The Future of IRS Funding: Transcript
The billions of dollars in new IRS funding in the Inflation Reduction Act of 2022 poses both an opportunity and a challenge for the agency. How can the Service make the most of those resources and better fulfill its mission?
Former IRS Commissioner Charles Rettig, former IRS Chief Counsel Michael Desmond of Gibson, Dunn & Crutcher, and Nina Olson, executive director of the Center for Taxpayer Rights and former national taxpayer advocate, tackled the question in a February 1 Taxing Issues webinar hosted by Tax Analysts President and CEO Cara Griffith.
0:00:06.5 Cara Griffith: Welcome, everyone. I'm Cara Griffith, the president and CEO of Tax Analysts. Thank you for joining us today. We have a timely and interesting discussion planned on tax administration and the future of the IRS. Today's event is another in Tax Analysts’ series of public discussions that we call Taxing Issues. We launched this series as another way for Tax Analysts to encourage debate on tax issues. We've been bringing together the tax community with leading policy makers and experts for bipartisan discussions on the future of tax policy. We'll be hosting in-person events on occasion, but we'll mainly hold these discussions in a virtual format, and we welcome your feedback on how to make them more interactive. We also welcome your suggestions on future webinar topics. You can send your feedback and suggestions to email@example.com. We also welcome your questions for today's event. Thank you to those of you who emailed questions in advance. Please use the chat feature to submit your questions during today's event. For our panel discussion, I'll begin by asking a few questions, and then I'll turn to questions from you, our audience, and I promise to get to as many of your questions as time permits. Now, let's turn to the topic.
0:01:16.3 Cara Griffith: The Inflation Reduction Act, which President Biden and Congress enacted in August of 2022, increased funding for the Internal Revenue Service by about $80 billion over the next 10 years. That is a massive increase, an average of $8 billion per year for the next decade. To put it in context, the IRS spent about $13.7 billion in fiscal '21, and that included some additional temporary funding to help the agency cover costs related to COVID-19. The $80 billion will be spread amongst some general categories including implementing new laws, increasing enforcement, supporting operations, modernizing business systems, and of course, improving taxpayer service. The Congressional Budget Office or CBO estimates that the $80 billion would raise about $203 billion in gross revenue, resulting in a net revenue increase of $123 billion. But of course estimates are, well, estimates. No one can say for sure how the additional funds will affect compliance.
0:02:16.4 Cara Griffith: More audits could translate into long-term increase in compliance which might mean that the estimates are too low. CBO also estimates that every additional dollar that goes for enforcement will generate between $5 and $9 in additional revenue, but of course, that too is just an estimate. The Treasury Department has set a deadline for the IRS to provide a plan by February 17th for how we'll use the $80 billion. That plan will include details about IRS staffing. Critics charge that the IRS will be hiring 87,000 new agents to scan the tax returns of American taxpayers, but the Treasury Department itself has suggested that most of the IRS's initial hires are gonna go towards improving taxpayer service.
0:02:58.5 Cara Griffith: In her most recent annual report to Congress, Erin Collins, the national taxpayer advocate, noted the mounting frustrations of taxpayers and how if those frustrations continue to grow, that ultimately jeopardizes compliance. Now, as you all know, our federal tax system depends on voluntary compliance with tax laws. The voluntary compliance depends on the belief of taxpayers that the system is fair and honest. If taxpayers lose that belief or even worse, believe that the IRS is a political agency that makes decisions about audit and other enforcement efforts based on politics, voluntary compliance will quickly erode. Restoring faith and the level of service the taxpayers will receive from the IRS is vitally important. So they're very compelling reasons to give the IRS more money, and here's another one. Enforcing and collecting existing taxes is arguably less expensive and more efficient than enacting tax increases.
0:03:52.9 Cara Griffith: But funding the IRS has become a politically charged issue. House Republicans who regained control of the House in November have passed legislation that would rescind much of the IRS's funding boost. And we can expect that President Biden and congressional Democrats would continue to face these types of challenges. At the same time, political leaders on both sides of the aisle have expressed concerns over IRS taxpayer service and enforcement efforts. There's not a bipartisan consensus on how to achieve good tax administration. Nonetheless, we could be on the cusp of transformational change for the IRS and tax administration, so we have a lot to discuss. And thankfully, today we have an absolutely star-studded panel to discuss how the IRS should use this additional funding, not just to improve the agency, but to improve tax administration as a whole.
0:04:43.4 Cara Griffith: So first, we have former Commissioner Charles Rettig who has just completed his term as the IRS commissioner. Next we have Nina Olson, former national taxpayer advocate and now the executive director for the Center for Taxpayer Rights. Nina is also on the Tax Analysts board of directors. And we have Mike Desmond, former IRS chief counsel and now a partner at Gibson Dunn & Crutcher. I wanna thank you guys so much for joining me today. You are the absolute perfect panel to kick off what is a very, very important discussion.
0:05:15.4 Cara Griffith: So commissioner, I'd like to start with you. You've only recently left the IRS, so you arguably have the best view into the state of the agency right now. You engaged with so many IRS employees in your time as a commissioner, and I truly think one of the things you did so well was to remind us that the IRS employees are working hard day in and day out to do their jobs. They work for an agency that is often under attack and they keep showing up to the job. Now, they have been given an absolutely extraordinary task. Find a way to solve some existing issues, fix processes, modern technology – modernize technology, and do all of that while being under constant scrutiny. From your perspective, how are the employees and are they ready for what is going to be a monumental task?
0:06:04.8 Charles Rettig: Yeah, I think when you look at it, and one of the reasons I went on board was to support the employees. I knew thousands and thousands of employees from the outside from years in practice interacting with them, and to see, can we let people know how important the employees are to actually have tax administration to the country to where we're headed? Upon leaving the communications part of IRS did a – put together some information and indicated that I think I was in front of either by Zoom or directly meeting with a little over 48,000 employees. When you put COVID into that, you can see the road trips, but you also see the value of the agency flipping into a virtual environment, bringing in Zoom and other things to be able to actually do those interactions. I interacted with employees who are in Guam, I never would have had that opportunity had we not been able to take the agency to where it was. But in terms of are the employees ready for it? The employees of the Internal Revenue Service have a history long before me of rising to the challenges. And all kinds of challenges have come their way, a lot of things have come off the Hill, if you go back to '97, '98, the Roth hearings, the 10 deadly sins, 1205, etc., etcc..
0:07:22.4 Charles Rettig: And you saw sort of what happened to the agency from the enforcement side was people kinda hunkered down during that period of time, and then as you move forward during the last four and five years, I think that we were able to highlight the importance of the employees. And I continually said, and I think Mike and Nina would agree, and they can certainly chime in, but continually said that the employees are the absolute strength of the agency, you can put all the systems that you want, you can do all the IT that you want, but at the end of the day, it's employees to select the IT, who build the IT, who determine which contractors we're going to use.
0:07:55.6 Charles Rettig: And importantly, it's the employees who interact on the front lines with taxpayers, whether that's sort of in a – behind the scenes in a chatbot type of an operation or whatnot, or whether that's on the phones or whether that's in person. The funding here, I think the employees are fully aware, gave enough money to actually fully staff the Taxpayer Assistance Centers. There's 360 TACs around the country that varies through time, but 30 to 40 at any one time had nobody in there through attrition and whatnot, other reasons we had nobody there. Other ones had one person. Now you're gonna see three people in those TACs, they're gonna stay with the appointment system, but that's really important for people who actually want to meet with somebody, and it's sort of the retail operation.
0:08:43.2 Charles Rettig: The employees get it. I think that with Tax Analysts, with others, people in the outside, tax professional communities, saw that entering COVID the big question was, what's gonna happen to IRS? The employees had the same concerns for health and safety of themselves, their family and their community that everybody did on the outside. We shut it down in March 2020, but we came right back to the extent that we could. One of the things I'll always remember in June of 2020, I'd put people back in facilities when we didn't have vaccinations, we didn't have masks, we didn't have... We were constantly shutting down, sterilizing, sanitizing, coming back up, and then we'd have another positive and have to do it again. And what was not lost on any of the employees was between February 15 and April 15 of every year is when the bulk of the refundable credits go out. We had to get back into operation. And I think history, I've said, will look back at the IRS employees, I hope, kindly as to what was accomplished. Most of the articles during the time was the 2 percent or this or that, and the folks who couldn't get through on the phones.
0:09:54.6 Charles Rettig: We can have a whole another discussion sometime about the phones, but appropriated items, we were limited to the ability to shift people around. You can't take from column A and put into column B, but COVID did give us the ability to put 3000 more people... Excuse me, 1000 more people on the phones. That was impactful. The employees read what is said in the media, the employees see what's said up on the Hill. And I think I've continually said everybody is part of tax administration, it's not just the employees or the institutional agency, but you've got tax professionals who are part of it, you've got members of Congress who are part of it, certainly Treasury is part of it. And trying to get the ability to have people understand what was happening inside during that period of time, and I think more importantly, in the mindset of the employees. How do you keep people motivated when they're being attacked for... They're giving their best and they're being attacked from all angles. And then at the same time, history has a way of giving the IRS more and more and more projects, challenges, and that doesn't always come with funding or appropriate funding, and so you have to find ways to sort of where you can move it within a certain...
0:11:09.0 Charles Rettig: Move the funds within a certain lane, you have to find ways to try to be as impactful as you can. We did our best, I think, collectively. Certainly, while Nina was there, I think she would say that she was part of a group that was trying our best. I will say, and I've said throughout my term, I made mistakes on the outside, made mistakes on the inside, but when I sit here today and look back, I'm very proud of what we did try. All the mistakes were because we were trying. The easiest thing that I think collectively IRS employees could do is to hunker down. And when I got on board, somebody made a comment to me and they said... They were actually surprised that I moved from Los Angeles to DC, and this is an executive. And they said, "Well, how often are you gonna be in DC?" I go, "Well, I have an apartment here." In four and a half years, I was only in California 10 nights and at my home in California, six nights. We all go there with the idea of doing our best. The mistakes that were made were because we were trying.
0:12:09.5 Charles Rettig: We were trying to do something a little different, and the comment that stayed with me by my second week where somebody said, "Most Commissioners, if you just kind of try to keep the lid on the pot, you'll have a successful run as a commissioner." I'm the wrong guy to bring in to lid on the pot. We tried swinging for the fences where we could. We didn't see COVID coming. It came, it hit hard, and I think when you look back and you see the volume of economic impact payments, three rounds that went out in a historic time frame, and we took a lot of risks and being able to accomplish what we were able to accomplish as quickly as possible. On the phones, there's been a lot of... And all of this comes back to the question of the employees, it's impactful on their motivation when they see they're giving their best. We had more than 10 employees who in 2020, because of overtime and what not, mostly in the IT lane, that exceeded the salary cap of federal government employees, which is the salary of the Vice President. And they came right back, January 1 of 2021, and went right back into those closets to do it. We couldn't get people off their horses, they need to be there, we needed to cross these things, and I think it's the power of the employees that allowed the agency to do what it did.
0:13:25.7 Charles Rettig: But I would never say it was perfect, and the way I've said it historically is, I'll be able to look back with pride to my wife and our four children, and say we tried. We gave it our best. And looking back, I think if you look at the three rounds of VIPs: VIP 1, 2, 3, we got better and better, lessons learned. When I came on board was a 35-day lapse in appropriations, and you've heard me say, Cara, that people say, "Well, that'll be your toughest part as commissioner of the Internal Revenue Service." Going into it, “These only last 3-5 days, usually there's a weekend, don't worry about it.” We had A 35-day lapse in appropriations and we opened up filing season the next day. But the criteria, I think for... And I know we're gonna talk on some other points, and I'm gonna shut it down here, but some of the criteria when you look at what does get accomplished in the filing seasons, and still the volume of paper that comes into the agency, paper is clearly the Achilles heel of any agency of that size that deals certainly with more Americans than anybody else, but things aren't lost on our employees.
0:14:33.4 Charles Rettig: We live and work in the communities that we serve. And when you also... And I have to say this. When you add in what the employees did in terms of languages, the expansion into multilingual initiatives, the 1040 being in a language other than English which is Spanish, and all of that was just a tip of an iceberg. And then you see the non-English speaking pages at irs.gov, that's... What I did in those lanes was open the doors, and I think they knew I had their back. They passionately went through those doors because they know they're from, they represent the different communities, whether it's rural, whether it's English, limited English proficiency and what not, and giving them that. If you saw people come in and the reports I got, you saw their eyes when it's like, "Look what we did here. They couldn't be more proud. It's not a job, it's a career, and it's a way of life and they're trying. And so I'm confident that the employees, if we can control the anticipations of Congress and the rest of the world about what's gonna happen immediately and long-term, and I would look to Nina and to Mike to also maybe make some comments about the anticipations. It's gonna be tough. And Danny Werfel is the nominee, and it's gonna be tough to control that with both sides saying, “Congress gave you this amount of money; now what?”
0:16:01.0 Charles Rettig: Keep in mind, it's funding through September 30 of 2031, and so IRS needs to... Will be responsible. It needs to be efficient, it needs to be transparent. I think like all other commissioners, I invited oversight pretty much every time I went up to the Hill, whether it was individually or whether it was in testimony because I look at tax administration as an all-in and not a responsibility, but it's a privilege for us. So if Mike or Nina, they know as many employees as I do, wanna maybe make some quick comments about the employees, but I'm confident in the employees. They got it. They are special people who care, and folks generally speaking, don't go to work for the IRS just because. Once they're there they realize the importance of what they're doing, and you've got the agency. You talk about the budget, but the other end of that is, I think the gross revenue for the Internal Revenue Service gross receipts fiscal '22, September 30, '22 was $4.9 trillion, which is about 95 percent of the gross receipts of the United States of America.
0:17:07.4 Charles Rettig: The employees know that. And they know that for the country to be successful, they have to be successful, and they know that it's – All of us don't control the amount of money in the pin, so to speak, but I think the efficiency and effectiveness and responsibility of the importance of this mission is not lost on anyone. And so it's not gonna be how quick can the money be spent? You're seeing it, they're hitting the areas, they're hitting the call services, they're gonna hit modernization significantly. IRS in three years should be different than IRS today, but Nina or Mike, employees?
0:17:45.6 Cara Griffith: Yeah. I think that setting the Service up for success is gonna be a big thing. And Nina, that's what I wanted to turn to you. And we talked about this briefly when we were prepping for this, was it the IRS typically receives most of its funding through appropriations, that gets debated, right? So we've got a legislative history. We don't have that here. And first, can you talk us through why that matters, and then also how is leadership at the IRS and Treasury gonna be able to determine if and when they have been successful with this monumental task they've been given.
0:18:18.1 Nina Olson: Yeah, well, thank you, Cara. And thank you for having me here. I take a different approach to this issue. You can't do transformation, as you noted, in a vacuum, and we do have a model of what can be done. And I know a lot of people bash the Restructuring Act and think about hearings with people with bags over their heads. But as I discussed in an article that's upcoming in the University of Pittsburgh Law Review, there were serious people working on RA 98. And what you don't have in the Inflation Reduction Act is any kind of legislative history other than some. . .some testimony, some published statements.
0:19:02.5 Nina Olson: You've got CBO doing revenue estimates, but what you had with the Restructuring Act, which was the last major transformation was, first, it was preceded by a bipartisan – note that word – bipartisan commission, the National Commission on Restructuring, which by the way, went around the country and held hearing after hearing after hearing, and received testimony, written testimony from hundreds of people from all different walks, practitioners, just regular taxpayers, IRS employees, specialists, non-profit, for-profit sector folks and created a set of recommendations, which then went over to Ways and Means, and Ways and Means held hearings on those recommendations, and the legislation came out of that on a bipartisan basis. It passed in the House, something like 400 and something other to nine or something like that, like when have you seen a bill like that? You had a full committee report, went over to the Senate, you had hearings. I testified before the House, I testified before the Senate.
0:20:06.8 Nina Olson: I was just representing low-income taxpayers at that point. The Senate held hearings, it passed the Senate in a completely, almost unanimous vote, completely bipartisan, and then there was a Senate report and there was a conference report, and so you had a whole set of hearings. The commission, the document, and that process of creating the Restructuring Act, then, created not only a body of legislative history, but a consensus of what needed to be done. And yes, there were people disagreeing with some of the respects, but overall, it was a remarkable piece of legislation, and it not only transformed the agency, but it transformed taxpayer rights and tax administration at that time. But that's many years ago and what we don't have now is that kind of record.
0:21:00.2 Nina Olson: I do think it's important to note that I've served as a direct report to five commissioners and several acting commissioners, including the nominee, Danny Werfel, and none of those commissioners hunkered down. None of those commissioners... They all came in with some vision of what they wanted to accomplish and achieved it one way or another. And I think it's also important to think about... One of the things that is a myth out of the Restructuring Act, and I think this goes to your question about success. How do you define success? You know, only 2 percent of that $3 trillion in revenue that the IRS collects is attributable directly to enforcement actions. And so you can say that enforcement – if CBO says $5 to $9 in revenue for every $1 spent and there's an indirect effect, that's absolutely right. But there's also a very hard-to-measure indirect effect of customer service, and if you don't pick up that darn phone and you don't correspond with those letters quickly, you are not going to have the trust of taxpayers, and they are not going to comply with the law. Full stop. And it does... And then you're going to have to really spend a lot of money on enforcement to collect a slightly equivalent amount of revenue.
0:22:14.9 Nina Olson: In this article I cited, I tracked the collection revenue, the direct revenue from collection activities from 1995 to... No, 1986 to 2021, and in inflation-adjusted dollars, it was level through that whole time, regardless of whether you went to zero levies in the aftermath of '98 and zero liens or your revenue collection employees on ACS and revenue officers dropped to where they are today, you are collecting the same amount of money. So there's something else going on here, and it's not just enforcement, and that is what we need to focus on in the transformation, is really understanding what it takes for taxpayers to comply, what they need to comply, and you're not gonna just learn that from IRS employees, because they just see one aspect of it. And so you need to go back to the way the Restructuring Act was done so that you hear from everyone, and I mean everyone and you learn about that. So how you measure success, for me, is that you look at how you're changing your voluntary compliance rate going forward. Are the things that you're doing, whether it's in taxpayer service or it's an enforcement, it's in the Taxpayer Advocate Service, it's in IT.
0:23:41.1 Nina Olson: Is it making it easier for taxpayers to comply if you do have to do some kind of action against them, like an audit or take enforced collection? Are they learning what went wrong? And are you setting them up so that they never have to be back in that situation again, so they become compliant people going forward? And then the other way to look at it is to measure... Look at those AFCI, the SI, I think it is, the surveys of all government and private agencies to see where IRS is at that on that scale. At this point, it's at the bottom of the trust level, and it has been for many years. And so you have to really think about and bring those experts in about what you need to do to change that and raise the dial on trust, because trust is directly correlated to willingness to comply. I guess the last thing I'd say is, we're gonna be doing... The Center has just received a grant to hold a whole series of tax chats with experts through the spring and into the fall on what it takes to re-imagine tax administration and transform the IRS, and we're gonna try to create retroactively the legislative history for the Inflation Reduction Act.
0:25:01.1 Charles Rettig: Nina, I don't think you meant to imply it, but we should not imply that this whole thing is happening internally in IRS. There are... Everybody you can think of is engaged, and it really starts with Treasury, engagement with IRS. There is an office in IRS, but that office in IRS includes a lot of different players throughout, and then obviously on the outside, you also have the big contractors who have come in and transformational people and the rest, so it's definitely not... And I know Nina, it didn't... It sounded like maybe some people might interpret what Nina was saying was IRS is doing this in a bubble.
0:25:39.7 Nina Olson: Sure. What the Restructuring Act did, and you don't have a commission to do this, but what I'm saying is what's missing partly in this transformation are precisely the hearings that the Restructuring Act held around the country and you read the transcripts of those hearings, and in 2016, I went around the country and held public forums with members of Congress and practitioners and taxpayers and the general public to hear about their needs and preferences, and although it wasn't surveyed, there's nothing that replaces just the actual words of folks, and I think those are important records, and I have confidence that the IRS employees are looking at that record. I'm just saying that that mechanism of a restructuring commission, when part of the point of the restructuring commission was it was bipartisan and so you didn't have this divide of the parties. The report itself has some disagreements, members wrote their own positions at the end of the report, but there was a consensus report as well, and that led to the bipartisan legislation as opposed to what we've got today, and that's my point of what's missing that you can't just do it and put it all on the IRS.
0:26:58.8 Charles Rettig: Yeah, and we... No, nobody would have wanted this to come together like it came together, right? At the end of. . ., bipartisanship, I mean, you all know that I lived that, four and a half years, you got attacked by everybody and then everybody else one-on-one was like, "Oh, you're doing a great job, but by the way at this hearing I need to come at you.” Right? Like, oh, okay, okay, but we really want you to know, behind the scenes, you have tremendous support, but the other part of it is... And so I think the bipartisan issue that Nina hit on is one of the things that's gonna make this very difficult going forward for the plan and everything else, and you see how things get misinterpreted of Treasury issues are reported. Some people interpreted that to 87,000 armed agents and we're on the inside going, "Well, Where did somebody get that?" It's not even in the wind nor could it be, but it created a hysteria.And I think a bipartisan bill coming to Nina to your point, had it been bipartisan, you wouldn't have had those types of attacks, right?
0:28:01.7 Charles Rettig: But looking at it from tax administration, tax professionals, both in the government and out of the government, we have what we have, and I think you are going to see... When you see the plan come out, you are going to see a lot of interactions around the country and people are looking at what happened in not only Restructuring Act before with respect to IRS, but that's happened with other agencies and people are giving it their best, but know that there's a lot of involvement from Treasury and others in terms of this and I think, when you see the report come out, it'll be a lot there. But it's unfortunate to be where we are in terms of the political environment and that doesn't help voluntary compliance when you've got people on the Hill saying, hey, IRS isn't doing this, this, or this, or isn't even answering the phones. IRS, how come you're not answering the phones? And it's a budget item. We need... We needed the money to be able to do certain things. You can only shut down so many other lanes. But anyway, Cara, back to you.
0:29:11.6 Cara Griffith: Well, I mean, that is one of the problems.The political climate has set us up right now so that we're fighting about... We're fighting about everything, and we lose sight of the actual goal at hand. So Mike, I wanna get to you. I asked Nina about the overall level of success, and I wanted to focus a little more granularly with you on the examination process. And what do you think should be done? How could these funds be best spent to improve that process? And then at the end of the day, how do you measure success on improving exams and the examination process?
0:29:46.1 Mike Desmond: Sure, and thanks also for having me here today. I wanted to pick up and maybe answer that question by going back to a point that Nina made, which is contrasting the Inflation Reduction Act funding with what we've seen in the past. And it will be a challenge for the IRS not to have that legislative history which really sets expectations for what the agency will be doing, what the Treasury will be doing, what we all will be doing to try to prove success here. So not having a written record to set the expectations will allow people to kind of fill in the gaps there, but I think it also creates opportunity for the IRS, and not just the agency, but the tax system in general, to demonstrate success in many different ways, and some of those are the points that Nina touched on, which is customer service levels, voluntary compliance levels, things that have been very sticky over the years, voluntary compliance in particular. Nina took at it from the perspective of enforcement where that revenue was kind of stayed relatively consistent over the years, but also voluntary compliance at about a 85 percent range. Relatively consistent, and frankly, globally, a fairly enviable voluntary compliance rate.
0:30:51.6 Mike Desmond: But on a more granular level and go back to your question, Cara I think that there are things happening where the IRS can demonstrate success. You'll look at things also part of the Inflation Reduction Act, all of the clean energy credit provisions which have broad bipartisan support, and I speak only from the perspective of the taxpayers I've been speaking to who I have no idea what their political affiliations are, but they're certainly looking forward to taking advantage of the incentives that Congress has built into the tax code, and that is not a partisan issue at all. Similarly, on individual issues and EIP payments that Chuck mentioned and the three rounds that the IRS put out, those are the things that had very broad bipartisan support where the IRS is really doing things that the general population supports across the board and I think that there's bipartisan support for that as well. And the IRS can really demonstrate as they did with EIP’s success in that area, and the absence of compliance issues.
0:31:50.3 Mike Desmond: And I look at that through an enforcement lens, perhaps, when things go wrong on the back end and you do end up in an audit situation, but I think the IRS can really do a lot on the front end to lay out those programs in a way, put guidance out on the front end and address all of the open questions or as many as possible for new programs like that, so you don't have compliance issues on the back end. Having more resources, I look at it from the lens of Counsel, but having more resources to be able to issue letter rulings in areas where historically there has not been the staffing to do that, to answer those questions on the front end. That is, call it compliance, call it enforcement, call it service, whatever it is, from the taxpayers perspective, getting those questions answered through a letter ruling up front, through published guidance up front, so you never have the audit start, you don't have the enforcement issue on the back end is I think a way that the deployment of resources, the new resources can really be utilized effectively, and that will increase voluntary compliance.
0:32:52.8 Mike Desmond: That will perhaps not affect enforcement collections, certainly at the end of the day, but that's a good thing, that's sort of the intangibles, and I think that it also helps to get the IRS name out there and show that the Service is really there to help taxpayers become compliant, and the more that can be done on that front end through all of these different channels, I, again, speak from the perspective of Counsel, the more I think success can be made on the back end. What I hate to see are examinations that end up with perhaps an adjustment or a tax decision that's really kind of a failure of substantiation and things on the back end that maybe there's a credit out there you're entitled to, but you don't have the right receipts in your shoebox to prove that you're entitled to it, so you're gonna didsallowed that. That's not really the way the system should work. There should be front-end guidance, what types of documentation you need to keep, how you comply with these rules, so there isn't an audit adjustment on the back end, and we can focus those resources on the front end, get those questions answered up front.
0:33:49.7 Cara Griffith: Do you have any idea if the upcoming plan for the IRS is going to involve a potential reorganization of the Chief Counsel Office? Or would you even think it would be necessary? Are there ways that you would restructure... Given the funds, are there ways you would restructure the Chief Counsel that would make it more efficient?
0:34:10.7 Mike Desmond: Yeah, I don't have any idea...
0:34:12.4 Charles Rettig: Let's start by getting an actual Chief Counsel.
0:34:16.8 Mike Desmond: I don't know if that's restructuring, but certainly I [inaudible].
0:34:22.0 Charles Rettig: It’s a start.
0:34:22.1 Mike Desmond: And the model has changed over the years, Cara. When I first started in practice, there was the geographic model for Counsel, yeah, district counsels geographic areas. Modeling the client, and I think there was an effort to match that up. You talk to 10 different people and you get 10 different views on what the right approach is and I'm not gonna give one or the other, I can see some pros and cons to both. I do think though, that we are in a new world and the pandemic has really driven us there a lot faster than we probably would have gone otherwise in terms of Counsel teams, and I just see this from the very kind of granular perspective of a large cases and you've got Counsel attorneys from across the country drawing on availability on expertise, and being able to put household attorneys together and staff together to appropriately staff large cases and even small cases, and even outreach to exam teams, I was really encouraged to see during my tenure all of the effort the Counsel put into training IRS employees, exam employees, compliance employees on the new provisions of the Tax Cuts and Jobs Act.
0:35:30.6 Mike Desmond: And I think that is something we are not... I started practice in 1994, where there really wasn't... We didn't have cell phones, we didn't have really email to speak of, and you kinda had to have a geographic model there. We've moved away from that, I think faster than we probably expected to, and you can really leverage those resources from around the country on all of these different fronts. So how that's taken into consideration the restructuring, I'll let other people weigh in on. An important issue, and people wanna know where they sit, who they report to, but I think from the taxpayers perspective, the importance of having your district director right down the street or district counsel down the street from you really is not at all the same as it was when I was started to practice in the early 1990s, so I think that will certainly be taken into consideration.
0:36:16.0 Nina Olson: Well, I would take a slightly different approach on that also, in the sense that one of the things that I think did get lost in the Restructuring Act or in the reorganization that was done in '98, which no longer is what we have today. Organizations focused on types of taxpayers wage and investment and everything, and SBSE does enforcement and compliance action, and you do have LB&I focusing on a particular taxpayer group as with TE/GE, but you're very far from that restructuring vision, but what it did do was it eliminated the geographic structure, and I really believe taxes are retail and the way people think about taxes in Montana is different from the way people think about taxes in the Bronx in the sense of what the issues are and things like that, and if you don't have employees on the ground in those communities, you will not do good audits, you will not do good collection, you will not understand the culture of that community and how you build trust with that culture in order to get voluntary compliance, even when you're doing an exam so that somebody will listen to you.
0:37:18.5 Nina Olson: And I think there are challenges in trying to do things efficiently and with low cost, and that's why you're centralizing – correspondence exam, ACS, etc. – to get those savings. And I'm hoping that as we go look at this funding, I'm hoping that you will go back to actually having field presence of auditors and collection officers, so that revenue officers in the community, and by the way, spec; media liaison; people who are actually in those locations, and there's another reason for doing that, which is that when you have IRS employees also belonging to your PTA, also going to your houses of worship, also partnering in Habitat for Humanity, then it's harder to demonize IRS employees and say that there are other than you.
0:38:19.0 Nina Olson: But when you have them just concentrated in certain locations then you've got a whole swath of the country that has never interacted in person as a neighbor to an IRS employee. And I think that, again, increases the divide and reduces trust.
0:38:40.4 Charles Rettig: And Nina, I think you're 1000 percent on. And I think that there's certainly a desire to get there. There's definitely a desire to get there at the employee level. And if you recall... If you go back in time, let's say at or about before and after the '97, '98 Roth Hearings, nobody was seen to work for the IRS. They worked for the federal government or they worked for Treasury, but IRS on the streets had zero employees.
0:39:01.9 Charles Rettig: I think that... If asked, people shied away from saying, "I work for the IRS." I think through COVID, some of that changed. And I think sort of a pride of what they were able to accomplish in a very difficult manner. And one of the points I've called out numerous times in testimony, the Memphis campus employees who were in food bank lines in Memphis during the lapse in appropriations in January 2019 set records for the Mid-South Food Bank contributions in 2020 and broke that record in 2021. And they did it as IRS employees.
0:39:34.9 Charles Rettig: And it got picked up in Memphis, IRS employees set the record for contributions to the Mid-South Food Bank. I couldn't have been more proud of the people to go, "I'm a IRS employee and I'm giving back to my community." And as Nina says, if they're at the PTA meeting or they're at the church or the this or the that, it breaks down the institutional to going, "Well, they are real people. And I get it that they're trying and they're trying in a very complex, challenging environment." I think that's a start. And then flip that into... And Nina, I think, you were saying some of this was the exam nature. The person who shows up knows what it's like to live in this particular community, rather than having somebody in New York auditing somebody in Hawaii or in Louisiana or something, and they're not gonna go well. It's not gonna relate well.
0:40:28.2 Charles Rettig: Ultimately, I think I believe, and I think maybe most of us believe, life is a people business. It's understanding people, being able to communicate effectively to people. We used to talk about single syllables. Mike talks about guidance in terms of the enforcement. Timely published guidance that's understandable, not just by tax lawyers with 30 years of experience and 15 different degrees and whatnot and have seen this case 40 times so I know how the 700-page regulation fits. But the bulk of the people in terms of... And the money comes in on employment tax, about 70 percent... 60 percent or 70 percent of receipts for IRS come in through the employment tax lane. Having people understand it, so that maybe they don't need the high-end tax lawyer or any tax lawyer.
0:41:17.8 Charles Rettig: Single syllable, effective communications on the streets to the extent possible in the communities, and show up at events as IRS employees, and I'm here to answer questions. And Nina called that spec. They're tremendous for what they do. And they really are on the streets in language in the communities where that's appropriate.
0:41:39.1 Charles Rettig: And I think that the feedback that we got from that was just awesome, and it was... The employees are from those communities, who care about those communities who know what it's like to be challenged, whether it's... I don't have a cell phone, let alone a smartphone. We don't have internet. In the rural parts of the country, there's maybe 10 million people who don't have access to what everybody else has access to, but they're as important as the most sophisticated high-end taxpayer, and they need to know that they're important. So we need to value the people. The best way to do that is with people from their own community. Respect and value every taxpayer. That's critical.
0:42:19.7 Cara Griffith: And I would agree. I wonder though, if there's some kind of mix between the two. 'Cause one of the great challenges that the IRS has faced is trying to attract talent and trying to do close the knowledge gap between where they are now and where we do have our very sophisticated corporate taxpayers.
0:42:38.1 Cara Griffith: And so having someone in the location seems vitally important, but also being able to leverage a network of knowledge seems equally as important. Which kinda brings me to one question that I definitely wanted to get to, which it's gonna be a great challenge for the IRS is how's the Service going to attract talent? We need really good tax talent and in a variety of different areas. So you've got partnerships. Let's take that one as an example. It's incredibly complex, and I do think that the IRS is sometimes in a losing position in terms of the knowledge that they have there in comparison to what is maybe in the private sector.
0:43:15.9 Cara Griffith: So how is the IRS gonna do that? They've got a lot of people to hire... Where are they gonna get this? How are they gonna make the IRS an attractive place to work and to grow a career?
0:43:28.2 Nina Olson: If I can sort of weigh in on that. I think some of it is on our shoulders. Is that we have to say to people constantly that your career is enriched by doing a stint in the federal government. You will learn things that you will never learn anywhere else. And I'm speaking as someone who never had any desire to work in the federal government, particularly, the IRS, and look what I ended up spending 18 years doing. And I learned an incredible amount.
0:44:00.9 Nina Olson: And I think some of the model has to change and that you can't expect lifelong employees. But you may find that if you go in and you think, "Here I am mid-career and having this experience." Particularly at this point in time, where there's actually some money to do something and be part of the transformation. That's another way of getting other points of views. Is bringing people in from "outside" in to have their perspectives not expecting them to stay for their lives, but to share. And then some portion of them will find it so enriching that they will in fact stay, but others will go out with a much better understanding of how the government actually works, the challenges that it faces and the successes that it has. And they can be strong advocates for improvement and transformation on the outside after that experience.
0:44:57.2 Nina Olson: I also think it helps that you're able to... If you can... And Mike can speak to this. And I think Chuck may have something to say about this too. Is it at least in Chief Counsel, when we were able to do some of this with TAS for the attorneys, we were able to say, "If you wanna get an LLM in taxation, the government will foot the bill on that, but you have to commit to serving in the IRS or Chief Counsel for a particular number of years or else the bill is gonna come to you pro-rated.
0:45:31.1 Nina Olson: And I think that expanding that beyond the lawyers and not even just a CPA degree, but really looking at advanced artificial intelligence degrees, computer science degrees, human resource degrees, MBAs. But just getting the human resource function of the IRS really on a sophisticated level. So if you just get five years from that person, yay. You've got a really grateful, dedicated person and some will stay, but others will stay long enough to help transform the agency.
0:46:05.4 Mike Desmond: And Cara, just to pick up on Nina's comments, one of the themes that I came back to, and one of the most rewarding aspects of my tenure was the recruiting that we were able to do at Chief Counsel. Using some of the funding that Counsel got, the IRS got for Tax Cuts and Jobs Act implementation. We had a net increase of about 100 retainers when I was there over a base of about 1,500 attorneys.
0:46:27.7 Mike Desmond: So I did spent a lot of time, probably visited 20 or 30 law schools during my tenure to really make the recruiting pitch that you're asking about. And starting to push down before COVID came on to even going to colleges and pre-law school. I don't think there are a lot of kids who graduate from high school thinking they wanna become experts in subchapter K. But you have to impress upon them that the tax law and the tax code and the IRS is about far more than just tax collection and revenue collection. The IRS does just about everything you could imagine. We've got an interest in environmental law, environmental work, social work and all of the different things the IRS does. So I'd spent a lot of time telling law students and also undergrads who are in the accounting field or even outside the accounting field, "There's a lot of opportunity at the IRS."
0:47:14.4 Mike Desmond: Yes, it is the revenue collection agency of the federal government, but look at all of the socioeconomic programs that it is playing a critical role implementing. If you've got an interest in health care, the role the IRS plays in implementation and administration of the Affordable Care Act is instrumental. And to Nina's point... Come in, you may not wanna be working for the IRS for your entire career, but there's an honors program in Counsel. I know that the IRS has some other programs for recruiting people out of college and undergrad and law school. Come in and spend a few years. And I did that at the Justice Department, and it's a great recruiting tool to get exposure to a wide variety of issues. It's not just going out and collecting revenue. So I think there's gotta be a focus on that and that's not lost on anyone.
0:48:00.6 Charles Rettig: Yeah, I think it's a matter of, certainly, the IRS competes with other federal agencies as well as the private sector, so it's a matter of also providing for... If you're looking at the younger, more recently out of school folks, it's a matter of providing a similar slate of benefits to them. Rather than saying, "Oh no, no, we don't have tuition reimbursement for that LLM you're gonna go get. We don't have student loan repayments. We don't have elder care."
0:48:24.2 Charles Rettig: With an aging population of employees inside the IRS, elder care is almost as important as child care. And we learned that during COVID. The number of folks that we had who were taking care of their parents, who basically, at a point in time, couldn't come back in because the elder care facility for the parents wasn't there and the financial piece of it. All of that is part of this process going forward.
0:48:46.2 Charles Rettig: So there's a slate of, if you will, benefits like that. I don't like the term benefits, 'cause I think that it's actually the right thing to do. And “benefit” kinda has a connotation of something somebody didn't earn. "Oh by the way, we're gonna give you this." And it's like remote work. I got approached a number of times in hearings, senators and congressmen would say, "How many of your people are working from home?" And I think my standard response was 99.8 percent of our people are working. No sir, that's... One senator asked me five times straight up, "How many are working from home?" "Sir, that's not the question I'm asking you. I'm asking you how many are at home." Translating at home to not working... Well, the fact is, look at any... The law firms, the accounting firms and all the rest of the world, they're in a remote environment, and a lot of that is gonna stay. The IRS needs to stay with that and be respectful to a balanced approach to somebody's eyes through their perspective.
0:49:39.9 Charles Rettig: In terms of partnerships, there are about 6,500 field revenue agents inside the Internal Revenue Service. So if you look at the data book, you're gonna see a number about 8,700, but that 2,200 delta are folks who are actually off doing other things. They're not field agents. So they kept the title, but they're off doing something else. So just as a number. Yeah, about 6,500 field revenue agents. And last year, I think we got about 4.2 million partnership returns. Some are straightforward, some are complex, some are multitier, some have foreign blockers and such inside them, some have non-profit relationships and what not, foreign and domestic. And so if we just put 6,500 field agents on those 4.2 or something million returns that were filed just last year, IRS would be outnumbered. They need staff, they need trained staff, they need to support the staff, they need to respect the staff.
0:50:42.3 Charles Rettig: They need to provide opportunities for staff to grow and have it be a career. And I'm all where Nina is. If you can get three years from somebody and they're good years for that person. The IRS has a commitment to the people to, if they do want to leave, they leave in a better place than when they came in. Train them, give them experience and let them go out into the community and be all things.
0:51:04.8 Charles Rettig: All of that's important. And going back to, I think... I'll just put myself generationally. I'd like to see the IRS get to the point where it's a calling card. Somebody who leaves and goes into the tax professional community and says, "You know, I worked at IRS. I learned all this at IRS." And have other people go, "Really. Well, maybe you could like to sit and show us certain things."
0:51:27.4 Charles Rettig: A good calling card. Not, I work for the agency that Congress continually seems to beat up if it doesn't serve some congressional purpose or get in the political battles. I want people proud to be there. And if they're proud to be there, others will be proud to come. But it's going to be a tussle. The first wave of hirings would be easier than the second, third or fourth wave years down the road.
0:51:50.0 Charles Rettig: So I hate to say take what you can get in terms of Nina, three years or five years or something. I don't think everybody looks at it as a career. But I will say I never had a government service before. To me, government service, Nina, was growing up as a kid was gonna be the Vietnam War. And they shut down taking people in two years before I got out of high school. So my brother and I missed it. But that's where we were headed. And we were a generation that college wasn't the focal point. The focal point was, you're gonna learn to work in a jungle with your best friends and good luck to you.
0:52:24.9 Charles Rettig: But my most proud moments of a 40-year... 40-plus year career in tax come from the people that I was fortunate and privileged to work with at the Internal Revenue Service, both an inside and outside. And I think other people, I would hope can achieve that by coming to work at the Internal Revenue Service. And they are hiring. And they will train.
0:52:44.8 Cara Griffith: That's right. I have a 16-year-old at home, I keep pushing her. She's looking at college majors. And I'm like, "Go into tax. It's a great field."
0:52:54.0 Charles Rettig: So there's a deferred entry program. When I met people who, "Oh, we just had a baby." I said, "You know, we have this deferred entry program."
0:53:03.5 Cara Griffith: There's more than one way. She's not biting yet, but I'll get there. I'm persistent. So we've talked a lot about, I think, the positive transformation that we can definitely see from these funds having come. But there's been a lot of press and news that show the negative side of this. From your perspectives... And I'm interested in each of your perspectives on this, is it a reasonable concern that these funds are going to negatively impact taxpayers and in particular individual taxpayers? What are... Should taxpayers be concerned about this or can this be used in a way that benefits tax administration and taxpayers as a whole?
0:53:42.5 Nina Olson: During my tenure as the national taxpayer advocate, and when I was just running the Community Tax Law Project, and today, every time I have talked to someone on the Hill, I've tried to remind them that taxpayers are their voters, their constituents. And to the extent that you don't fund the IRS, you are harming your constituents, you are harming your voters. It is the experience of their constituents and their voters on the phones. It is the experience of their constituents and their voters waiting for a letter to be answered and getting stall letters because there's not enough staff to handle that mail and address the issues.
0:54:32.3 Nina Olson: It's that day-to-day interaction with the IRS that this money is an opportunity to fix on all levels. On IT, on creating good online accounts that give taxpayers the services that they need. But then that there are people to answer the phones and handle the correspondence and solve problems in the Taxpayer Advocate Service to help those constituents and those voters.
0:54:56.8 Nina Olson: And I think that's what we have to constantly remind Congress about. That it's not about tormenting people. It's about providing taxpayers, constituents, voters with the tax system that they deserve, and that will serve them and help them comply with the laws. And that just needs to be said over and over and over again.
0:55:24.6 Nina Olson: And then in as many different variations as you can think about, whether you're talking about large business, whether you're talking about small business constituents, mom and pop shops, individuals, EITC recipients, it doesn't matter. You can make the case in every single level. And it has to be focused on that. What is the experience of any particular taxpayer with the IRS and why should you... What is that funding going to do to improve that experience.
0:55:54.3 Mike Desmond: I pick up on what Nina said from my experience, both inside and outside government. I think most compliance disputes are rooted in misunderstandings. There are some kind of high-end ambiguities in the law that we wrestle with, and we all love those cases because they're very interesting interpretive issues. But I think the vast majority of compliance issues, particularly good for individual taxpayers, are just misunderstandings.
0:56:17.3 Mike Desmond: A paper return was filed and a number of got transposed. Correspondence was sent from the IRS and didn't get picked up by the taxpayer and wasn't answered so there a misunderstanding [inaudible] for that. Same thing on the back side. The IRS takes longer than it should to respond to paper correspondence coming in.
0:56:33.0 Mike Desmond: So the more resources that can be committed to answering questions, timely, processing returns in a way that doesn't have transposition errors in it that lead to a year of back and forth to get that number correct on the tax return. They're just misunderstandings. And I think that can take care of... And as Nina said, the vast majority of taxpayers that they're not trying to argue with the IRS or take a creative position. They're just trying to put a number on a tax return and get a benefit or pay the tax or whatever the situation might be.
0:57:02.8 Mike Desmond: So the more that can be done to alleviate those misunderstandings, the more that taxpayers don't have adverse experiences with the IRS, and they see that – Most... the vast majority of people who are perfectly willing to pay the taxes, do. And in the vast majority of cases, it isn't really a whole lot of ambiguity is what the taxes do.
0:57:21.8 Mike Desmond: Yes, there are some issues where there are uncertainties, but those are kind of high-end problems. So if these resources can go to answering questions, getting guidance out up front, being able to process returns, even paper returns in a timely and more accurate way, that will do an enormous amount to eliminate kind of that tension between taxpayers and the IRS, where you're sitting there for weeks and months and years waiting for your refund to come, waiting for this correction, this numerical error to get corrected. Those kinds of things.
0:57:53.0 Charles Rettig: I think the vast majority of people try to do it right. And so the agency’s top priority should be to help people try to get it right at whatever level. Sophisticated, unsophisticated, and the rest. And the best lane I can speak to of what we tried to do recently... And this was without funding, what we try to do is the whole language initiative. The multilingual initiative, trying to help people who are trying to get it right in their language which the other side of that is, it shows a respect. We know that you may be comfortable in English, you may not be comfortable in tax English. You may not at all be comfortable in English, which is in the large part, sends people in a lot of the communities into being preyed upon by a certain element of tax professionals who might be fluent in the language. They hold out and say, "Well, I'm authorized by the Internal Revenue Service."
0:58:42.1 Charles Rettig: You go into certain ethnic communities and you say, you're authorized by the Internal Revenue Service, they're gonna go to you. And also, by the way, I'm gonna get you a $500 refund. Now, you got a lock on the whole neighborhood, right? And if you're not entitled to it and the IRS shows up later in English only, and it's a non-English-speaking community, you can see what you have.
0:59:02.9 Charles Rettig: So getting out there... That's just one lane. But in language to show respect that this is the United States of America, it's not the English speaking country, America. And “united” by definition means we've got people who come from everywhere, respect everyone in the language, in the community. Show up in that community, be from that community, go back to that community, help to support the community. And at the end of the day, the IRS helps the country. You know, 95 percent of the gross receipts of the country go through IRS. Why you wouldn't find the agency, bring in whatever oversight you want.
0:59:39.2 Charles Rettig: Nina asked for it. Mike, would say it. I would say it. Bring all the oversight you want. Because that brings them in to engaging in what the process is. And let's let people see and focus and be transparent. This to me, is a very straightforward process. So it's sad to see it become a political football between the two parties, but I think at the end of the day, it's gonna be transformational and everybody's gonna benefit.
1:00:11.8 Charles Rettig: And I'll say in my 36 years on the outside, it was rare that I ran into somebody from the IRS, whether revenue agent, revenue officer, appeals counsel or whoever that I thought had an ax to grind. Or came at the client just because.There was some issue that was there and that – you can't fault the IRS for doing examinations. You might be able to fault for not staying in the examination long enough. That's on the agency getting our people or their people experience, education and being out in the community in language for guidance that people understand. Simple language.
1:00:47.5 Cara Griffith: Yeah.
1:00:48.0 Charles Rettig: Anyway. I've run over. So thank you for having us.
1:00:51.6 Cara Griffith: No problem. Well, I wanna thank you guys. Today, I think this is really important, having these conversations and getting actual information out is very important, and I think is one way that we can help move this in a positive light. And as the IRS goes through what will be a challenging couple of years. So I wanna thank you again. I know that our audience appreciate it as well. We certainly could have gone on for another hour, but we'll stop it here. And so thanks very much and thanks for everyone who is listening today. Have a great day.
1:01:20.1 Charles Rettig: Thank you for having us. It means a lot.
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