IRS is reducing its physical footprint but needs a better long-term plan, its IG says

The Internal Revenue Service has reduced its property footprint by 2 million square feet since fiscal 2018, but the agency needs a better long term plan for space reduction, according to a new audit from the Treasury Inspector General for Tax Administration.

Between the 2018 and the 2023 fiscal years, IRS’ overall space footprint fell from 24.3 million rentable square feet to 22.3 million, a decrease of about 8%. The agency expects to spend around $600 million in real estate costs across its 516 office buildings in fiscal 2024.

Greater attention has been paid to unused office space and low occupancy rates in federal buildings due to the increased use of telework since the onset of the COVID-19 pandemic. While some congressional Republicans have been skeptical of the workplace flexibility’s efficacy, they have argued that if the practice is effective, agencies should begin offloading unneeded space freed up by fewer in-person workers.

At IRS, bargaining unit employees are allowed to work from home between four and eight days per pay period, depending on their job, while remote workers only come in “infrequently.” Last month, IRS Commissioner Danny Werfel began requiring managers, executives and other non-bargaining unit employees in the D.C. area to commute to work 50% of their work hours.

In fiscal 2023, the inspector general found that a majority of IRS buildings experienced an occupancy rate of 50% or less. And while the agency has begun implementing a new hoteling system, whereby teleworking employees share work stations based on who is in the office, a majority still have their own dedicated work stations.

“As of September 2023, there were 9,084 out of 23,253 frequent teleworkers either sharing a workstation at a 2-to-1 ratio or higher or hoteling in IRS office space,” the audit states. “[The] remaining 14,169 IRS employees (61%) in frequent telework status were assigned to an individual workstation. Moving these employees to a 2-to-1 workstation sharing/hoteling ratio, for example, could potentially eliminate up to 7,084 unneeded workstations resulting in a potential space reduction of 396,704 rentable square feet."

The inspector general estimated that step alone could save $10.8 million in real estate costs per year.

“We recognize that a 100% workstation sharing/hoteling rate at all locations is not always practical and space reduction projects often take several years to plan and complete,” they wrote. “However, implementing a 2-to-1 workstation sharing/hoteling ratio where it is practical to do so would better achieve compliance with the [Office of Management and Budget’s] guidance to make more efficient use of the government’s real estate assets and reduce the IRS’ total square footage while still allowing the flexibility to accommodate support of a 50% in-office presence for teleworkers, as needed.”

IRS says that it plans to continue to reduce its net office space by 421,000 rentable square feet by the end of fiscal 2026. But the inspector general said that plan likely will not meaningfully improve the agency’s occupancy rate, and that it needs a strategic facility plan to help project the agency’s future space needs and analyze how to reduce unneeded square footage.

“We believe that the IRS lacks a long-term space reduction plan that clearly specifies the space reductions it expects to achieve annually beyond fiscal 2026, and that sufficiently decreases its unneeded office space by maximizing the space savings associated with current practices in remote work, telework and workstation sharing/hoteling,” the report states. “Although the IRS has identified potential future space reduction projects through its strategic facility plan process, it has yet to translate this information into a long-term space reduction plan that outlines how and when it will achieve these reductions.”

The IRS concurred with two recommendations from the inspector general, including the call for a long-term space reduction plan, as well as reevaluating already planned space reduction projects to ensure that they mesh with the agency’s current telework policy.