Big changes coming at the IRS with new commissioner
The Senate Finance Committee plans to hold a confirmation hearing next Thursday for the nominee for Internal Revenue Service commissioner, Charles “Chuck” Rettig, a Beverly Hills tax attorney.
If confirmed, Rettig would be replacing David Kautter, who is Assistant Secretary of the Treasury for Tax Policy in addition to filling in as acting commissioner of the IRS since the term of the last IRS commissioner, John Koskinen, ended last November. President Trump nominated Rettig as full-time commissioner back in February (see Trump to nominate Beverly Hills tax attorney Rettig for IRS chief). Rettig has worked for 35 years for the Beverly Hills law firm Hochman, Salkin, Rettig Toscher & Perez. Senate Finance Committee chairman Orrin Hatch, R-Utah, complained that it was taking a long time for Rettig to finish turning in his disclosure forms, but now that the paperwork has been filed, the confirmation hearing has been scheduled for Thursday, June 28. If confirmed, he will be tasked with carrying out the wide-ranging Tax Cuts and Jobs Act that Congress passed last December along with a set of IRS reform legislation that was passed earlier this year.
Rettig’s nomination was announced Friday by Hatch and also at the beginning of the morning session of New York University’s 10th annual Tax Controversy Forum. National Taxpayer Advocate Nina Olson and IRS Criminal Investigation chief Don Fort were among the speakers, along with one of Rettig’s partners at his law firm, Steven Toscher.
Olson noted that she plans to release her annual report to Congress on June 28, the same day that Rettig will be undergoing his confirmation hearing. She noted that she has regular conversations with Congress and sometimes her proposals make it into law. One taxpayer complained to her office about an erroneous tax levy that was being taken out of her individual retirement account since 1985, but there was a statute of limitations for restoring the funds. That has been partially fixed with legislation. “Something is resonating,” said Olson.
Her most important constituency, though, is IRS officials, and she will likely be working with Rettig if he’s confirmed. “We see IRS guidance before it’s published,” she said. “We spend a lot of time trying to look at those to prevent problems occurring, because guidance and instructions are just that. If you can get that right, you can avoid problems showing up later on.”
Olson said she has concerns with some provisions of the new tax law, like the new Section 199(A) deduction of qualified business income of pass-through entities, and she has been talking with the IRS’s Wage and Investment Division about how it is implemented. “I am very concerned about the spending of the IRS in implementing this,” she said. “We had the same thing with ACA and FATCA, just the IT side of it. We stop everything else in IT in order to deliver this. We just sort of dug ourselves out of that and started getting back to being able to pay attention to some things that affect all taxpayers, which we should be doing, and now we’re back to putting it on hold to be able to implement tax reform. At some point, you have to say the IRS has to have core people in IT who focus on the day-to-day stuff because we get further and further behind, and it’s pretty embarrassing.”
However, her powers are limited to issuing taxpayer assistance orders for specific cases and delegation orders for groups of taxpayers. Most recently she has been issuing orders related to the IRS’s new private debt collection program and passport revocation program, but her orders are often simply ignored by the IRS.
“The problem with it is it’s a delegation order,” said Olson. “A lot of times, they are ignored, and I get back from the deputy commissioner a half-page order basically saying we’re not doing it because we say so. That’s not OK. That’s not an explanation.”
Olson is pleased, however, with the Taxpayer Bill of Rights that the IRS finally adopted in 2014 after she proposed for many years that it provide one. Even though the Taxpayer Bill of Rights basically just collected together a number of rights that were already enshrined in law, many taxpayers were unaware of them. Olson pointed out that before TBOR was adopted, only 11 percent of taxpayers knew they had any rights, but now it’s up to 76 percent. She would like to see them codified in Section 1 of the tax code.
Shortages in Criminal Investigation
Don Fort, chief of the IRS’s Criminal Investigation unit, discussed some of the challenges with the declining number of IRS employees in his division, including the closing of four field offices. To fill the gap, Criminal Investigation is starting to leverage data analytics technology like the federal government’s Palantir program.
“I am a tax and a CPA nerd so I am deep in the weeds on data and analytics, and I look at that stuff very closely,” he said. “We track the number of cases that we send over to the Department of Justice Tax Division. We monitor that closely. It’s one of the things we use to determine our success. Last year, we sent less than 800 cases that were authorized by the Department of Justice Tax Division on tax cases. That is a startling number. It may still seem like a lot, but if you break it down by 94 judicial districts and 25 (soon to be 21) field offices, it’s not a lot of cases. Historically if you go back, that number was much closer to 1,200 cases. When you think about that number, less than 800, that has to influence taxpayer behavior for the hundreds of millions of U.S. citizens that file tax forms.”
Years of budget cuts and attrition have thinned the ranks at the IRS, and Fort said there was still a hiring freeze going on in his division, with some exceptions for high-ranking openings, as well as unpaid summer intern positions. “The staffing situation, like the rest of the IRS, is not great,” said Fort. “We are in the process of closing down four field offices. That doesn’t mean we’re pulling agents out of cities. It just means the number of agents we have can’t support the existing structure. Without some reinforcements, I fear that we’re going to have to continue along those lines. I refer to it as a perfect storm. In the last five years, we’ve lost a total of 500 special agents. That’s to retirement. It’s not them leaving for another agency or quitting. It’s folks that are eligible for retirement, and during that time, we’ve devoted a lot of our time to enforcing identity theft, about 18 percent of our time. So you have a lot of agents working on identity theft, a lot of agents unfortunately walking out the door, and no new resources coming in. It’s a challenge.”
Fort is hoping that data analytics technology can help with those overstretched resources. “The silver lining is when your resources are down, it forces you to look at every single corner of the organization for efficiency,” he said. “That’s why I’m really encouraged about some of the things with data analytics and some of the exciting work we are doing. I do think we’ve squeezed every possible efficiency as we can, getting as many agents as possible in back to work on cases. Using data analytics to select the cases we’re working on is one of the ways we’re doing this.”
He noted that the IRS has a staggering amount of data to analyze with all the millions of tax returns it receives, along with information from banks, giving it access to probably more data than any other government agency. The Palantir program is helping IRS Criminal Investigation cull through that data looking for areas of noncompliance, particularly in the area of international tax enforcement and employment taxes. The IRS has been able to reduce identity theft by 8 to 10 percent, which helps focus resources better. Fort said his division also has a close working relationship with the Department of Justice, while maintaining its independence. “Having that close relationship is critical,” he added.
After his speech, Accounting Today asked Fort about how some states are trying to work around the limits in the new tax law on deductibility of state and local taxes, which the IRS has indicated it would object to in future guidance, and whether Criminal Investigation might eventually get involved. He didn’t want to say anything specific on the workarounds, but noted, “No matter what new provisions of the tax law are out there, there are always going to be schemers out there trying to circumvent them.”