Doug Shulman was confirmed as the 47th Commissioner of the Internal Revenue Service in March 2008.
In that role, Shulman presides over the continued reorganization and modernization of the nation's tax administration agency, which currently has over 100,000 employees. With a background in both the public and private sectors, he came to the IRS after serving as vice chairman of the Financial Industry Regulatory Authority.
Shulman recently reflected on his experiences and the critical issues affecting the agency with Accounting Today senior editor Roger Russell.
Looking back to the beginning of your tenure, what notions did you have about your job when you started that proved to be off the mark (if any); and which proved to be right on target?
I knew that the IRS was a widely respected agency and I had a sense that it had very good people, but since coming to the agency I've really been amazed by the talent. We've got a world- class senior management team, one that I would stack up against any private sector senior management team in the country, and throughout the organization we've got committed public servants who are working every day to make the nation stronger. I often tell people, if they wonder what IRS employees talk about in the hallways - whether I walk the halls here or other facilities across the country and ask employees what they are up to today, the answer I hear is, "I'm serving taxpayers." The other thing I would say is because the agency is so well respected, we've been called upon to execute a lot of the top priorities of the country, especially in these difficult economic times. There are many examples, but one is that a third of the Recovery Act was run through the tax system, and I think the reason the nation's leaders had confidence to give us a major task that had a major impact on the country was because we're such a well-respected agency.
What has been the most surprising thing you have learned about the tax system and your job as Commissioner since your swearing in?
While not really surprising, since my swearing in, it has really sunk in that the tax system is very much based on a "look back". Individuals and businesses file a return, we process that return, and we put freezes on clearly fraudulent returns where we see a red flag. But in general, people file a return, it processes through the system and then a lot of the work of tax administration happens a year or two after filing. So if there's a mismatch that we find from an information return, we'll send a letter out six, nine or 12 months after the return is filed. If we flag a potential problem on a return, our exams often occur a year or two after the return is filed, and the return is filed after the economic activity took place, so often the exam is several years after the actual economic activity reflected on the return. That's why I've laid out a vision for a more real-time tax system, and the broad outline of that is having a tax system in which we load our system with information returns before the filing occurs. We do a lot more matching work, potentially blocking work and helping taxpayers correct their return as it comes in. Consequently, instead of interacting with people after the fact, which is quite burdensome, we get accurate returns in the first place. If this is executed correctly, and this is a long-term execution, we would see a tax system with a lot less burden on the American taxpayers and with much higher compliance.
Have you had a chance to talk to individuals who served as commissioner before you? Did they offer any advice?
It's been a real honor for me to follow in the footsteps of such a distinguished group of men and women who have served as IRS commissioner in the past. Before I was confirmed and after I arrived, I've had a chance to speak to all of the former commissioners. One constant piece of advice that I've gotten from all of them is that there are lots of things that are going to come at you as commissioner, from oversight of tax-exempt organizations to complex business issues to refund fraud, but the one thing you need to remember as commissioner is don't screw up the filing season. The American people are wrestling with an extremely complex code and they depend on us every year to answer their questions, process their tax return, and 80 percent of American individuals actually get a refund. So while there're lots of moving parts, the main piece of advice I got is never screw up the filing season, and I try to keep that forefront in my mind.
Do you feel that the five-year term for the Commissioner is working to keep politics out of the job?
I don't think there's politics in the IRS, but I don't think that the [five-year] term is the reason that politics are kept out of the IRS. It's really a core value of this agency and one that I emphasize that this is a nonpartisan, nonpolitical agency. And I must tell you that since I've been here people in the administration and in Congress have been very respectful of our independence, very respectful that we're outside of the political fray, and recognize that we are here to administer the Tax Code in a fair and evenhanded manner. I think the reason for the term is continuity of leadership, so that there's enough time for a leader to set strategy, set plans to execute that strategy and then see the plan through. I think Congress, when it set the term, realized that stable management is incredibly important for one of the world's largest financial services organizations, which the IRS is.
There have been and continue to be many suggestions on what the IRS can do to help close the tax gap. How concerned are you about the balance between taxpayer burden and closing the tax gap?
I've been very clear since my first day on the job that we have a service mission and we have a compliance mission and that it's not an "either/or" proposition. Our tax system is set up to be a voluntary compliance system - the vast majority of individuals and businesses play by the rules and are just trying to pay the right amount of taxes, not more than they owe but not less than they owe, and get on with their business. For the people who play by the rules, we need to give them world-class service, we need to educate them, we need to make sure we're as seamless and easy to deal with as possible. But those same people who play by the rules expect us to run compliance programs to ensure that everybody pays their fair share, so I think our job is to use our compliance resources judiciously. Information reporting is a key tool that Congress has given us. I think Congress has made the calculation that this information reporting you talked about would be useful for compliance purposes and the burden wouldn't be too high. Now we're always going to be conscious of burden while I'm commissioner. On balance, Congress made the decision that we should have this information reporting authority and we're going to use it judiciously.
The IRS is facing a potentially serious brain drain over the next few years. How do you plan to deal with this at the management level and in positions where experience is critical? Will you try and recruit special skills and knowledge at the executive level that may exist currently outside of government? If so how do you find and recruit these people?
As a leader, I believe that the agency or any organization that I run is only going to be as good as its people. That's why the first thing I did when I arrived was create the Workforce of Tomorrow task force, with the stated goal of making the IRS the best place to work in government. From 2008 till 2010, the IRS saw the biggest gain of any large government agency in the Best Places to Work in Government survey, which is administered government- wide. I think the reason for that is that our senior leadership, has been laser focused on making sure that our people's skills are used to the fullest extent possible, that people understand how their job contributes to the mission, that managers provide value every day and feedback to their employees, that they give career paths to their good employees, that they either remedy or move out their poor performers and that we keep a focus on these people issues. I view it as one of the most important things, if not the most important, that I can do during my term is to make sure that I leave the IRS with a cadre of future leaders ready to take on the challenges of the next five, 10, 20 years in the tax system. I'm very hands on and engaged with developing our future leaders, the majority of which have come from inside the agency, but we also selectively bring in people with core skills from outside the agency. At the end of the day, Roger, I don't think this is rocket science. It's like with many things, what you focus on is where you'll get results. We've been focused on developing leaders since the day I arrived here, and I think that has put us in good shape for the years to come.
The 2009 and 2011 offshore programs have been extremely successful both in terms of number of people coming forward and amount of dollars collected. Do you believe there are a significant number of people who still haven't come forward, and do you have plans and resources to pursue them?
A major focus of mine has been making sure we're up to the task of tax administration in a global economy and a global world. One of the key components has been combating offshore tax evasion. We've been very successful in our enforcement activities, piercing the veil of bank secrecy for the first time in some key jurisdictions. We've been getting better and better over the last several years at finding people who are hiding assets overseas, and pursuing banks, promoters and advisors who facilitate evasion. We've had very close cooperation with foreign governments, and have increased the flow of information and communication to help crack down globally on offshore tax evasion. As you mentioned, while we were cracking down we also gave people a chance who wanted to come in, pay their back taxes, pay a very stiff penalty but avoid going to jail. And the numbers are now well over 30,000 people who have come in. For me, the big deal about this effort isn't about those 30,000 people or the successful enforcement effort, it's about changing the risk calculus for the long term. I think individuals who would have thought about hiding assets overseas really understand today that that's not a wise thing to do. Advisors are much less willing to facilitate it, banks are much less willing to take deposits, and so I think we've changed the risk calculus, which leads to long-term compliance, which is our goal. Your specific question about are there other people, of course there are others out there, but I would tell you I don't think it's very wise for them to be out there because their chances of getting caught are exponentially higher today than they were just several years ago.
It seems as though everything that comes out of Congress, including healthcare, has some impact on the tax system. Moreover, proposed legislation and recently enacted legislation will add significant administrative burdens to your agency and require preplanning. Do you have the needed resources to meet the increased challenges you face?
The unique thing about the IRS and the tax system is that we interface with just about every adult American and every business and every nonprofit every year, which makes the tax system a very efficient way to move money, to collect money and to get money out to people. It's really been a global trend that governments more and more have been running important things that need to be implemented quickly through their tax system. The great example is during the global recession we and other tax agencies were called on to disburse lots of tax credits, and again this isn't just an American phenomenon. I think any large institution that's competent, and I put us in that category, can execute what is asked. What it needs is lead time and resources. Lately, we've been given less lead time than optimal, and we've had some heroic efforts to implement some laws, and I think it's becoming more and more common [to have] late legislation going into filing season, and I've been pretty vocal that while we can pull things off, at a certain point there's the potential for breakage. We're obviously, right now in Washington, in a discussion about resources for government agencies, and I think that will be an ongoing discussion. What I advocate is not to overstress the tax system - to make sure that if legislation is passed that we have time to do the planning to build systems, to train our people and we're given the resources to do the job.
