An IRS Audit That Is Long Overdue

The IRS is bloated, inefficient, and polarized. The audit could fix that.

President Trump’s executive order on his first day back in office has set the stage for what may be the most consequential audit of the Internal Revenue Service (IRS) in modern history. By freezing hiring for 90 days and greenlighting an investigation into the agency’s operations, the Department of Governmental Efficiency (DOGE) is now poised to expose what many of us have been saying for years: the IRS is not just inefficient, but also deeply flawed, and unfit for its growing role as a de facto welfare agency.

The IRS itself has conceded that the U.S. tax system has a staggering inefficiency problem. The “tax gap”—the difference between what is owed and what is actually collected—was estimated to be over $600 billion in 2022 alone. This money is not realistically recoverable through enforcement actions or late payments, meaning that even the most aggressive crackdown would fail to make a meaningful dent in the revenue shortfall. This is not just a failure of tax compliance but a glaring indictment of a system that has become so complex that even the most diligent taxpayers struggle to navigate it.

The IRS’s failures don’t stop at tax collection. A significant portion of its operations are now dedicated to distributing social transfers, a role that raises fundamental questions about the agency’s core mission. The IRS is supposed to be the government’s tax collection arm, yet it increasingly functions like a welfare agency. This shift has led to systemic issues, including billions in improper payments (payments that should not have been made or that were made in an incorrect amount).

Consider the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), which are meant to provide relief to low-income families. The 2022 tax gap specifically attributed to these credits was $47 billion, while total improper payments have ranged between $236 billion and $281 billion in recent years. In 2023 alone, over $22 billion—one-third—of all EITC distributions—was improperly allocated. Assuming just a modest 3% annual growth in EITC spending, improper payments will reach an astonishing $260 billion over the next decade. This is not just an issue of fraud or bureaucratic mismanagement; it is evidence of a fundamental design flaw in how these benefits are administered.

Which brings us to the ultimate question: Should the IRS even be in the business of disbursing social transfers? The answer, quite plainly, is no. The IRS was established to collect taxes, not to run a welfare program. Its evolution into a hybrid “revenue agency–welfare distributor” has made it less effective at both. The result is an agency that cannot properly enforce tax laws, cannot adequately protect taxpayer data, and cannot efficiently manage the benefits programs it has been saddled with.

But beyond inefficiency, the IRS has become increasingly embroiled in political controversies that have undermined its legitimacy. The agency’s targeting of Tea Party groups during the Obama Administration, its leaks of donor details, and its unauthorized release of private tax returns demonstrate a worrying trend: an IRS that is not simply a tax collector but a politicized arm of the administrative state. This concern is far from hypothetical. In 2021, a major breach of IRS records resulted in ProPublica obtaining and publishing the confidential tax returns of numerous wealthy Americans. A year later, the agency inadvertently leaked the private financial details of 120,000 taxpayers—information that was publicly accessible for an entire year before anyone noticed.

Then there is another problem—one that doesn’t require IRS action, but congressional action: The tax code is far too complicated. Americans collectively spend nearly 8 billion hours complying with federal tax requirements each year. When combined with out-of-pocket filing expenses, this results in compliance costs of $546 billion annually—roughly 2% of the country’s GDP. A system this inefficient is not just a burden on individuals and businesses; it is a drag on economic growth and productivity.

The audit approved by Trump’s executive order is not just about cleaning up waste and inefficiency—it is an opportunity to redefine the IRS’s role in government. It should focus on its primary purpose: ensuring tax compliance and revenue collection, not acting as an underqualified benefits administrator or a political enforcement tool.

If the audit is thorough—and if the findings are acted upon—it could mark the beginning of long-overdue reforms. The tax code must be simplified to reduce the compliance burden on taxpayers. This one requires congressional action, and there is no better time to take action than in a year when policymakers are debating tax reform. Beyond this, the IRS should move away from its growing welfare responsibilities, with benefits distribution transferred to agencies that are actually designed for that purpose.

For too long, the IRS has operated as a bloated, inefficient, and at times politicized bureaucracy. This audit is a chance to fix that. But reform will only happen if policymakers have the courage to take action, which includes congressional reform of our overly complicated tax code. The question now is: Will they?