David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: now hiring.
On November 12 IRS Commissioner Charles Rettig will depart as head of the agency when his term ends. From there, an acting commissioner appointed by President Biden will take his place.
Although the acting commissioner will have the same authority as a Senate confirmed one, the temporary nature of the position will lend itself to some uncertainty. And this comes as the agency is set to receive an additional $80 billion in funding from the Inflation Reduction Act.
So what can we expect in this leadership transition? Joining me now to talk about this is Tax Notes reporter Jonathan Curry.
Jonathan, welcome back to the podcast.
Jonathan Curry: Hi, Dave.
David D. Stewart: Now we're coming up on the end of Charles Rettig's term and we don't have a new commissioner nominee yet. Is that normal?
Jonathan Curry: Yeah, it is normal for there to be a gap between when a confirmed commissioner's term ends and then a successor takes his or her place. I think there was about a seven month gap between when Commissioner Rettig was nominated and then when he was actually confirmed. So that's not unusual.
But what I think is unusual is that this $80 billion of extra funding for the IRS is such a big policy priority for the Biden administration, that they've also known that this is coming, that the IRS Commissioner serves a fixed five year rolling term. And so they knew that he was going to be stepping down November 12.
They've known since August that this $80 billion was basically guaranteed at this point. And so to not have someone lined up is turning a couple heads and making people wonder what the Biden administration's been up to.
David D. Stewart: So let's talk a bit more about this. You were on an earlier episode where we discussed this $80 billion in funding. Do we have any better sense of how that money's going to be spent?
Jonathan Curry: I don't know that we have a much better sense. We do know pretty generally what the Biden administration wants the IRS to do with this.
They'd want them to basically improve things across the board. They want to get their IT systems more up to date. They want to improve taxpayer service — by a lot. They want to dramatically boost enforcement of high income taxpayers and large complex organizations, businesses and things like that. So we've already known that that was going to happen.
The big thing that we're going to be looking for is that the IRS is going to be releasing what they're calling "an operational plan," that's going to be released six months from enactment, which puts it right around I think mid-February. And so the Treasury Department is working closely with the IRS on this.
They're going to be helping them sort of sketch out for the next 10 years what projects to prioritize, benchmarks to set, timelines and things like that. We should expect it to have a good amount of detail. I mean, there's going to be some, perhaps some fluidity to it, but that's going to be the big thing to watch for.
And in the meantime, we're all kind of watching and waiting to see what they come up with for that.
David D. Stewart: Do we have any sense of when we should see a new commissioner nominee?
Jonathan Curry: I mean hopefully soon. I've been told that the Biden administration has the candidate, that they're just sort doing the background vetting and things like that. You would expect them to want to put someone out soon, but I don't know, even if they do announce someone, it could take a long time for that individual to be confirmed.
And so, in the meantime, there's going to be an acting commissioner holding down the fort.
David D. Stewart: Now I understand you recently talked to someone about this. Could you tell us about your guest and what you talked about?
Jonathan Curry: Yeah, so I had the privilege of speaking with Mark Everson from Alliantgroup. He has had a long career in government. Most notably for us, he's a former IRS Commissioner. He held that role from 2003 to 2007.
He's also held various government roles during the [George W.] Bush and [Ronald] Reagan administrations. He was in OMB (Office of Management and Budget), he was working with immigration and that area as well.
And he was also a Republican presidential candidate for a short spell in 2016. And you can imagine tax reform was one of his big policy priorities.
So Mark, I think, really was the perfect guest for this moment. As we were just talking about, the IRS is really on the cusp of making some really huge organizational changes and who better to weigh in on this than someone who's been in that chair and had to make those decisions.
So we talked about how the IRS should be spending this money, what they should prioritize, some of the challenges they're going to be facing and so much more.
David D. Stewart: All right, let's go to that interview.
Jonathan Curry: Well Mark, it's great to have you here with us.
We brought you to talk about the Inflation Reduction Act, the next IRS Commissioner. And really you're someone that's going to be greatly positioned to talk about this with us because you're a former IRS Commissioner yourself, you know how this works.
So to jump right into it, the IRS has $80 billion — they have an extra $80 billion to spend. What are some challenges that you think the IRS is going to run into as they try to put this $80 billion to work?
They already have a budget of about $13 billion a year. This adds up to a lot of extra money. So what do you think they're going to be facing?
Mark Everson: Well, there are a lot of issues here. First, they're starting from a poor position because the Service has had tremendous problems in terms of the manual that it issues requiring human intervention: processing returns, answering the phone calls— that's all well documented.
Plus the real problem of data security, which is increasingly the subject of TIGTA (Treasury Inspector General for Tax Administration) reports or the Inspector General. And also we all know about the ProPublica and the more recent data breaches.
So the secretary, at least on the services issue, has said, "Hey, first thing you got to do is get IRS services right." I agree with that. They've also got to work on the data security, but while they do that, they've got to develop an implementation plan to build the agency. And that is easier said than done.
It is harder, in my experience to add, to grow, if you will, than it is to maintain or contract. And particularly we have a government agency that is controversial. Not everybody wants to go work for the IRS. So getting good people and training them up and putting in the new systems, it's going to be a very significant task.
Jonathan Curry: So on that point about the hiring, I think that's a very important point to raise. Of course, we've all heard about 87,000 armed IRS agents. That's a bit misleading to say the least. But to be fair, Treasury has said they want to hire 87,000 employees over the next 10 years with this money. What are some challenges that you think that the IRS will face?
I mean, they're looking to hire a whole range of employees, everything from customer service on the phone lines, processing paper tax returns, to top flight lawyers to handle these audits of complex partnerships and along with IT as well.
Do you think that are all those areas going to be challenging to hire in? Are some more difficult than others?
Mark Everson: I think they all present unique problems. Anybody who's in business today knows that it's tough to find the right people.
We have a shortage of workers right now for a variety of reasons, and I think that's very true across accounting and tax in the private sector.
And it's also of course true for the IRS. They've struggled to bring on people that they had authority to bring on with the COVID[-19] relief funds.
So yes, I think this will be hard. And what I would say to you, Jonathan, is that I'd rather see the Service get this right and hire three good people than hire three good people and a couple of average folks and somebody who's going to cause them problems.
Because if they end up hiring people who don't understand what they're doing or who are an ill fit and overreach, that's going to cause — in this environment of great scrutiny of the IRS — it's going to cause more problems than it's worth. So do this right, do it deliberately.
Jonathan Curry: Yeah. And it sounds like it's just a tough labor market overall.
So perhaps the IRS might be crossing its fingers, hoping for a recession, maybe to make it a little bit easier to hire.
Mark Everson: Well, I don't know. I don't know that that's the case, but for sure they have a real challenge.
Jonathan Curry: You've actually been a little bit critical of the amount of funding. You've always, you've been pushing for more funding for the IRS, but I think if I can recall correctly, you've been critical both of the total amounts and also the way it's kind of divvied up.
Mark Everson: Yes, that is true. For the reasons we really just articulated, I didn't favor a doubling of the size of the agency, which was clearly contemplative after the president spoke and then the Treasury issued its white paper rolling out the $80 billion justification. So I don't support something of that magnitude.
I support three to five percent real growth and that means adjusted for inflation each year. I think they can absorb that, hire diligently spend the money on the systems and that would be healthy.
And to your other point, yes, absolutely. The money is skewed way too much for enforcement. There's 14 times the amount of money provided for enforcement as for services.
It's true, a lot of the systems money will help improve services to taxpayers. But I still think that they could have done a better job in terms of splitting that.
And you see that the secretary has correctly challenged the service in its implementation plan. Again to give emphasis to taxpayer services. Recognizing that there's some real controversy here.
Jonathan Curry: Now let's say that you were back in the commissioner spot at this very moment. What would you sort of pick out as the biggest priorities for the IRS?
You know they have $80 billion extra to spend, but they also have a normal agency to run, filing season coming up. Where do you think things rank in terms of critical importance?
Mark Everson: Well, right now, they absolutely have to clear the backlogs and that includes the correspondence. Because as practitioners know, there have been lots of notices issued. People are confused. And until you clear the backlogs, including the correspondence, you're still going to have untold volumes of people, people are calling in because they don't know what's happening.
So you've got to get that all corrected and fast. And what I would do there is they've done a good job of getting extra people to work who've done submissions processing in the past. But I would assign tag teams or teams of regular auditors and collections people, ship them out to the service processing centers, and have them work on two to three week rotating sort of duties, if you will, and let go some of the other things that they're doing, which are discretionary. They've got to get this backlog cleared.
The other thing is the data security that I mentioned before. That's a terrible problem. It's a great concern to everybody.
And before they spend these billions of dollars on new systems, I think the American people and the Congress are entitled to an explanation of what happened with the ProPublica leak. Was it inside? Was it contractors? They're going to go out and have a lot more contractors doing many, many things. We better understand that they're doing it right.
And if you follow this, Jonathan, TIGTA has just issued a series of reports criticizing the IT security issues.
So this is going to be a continuing focus. They've got to do those two things first and then they really need to focus on the implementation plan in terms of building up the infrastructure, making sure they have enough folks on the hiring side, making sure the procurement staff is staffed appropriately.
And if you build up the infrastructure side, this multi-year plan will unfold with a lot fewer problems, if you will.
Jonathan Curry: No, I think you're absolutely right that data security will continue to be a big focus. I mean, Republicans have certainly made it a key focus at hearings and press releases all year long and it's showing no signs of letting up. Then as the IRS is spending a lot of extra money, now you said to expand all this, that's going to draw a lot of scrutiny I think.
Now, so in terms of how soon we can expect to see the effects of this extra $80 billion being put to use? This money's going to a lot of different things, going to boost enforcement, it's going for improving taxpayer service and modernizing the sort of IT infrastructure of the entire IRS.
How soon do you think we should expect to see that take effect?
Mark Everson: I think you'll see, because the secretary is giving priority in certain things, I think you'll see some impact, obviously on the service side and hopefully on the data security side, sooner in terms of those sides.
But hiring people and training them, that takes a long time. And I know the Service is quite properly looking at trying to bring in mid-career professionals from companies or from CPA firms to do some of the work that you alluded to before, the more sophisticated audits or a lot of the complexity in the international area.
But just because somebody understands the code, it takes a long time to understand the procedures in government and the rules of the road in terms of dealing with taxpayers at the IRS. So you don't just hire somebody, which takes time on its own, and they don't just head out there and do the job properly on day one.
And the other point on this is if you're a group leader in, I live down in Mississippi, they've got a small office in Gulfport. If you're in Gulfport there, if you're training two new people in your group, that makes you less productive. You're not doing as much in terms of your day-to-day audits or collections, whatever it is.
So there may be actually a deterioration in some of their numbers on the enforcement side, if you will, as they hire and train up.
Jonathan Curry: Yeah, that'll be interesting to watch for and see if that materializes.
It's interesting too, on the modernization side, there is a top IRS official who handled a lot of the IT modernization issues and he recently, he said he's excited to have all this money at his disposal.
He also described it as a "waking nightmare" every morning when he has to sort of get back to it because there's a lot of expectation over what the IRS will be able to accomplish. And he was somewhat trying to temper expectations of, "OK, it'll take some time."
It's interesting to see the view from the inside the IRS on that.
Mark Everson: Well, I think that gets to the overall challenge for the IRS right now, which is to some degree there has been a "woe is me" mentality. "We can't do anything because we don't have enough money." And that has served as an explanation that has occasionally been offered up to the Congress or the taxpayer for why things aren't better.
Well, that explanation is now gone so that's a different reality. And one of the things they really need to do here is communicate openly and regularly with the stakeholders about what they're doing and why certain things, as we just discussed, will take time before you'll see certain improvements and that's what they've got to do because the expectations are higher.
Jonathan Curry: Yeah, certainly.
Another thing too, the Republicans have made it pretty [clear] — especially with midterm elections coming up — this extra funding for the IRS, rolling that back has become quite a key part of the Republican platform going into the election here.
Say that you were back again in the IRS commissioner hot seat. How does the threat of this extra funding being rolled back in the near future — I mean, would that affect the plans you put into place now? Would you try to be more cautious in what you try to set up to do or do you think you just got to take what you have and deal with things as they come?
Mark Everson: Well I think what you do is— at least what I did in the job was you try to treat both sides equally. I always felt that I served the country best, and frankly served the president who'd appointed me, George W. Bush, best if I called the shots right down the middle because in the end, administrations, it sticks to the administration if there are problems at the IRS.
So what you want to do is call it right down the middle and then communicate effectively with both sides of the aisle, and you want both sides of the aisle to believe and conclude that you're telling them the same thing. If you do that, then you just follow the law. I think you have to execute the law as written and that money is there.
So yes, they should be developing the plans, they should proceed. They shouldn't pull their punches for political reasons.
And then of course you're right, you do have to be always thinking, "Well what happens if there's a change here or there?" But this is way premature. We haven't had the elections yet and we're a long way from any changes taking place of that— to stripping out that money I think.
So that money's there, it's a sea change for the IRS and they need to go forward. They've got an implementation plan deadline in February. Develop that plan.
Jonathan Curry: The $80 billion is coming in at an interesting time. IRS Commissioner Charles Rettig, he is set to step down. His term expires on November 12 and there will be an acting commissioner to fill his shoes until a confirmed commissioner can come along. But that could be quite a bit of time.
And this is a crucial time, the very beginning of this new funding coming into the IRS's hands and they're trying to decide how they want to spend it.
So Mark, I mean, are you surprised, one that we don't have a nominee lined up or publicly announced yet and then two, what kind of person should this nominee be?
Mark Everson: Yes, it's very unfortunate that there's not a nominee who is already in the midst or going through the confirmation process because the individual who's going to run this for the next four or five years and own the performance of the agency, both in terms of its operations and building up the capabilities through the new funding, that person should be participating in the development of the implementation plan. It's just wrong to have them come in and take a look afterwards and execute against it.
That's not an effective way to do things. And the same thing is true. The IRS just issued a strategic plan a few months ago. That's way out of sequence. The new commissioner, he or she should be the one who is developing that and getting the proper approval of it.
So yes, you're right. It's very unfortunate that the administration hasn't moved by this time to put in place someone to oversee this agency.
Now I feel strongly and some of my colleagues, former commissioners, we just issued a statement recently on this saying they need to move promptly.
But also that to your question about what kind of person, I think we feel that you need someone who's had major management experience: delivering a major growth and transformation in a complex situation, because the IRS is complex.
There's a tension between the service mission and the enforcement mission. And that's going to be difficult because of the skewing of the funding that we talked about earlier. So yes, there's a lot to do that the person who comes in I think should have that experience.
You're not going to find a total matchup, Jonathan. But experience doing something like that. Either acquisitions in the corporate area, integrating big companies, but also the systems side. I think it's helpful.
You don't have to be an IT person, but very comfortable with overseeing big IT projects. Because there's going to be a lot of transformation at the IRS.
The last thing that I would emphasize in particular is: it's not a job for the bashful. I testified 50 times before Congress and I can tell you they were never trying to make me look good.
I mean, that's not what—[Senator] Chuck Grassley (R-IA) didn't go home to Iowa and say, "well I really told the IRS Commissioner Everson what a great job he was doing." That's not what happens when they're running for re-election.
But the oversight is important. I always felt that I did a better job because of the preparation and the surfacing of the issues that took place in the congressional testimony, the interaction with the Hill. So that is important, but it's not easy.
And the person who takes on this assignment needs to be comfortable with that situation— that it is unpleasant at times. You've got to be able to fight for your position with any administration in terms of issues that take place with the Treasury Department or the White House.
And then you've got to be able to stand up and speak, not for IRS employees, not for just the agency, but you have to speak about the entire tax system and explain it to the country, to the Congress, to the media, to trade groups.
It all depends. But it— you've got to be comfortable in that public space, if you will. It's not a backroom job.
Jonathan Curry: Do you anticipate it's going to be a contentious confirmation process? This is a presidential-appointed but Senate-confirmed position so the president will be able make his pick and then the Senate has to vote to confirm it.
Do you anticipate it'll be contentious or do you think both parties are going to be equally interested in getting someone confirmed at the top as soon as possible?
Mark Everson: Well, I would hope that both parties will be thorough in their examination of the nominee, but I do believe, I don't think it'll be contentious.
I think there'll be a lot of thanking the nominee for being willing to take this on. But I do also think there will be markers that will be put down. There will be questions that will be asked to the nominee, particularly this area, "Are there going to be more audits of people earning $400,000 or less?" Which the administration's been incredibly vague on this.
The president talked about this in April of 2021, and that was for tax policy legislation. And it jumped the rails to where it then became, as it heated up in these election contests, it became sort of, "Oh no, no, no, we're not going to increase audits." But from historic levels, the words were very vague. I can tell you that audits of individuals were almost five times as great when I was at the IRS my last year there in fiscal 2006 as they were in 2019.
That leaves a lot of space for increased audits from where they've been in recent years, but still complying with that directive. So I'm sure the nominees going to get questions are, "Where are you on this? What does this mean?" And there will be efforts as there always are with senators to extract certain positions from the nominee.
So what'll come down to a lot will be, who will have the Senate, will the Democrats still have the Senate? In which case I would think it would be relatively smoother. But it will be obviously a little more rough and tumble if the Republicans prevail on November 8.
Jonathan Curry: Now this $80 billion, it's not just about keeping the lights on at the IRS as we talked about. It's really envisioning transforming the agency in big ways in really just about every area.
Treasury Secretary Janet Yellen has already suggested that they want to be closely involved in shaping this. I'm curious, is that a good thing?
Should the next IRS commissioner be on guard about trying to maintain some degree of independence from Treasury? Or is it necessary that Treasury is going to be having its hand on this pretty tightly?
Mark Everson: I believe that the IRS is accountable as a part of the Treasury Department, to the secretary of course, and the deputy secretary. But I am very concerned about increasing sort of how closely held the agency is.
And also the White House, if you go back to the Trump administration, I wrote on this at the time, they reversed ground, which going back to the Reagan administration where the White House OMB, which I came from by the way, it did not for decades, have a role in the writing of tax regulations.
Those were done at Treasury and the IRS and the Trump administration reversed that bringing the tax regs into the White House. That's a concern to me.
And then they appointed an acting commissioner after John Koskinen completed his term, who was also a senior Treasury official. And I'm not suggesting there were any particular problems, but I think it's a bad precedent.
I think that the service, it's like the CIA (Central Intelligence Agency) or the FBI (Federal Bureau of Investigation). It's viewed by the American people as having to be absolutely nonpartisan. And it has operated with a degree of independence.
And I think that comes to this issue now. If the commissioner is just taking instruction from the Treasury Department on all these issues, there's just a potential for meddling, and it's already changed. The piece of the Treasury Department that's been most closely associated with this initiative is the Office of Economic Policy. And that's totally unprecedented.
And some people have written that they've been supervising the IRS, that's not a good thing. You need the IRS to be operating independently, but held accountable by the administration and also by the Congress. I felt I was held accountable by Grassley and [James] Bacchus (D-FL) and [William] Bill Thomas (R-CA) and Charles Rangel (D-NY) too. They asked very probing questions and got answers. So I think it can be done.
But yeah, no, to your point, I am concerned that especially with all this, it's already become too political, tax administration has become much more visible as an issue in the elections. And that's not good for tax administration. It really is not.
Jonathan Curry: So as we talked about earlier, there's going to be an acting IRS Commissioner filling that role for at least a few months until a new commissioner is confirmed.
So Mark, do you think that's going to be a problem for the agency? Are they going to have trouble defending? Does it pose any trouble for the agency that tries to defend its interests or unpack these plans? What's your take on that?
Mark Everson: Acting commissioners, it is frequently what happens when a commissioner completes his or her a term that you end up with an acting commissioner. That's totally, totally normal, but it's difficult at this particular moment.
The way I look at it, acting commissioner, it's sort of, look, we're in the post-season in baseball right now and the acting commissioner is like the closer who comes in and is trying to keep things really in check. Very important. And you can count on the acting commissioner to get a lot of things done.
But the trajectory of a baseball game is usually set by the starters. And that's more like the confirmed commissioner. And that's where you are right now. We got to get started on the implementation of this new law.
So the person who's going to see it through and have the authority to execute it has got to be in place. The confirmed commissioner has the confidence of the president and the Treasury secretary and a little more latitude to get things done.
The acting commissioner, he or she, just by definition is going to be a little more cautious and perhaps too cautious in how they build things up and get things done.
So yeah, I think it's a normal occurrence, but in this case it's unfortunate in this instance that there's going to be what would seem to be a fairly significant gap before you get a confirmed commissioner in the chair.
Jonathan Curry: Yeah. OK. And we'll conclude with this, Mark; some of the top challenges that you would identify that the next commissioner is going to be facing.
Mark Everson: Well, I think obviously coming back to where we started, they've got to get the services better and the data security better. That's an absolute.
Then the second thing is the commissioner has got to oversee the development of this implementation plan and build up the infrastructure while maintaining the operations.
The third thing is I think relationships with practitioners have been strained in recent years. This is a fresh start. It's a good time to sort of, I guess, just take a fresh look at how the government is interacting with practitioners.
Because you really have three elements, Jonathan, in the tax system. You got the government, you've got taxpayers and then you have practitioners, and they play an essential role.
And last thing I would say my guidance to a new commissioner would be this point you just sort of talked about, which is: make sure that you've got an appropriate degree of independence and latitude as you go forward in terms of within the administration and get the respect of both sides of the aisle. You have to earn the respect of both sides of the aisle so that you got the ability to keep the agency respected and viewed as nonpartisan by the American people.
Jonathan Curry: Very good. Well Mark, thank you so much for your time. There's a lot to watch in the coming months.
Mark Everson: It'll be very interesting. Thanks for having me, sir.
David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what do you have for us?
Paige Jones: Thanks, Dave. In Tax Notes Federal, four professors examine if a deed qualifies as a contemporaneous written acknowledgement. Anthony Kim explores the tax implications for taxpayers who had their Paycheck Protection Program loans forgiven, including potential legal jeopardy.
In Tax Notes State, Joseph Rillotta and Ian Herbert examine the trend of state attorneys general getting increasingly involved in tax enforcement. Shannon Jemiolo and Ian Redpath explained the updated standards for tax services recently proposed by the AICPA (American Institute of Certified Public Accountants).
In Tax Notes International, Sol Picciotto and Jeffrey Kadet argue for unitary taxation in the form of formulary apportionment. Three Flick Gocke Schaumburg practitioners examine changes in the German tax treatment of employee secondments over the last 20 years.
In Featured Analysis, Roxanne Bland examines taxing income in the digital world. And finally, on the Opinions Page, Carrie Brandon Elliot explains how tax is central to the ESG (environmental, social, and governance) concept even though it is not reflected in the acronym.
David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W, and be sure to follow @taxnotes for all things tax. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast.taxanalysts.org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.