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.”
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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.”