funding it might get to simply recreate the same capabilities it had during rosier times. Instead, he said, the IRS will prioritize what dollars it has toward business transformation.

For example, if the agency can employ IT in smarter ways, the fact that it can’t afford as many seasonal employees at its call centers wouldn’t be such a problem if taxpayers could handle most of their interactions with the agency online. Koskinen said there’s no good reason the IRS’s online self-service offerings can’t be as comprehensive as what commercial banks already provide their customers.

Longer-term solution to ID management

“The idea is that taxpayers would have an online account at the IRS where they or their preparers could log in securely, get all the information about their account, and most things would be handled virtually. There would be much less need for in-person help,” he said. “This would also help us on the compliance side of the equation. We need to be faster and smarter, and with a more modern system, we could identify problems in tax returns as soon as they’re filed, instead of coming back to taxpayers years after the fact, while the meter’s running on interest and penalties, with labor- intensive audits. Identifying issues up-front could also help in other areas such as the ongoing battle against the use of stolen identities to file fraudulent tax returns.”

But before the IRS takes more of its business online, it has a lot of work to do on the identity management front. For many of its existing Web services, the agency uses rudimentary authentication mechanisms such as a taxpayer’s social security number and their prior-year’s adjusted gross income.

Koskinen said the agency needs to come up with new ways to verify that a taxpayer accessing the Web services he envisions is who they claim to be. So, earlier this month, the IRS, state tax officials and tax software developers held a summit in which they agreed to form three working groups that will develop new mechanisms to verify taxpayers’ identities by next tax season. The public-private consortium also agreed in principle to draw up a longer-term solution to identity verification.

“Many of our efforts to improve taxpayer service will take years to fully implement. Our progress will be affected by many factors, including changes in the tax code, the continuing evolution of refund fraud and the demographics of our aging workforce,” he said. “But even with our constrained funding, we’re going to find some funds to build toward the future, even at the expense of current operations. We can’t keep waging a guerilla-style fight through our current funding challenges every year. If we do, we’ll wake up five years from now and find out that we’re five years farther behind.”

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