IRS tries to downsize extra office space

The Internal Revenue Service has been making efforts to reduce the overall amount of space it rents, but it nevertheless has lots of unnecessary space that it’s paying hundreds of millions of dollars for every year, according to a new report.

The report, released Monday by the Treasury Inspector General for Tax Administration, said that in fiscal year 2024, the IRS will spend approximately $600 million on real estate costs, which encompass 516 office buildings totaling 22.3 million square feet. The 516 buildings represent all the buildings leased or owned by the IRS as of Sept. 29, 2023, not including parking lots, daycare centers, IRS Criminal Investigation storage facilities, warehouses and alternate telework sites. 

The IRS has managed to downsize its real estate footprint to some extent in recent years, and over the past six years, has reduced its overall space footprint by 8%. However, the report noted that the IRS lacks a long-term space reduction plan that clearly specifies the reductions it expects to achieve in the future.

In fiscal year 2023, over half of IRS buildings had a workstation occupancy rate of 50% or less. The IRS also has not implemented workstation sharing or hoteling for 61% of its employees who frequently telework.

The problem goes beyond the IRS, and the report acknowledged that the federal government’s continuing struggle with excess and underused space has needlessly cost taxpayers millions of dollars. In March 2015, the White House Office of Management and Budget issued a memorandum requiring all agencies in the executive branch to move aggressively to dispose of surplus properties held by the federal government, and to make more efficient use of the government’s real estate assets, and reduce total square footage of domestic office and warehouse inventory.   

The Government Accountability Office reported that the federal government could do a better job of managing its real estate portfolio by effectively disposing of unneeded buildings and collecting reliable real estate data. More recently, the Treasury Department issued guidance to the IRS on annual space planning and office utilization. After personnel, rent is one of the IRS’s biggest operating expenses. 

Since fiscal year 2018, the IRS has decreased its overall space footprint by around 2 million rentable square feet, from 24.3 million to 22.3 million, but that amounts to a reduction of only about 8%. More efforts are needed to address long-term space planning, increase efficient space allocation and realize cost savings, according to the report.  

TIGTA previously recommended that the IRS improve the accuracy of the workstation occupancy information contained in its Graphic Database Interface system, which helps with long-term space planning efforts. TIGTA found that since its last review, the IRS has enhanced its internal controls over occupancy information accuracy using standardized building validations in the system’s walkthrough reports, but said the documentation could be improved. 

“Until the IRS develops and maintains an overall long-term space reduction plan fully addressing and maximizing space savings associated with current telework policy, it will continue to struggle to sufficiently address the significant amount of unneeded space that it currently occupies,” said the report. 

TIGTA recommended that the IRS should develop and maintain a long-term space reduction plan that includes annual space reductions the IRS expects to achieve, aligns with the Treasury’s workspace management requirements, and decreases unneeded office space by maximizing the space savings associated with current IRS practices in remote work, telework and workstation sharing/hoteling. The IRS should also reevaluate its existing planned reduction projects to ensure that they reflect current IRS telework policy, TIGTA suggested, and clarify the instructions for the Graphic Database Interface system walkthrough report to require an entry in key fields to document the results of the workstation information validation.  

The IRS agreed with all three of the recommendations in the report and said it has developed corrective actions to address each of them. However, the increased hiring by the IRS to meet the mandates and extra funding from the Inflation Reduction Act may stall some of those efforts.

“Rightsizing our real estate portfolio is a complex endeavor, given the significant increase in hiring related to the Inflation Reduction Act priorities and the existence of programs, including a Remote Work Pilot, that only temporarily reduces demand for workstations unless IRS and Treasury decide to make these programs permanent,” wrote Richard Rodriguez, chief of facilities management and security service at the IRS, in response to the report. 

He noted that since the passage of the Inflation Reduction Act in 2022, the IRS has grown its workforce by more than 10% and onboarded a record number of 16,405 external hires in fiscal year 2023, and 9,737 so far this fiscal year.