In a speech late last week, Internal Revenue Service Commissioner Douglas Shulman described the U.S. tax system as “the envy of the world” -- though he also noted that the U.S. Tax Code was “a monstrosity.”
That sort of dichotomy was a keynote of Shulman’s address to the Spring Meeting of Council and 125th anniversary celebration of the American Institute of CPAs in Washington, D.C. last Thursday. He stressed, for instance, that, “The IRS is dedicated to balancing service and enforcement. We need to be a world-class financial institution, and good at our job in enforcement.”
“It shouldn’t be a pendulum,” he insisted. “It should be about doing both and doing both very well.”
Balance, in fact, was one of the four key elements that he believes “make our tax system the envy of other tax systems in the world.” The IRS exists at a balancing point between government and taxpayers: “Our job is to apply the tax laws that are on the book, without putting a thumb on the scales for either government or taxpayer -- long-term goal is the integrity of the tax system.”
He noted that at a recent meeting of the chiefs of tax authorities from other countries, he was the only one of his counterparts who had not recently felt pressure from political authorities to raise more revenue. “My job is to collect the revenue due,” he said. “Never once has anyone said, ‘Go get us more money.’”
In another example of a dichotomy, he stressed the IRS’s efforts at innovation, both on the service and the enforcement fronts -- among other things, he noted e-filing, and new, more sophisticated technologies being applied to audits -- yet lamented, “We’re misunderstood. Eighty percent of Americans’ experience with the IRS is they file electronically, and on average get a $3,000 refund -- a lot of people have a very pleasant experience with us and have a very smooth transaction.”
Similarly, he noted the service’s obligation to innovate and drive the institution forward, but at the same time acknowledged that, “The Tax Code has become a monstrosity -- it’s four times longer than War and Peace”
Besides balance, the other three key elements that Shulman cited were fairness, a long tradition in the U.S. of independent public institutions, and the relationship between the private sector and the public sector.
THE VALUE OF TRANSPARENCY
Referring to his own long career encouraging transparency, Shulman said that another of the system’s strengths was its openness and inclusiveness. He said that he believes the IRS engages in “a very robust and open public dialogue with the private sector.”
He cited the recent establishment of the tax return preparer registration regime as an example. He said the process started with public meetings.
“We heard that a lot of attorneys and CPAs should be subject to [competency] testing,” because they weren’t necessarily keeping up with tax laws, he said. “It was a very strong view, but these professions had professional requirements and took exams, so we exempted them.”
The public discussions also brought up the issue of supervised preparers: “The argument for exempting them [from registration and requirements] was strong,” he said, “but people suggested that there were tax credit mills that do shoddy work, so we had a strong debate, and then exempted those people from the testing and CPE requirement, but still made them register.”
Similarly, he noted that the service is getting a lot of feedback on the fingerprinting requirement. “We’re working to try to come up with some alternative that will allow us to use best-of-breed private sector alternatives,” he said.
“Our output is better for the American people because we ran this in a transparent and open way,” he said. “This kind of robust public dialogue doesn’t happen everywhere.”
In looking back at the IRS’s own history and indicating how much it had changed, Shulman noted, “125 years ago, the main activity at the IRS was breaking up alcohol stills.”
6 Comments
Excuse me. Am I on The Onion web site in error, or is this a serious quote? Guess he did not ask any of the OVDI, OVDP participants, or Expats and immigrant minnows now trying to deal with his offshore jihad for their opinions. Wonder what all the financial institutions around the world think of his 400 pages of FATCA regulations, or the US banks of his DATCA regulations? He lives in a bizzaro world! Bet he can't wait to get out the door and start consulting and making big money off clients who are the victims of his misguided programs. Good riddance! But please don't leave us Stephen T. Millar as an temporary Commissioner. He may be worse. Start over with someone like Nina Olson.
Posted by: Just Me | May 30, 2012 2:26 PM
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The Commissioner wishes he worked for an agency who was loved and respected by the public. The thousands of tax preparers and tax lawyers love the IRS, but they are the only ones. The rest of us know the real facts. It is not the civil servants who work there, it is the tax code we despise. Each year our crooked politicians add thousands of pages to the code to benefit their campaign funds. They know not to simplify the code. Supervisors would loose status and employment of government workers would plunge and heaven forbid we save money or stop spending to help no one but the Congressmen and Senators. Millions of words are written and explained over and over in the code and even if every taxpayer was honest, which they are not, they couldn't comply. The non filers are not caught, but those who do file could get help from 50 employees and each one would give a different slant and a different answer. We need the FairTax and the IRS would be a collection agency, small but useful.
Posted by: wjeretidwell | May 30, 2012 7:08 AM
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Let me add that one reason the rest of the nations believe the US tax system is so great is that it supresses competition from American exporters in the world market and thus insures greater market capture for our industrialized competitor nations. Other nations either don't tax foreign earnings of their corporations at all, or at a very low rate, Whereas the US tax system does not tax foreign earnings until repatriated and then at 30%. This increases capital costs for US companies investing abroad and cuts into their profit margins. It also encourages them to not repatriate foreign earnings rather than brining them home to optimize economic and investment decisions free of tax constraints.
The US policy of citizenship based taxation makes US citizens far too costly for overseas deployment so US companies, for economic reasons, are forced to depend on foreign mercenaries for overseas jobs. Since it takes feet on the ground to capture foreign markets, this significantly contributes to the reason why the US goods trade deficit, currently at $747 billion and growing by $2 biiiion per day, represents 60% of all the world's trade deficts. Countries like Germany, which don't double tax their citizens abroad to keep them home but instead encourage them to go, has a current $227 billion trade Surplus, the lowest unemployment rate in 20 years and a trade surplus with China. All of this even though worker wage levels in Germany are 26% higher than in the US.
Since we started this double tax policy on our citizens abroad in 1976, the US has never recorded a single trade surplus and our comulative trade deficit that started that very year now exceeds $8.6 trillion. What a succcessful policy the US tax system has been in destroying American jobs manufacturing for export and stifling domestic economic growth and recovery. The risk in abolishing this system and adopting the territorial tax system of all our competitors is we would likely experience a drop in unemployment and a significant growth in GDP and tax revenue growth that would far exceed the pittance generated from taxing our citizens abroad.
So I guess that must be why other nations consider our tax system the envy of the world. We tip the playhing field against ourselves, which takes the US out of the competitive market and makes their access to it much easier. They never compain to the WTO about this unfair trade practice we impose on ourselves.
Posted by: RogerC | May 29, 2012 12:47 PM
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The US tax system is the envy of the world? Surely Commissioner Schulman must be joking.
If it is so wonderful, why is the US the only country that obligates its citizens who are bona-fide residents of a foreign country to simultaneous citienship based taxation by the US on income which has already been taxed by the government of the country where they live? With 50 million foreign citizens lving in the United States, if our system is the envy of the world, why don't other nations abandon their residence based tax systems and emulate ou citizenship-based system and obligate every one of those 50 million who live in the US to also file tax returns and pay taxes on their income already taxed once by the US?
And why don't other nations obligate businesses operated by their citizens who live in the US, incorporated or not, to set up dual accounting systems - one in US dollars and the other in the currency of their home country in compiance with the accounting rules of that country with dollar values converted in accordance with very complex rules, and requre them to also submit tax returns and pay taxes to their home countries just like Americans abroad are reqquired under our tax laws?
And why don't other countries obligate US banks to submit detailed reports on accounts held by their citizens, including those who are dual US citizens, to the tax authorities of those countries? Can you imagine how delighted our banks would be if they were requried to submit these kinds of reports to the tax authorities of the other 205 nations of the world?
Please, Commissionaer Shulman, take a step backwards and rethink your bold statement.
Posted by: RogerC | May 29, 2012 8:04 AM
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I am 73 years old. I have been doing taxes for over 25 years. I am unable to travel to take test or CPE's. IRS is putting me out of business because of their new requirements. I never had issues with the tax code nor with IRS. I wonder how many of the 340,000 tax preparers are in the same boat as I. I wonder how many of the clients that the 340,000 represent that will be very disappointed that their taxes will have to be done by the large tax preparing industry that will charge these people the unreasonable rates to do their taxes.
Posted by: jimdee407 | May 22, 2012 11:38 AM
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First Shulman said the tax code is "a monstrosity". Then he indicated that in order to be transparent they needed to eliminate the right to prepare tax returns for compensation except for special classes of people. All others must reapply and begin from scratch. Those special exempt people have professional requirements and they took a test once that may have had little to do with taxation but never the less they took one. With input from these groups the supervised preparers were also exempted if they were employees of a lawyer or CPA. I'm puzzled as to why physicians and nurses were not exempted. Lawyers and CPAs are organized and it would be difficult if the IRS were to receive opposition from these groups. It could be a big embarrassment to both parties. Fees will certainly increase substantially. I'm certain that in new regulations fees will be controlled for registered tax preparers but lawyers & CPAS will be exempt. The unenrolled preparer is unorganized and out on his own so even though there are approx. 350,000 of them, no one knows, they are all lone individuals and easy targets for protectionist policies such as these. The spring of 2014 will display the huge vacuum in the tax preparer industry that these policies will have created. That's the taxpayers' problem they'll say. Instead of getting rid of the monstrosity they are getting rid of those who are trying to deal with it. This is what we get by letting bureaucrats loose to regulate without legislation. I'm in my 60's and I can't wait to leave the industry. I'll take my MBA, 34 years of experience, and what I know with me and apply it in another way. At least they can't take that away from me.
Posted by: hisexcellency | May 21, 2012 9:15 AM
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