Taxes

IRS In Flux: New Funding And New Commissioner

Former IRS Commissioner Mark Everson, now with Alliantgroup, discusses the need to identify the agency’s next leader and how the IRS should use its additional funding from the Inflation Reduction Act.

This transcript has been edited for length and clarity.

David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International. This week: now hiring.

On November 12 IRS Commissioner Charles Rettig will depart as head of the agency when his term ends. From there, an acting commissioner appointed by President Biden will take his place.

Although the acting commissioner will have the same authority as a Senate-confirmed one, the temporary nature of the position will lend itself to some uncertainty. This comes as the agency is set to receive an additional $80 billion in funding from the Inflation Reduction Act.

What can we expect in this leadership transition? Joining me now to talk about this is Tax Notes reporter Jonathan Curry.

Jonathan, welcome back to the podcast.

Jonathan Curry: Hi, Dave.

David D. Stewart: We’re coming up on the end of Charles Rettig’s term, and we don’t have a new commissioner nominee yet. Is that normal?

Jonathan Curry: Yeah, it is normal for there to be a gap between when a confirmed commissioner’s term ends and then a successor takes his or her place. I think there was about a seven-month gap between when Commissioner Rettig was nominated and then when he was actually confirmed. That’s not unusual.

But what I think is unusual is that this $80 billion of extra funding for the IRS is such a big policy priority for the Biden administration, and they’ve also known that this is coming. The IRS commissioner serves a fixed five-year rolling term, so they knew that he was going to be stepping down November 12.

They’ve known since August that this $80 billion was basically guaranteed at this point. To not have someone lined up is turning a couple heads and making people wonder what the Biden administration’s been up to.

David D. Stewart: Let’s talk a bit more about this. You were on an earlier episode where we discussed this $80 billion in funding. Do we have any better sense of how that money’s going to be spent?

Jonathan Curry: I don’t know that we have a much better sense. We do know pretty generally what the Biden administration wants the IRS to do with this.

They want them to basically improve things across the board. They want to get their IT systems more up to date. They want to improve taxpayer service by a lot. They want to dramatically boost enforcement of high-income taxpayers and large complex organizations, businesses, and things like that. We’ve already known that that was going to happen.

The big thing that we’re going to be looking for is that the IRS is going to be releasing what they’re calling “an operational plan” six months from enactment, which puts it right around mid-February. The Treasury Department is working closely with the IRS on this.

They’re going to be helping them sketch out for the next 10 years what projects to prioritize, benchmarks to set, timelines, and things like that. We should expect it to have a good amount of detail. There’s going to be perhaps some fluidity to it, but that’s going to be the big thing to watch for.

In the meantime, we’re all watching and waiting to see what they come up with for that.

David D. Stewart: Do we have any sense of when we should see a new commissioner nominee?

Jonathan Curry: Hopefully soon. I’ve been told that the Biden administration has the candidate, and they’re just doing the background vetting and things like that. You would expect them to want to put someone out soon, but I don’t know, even if they do announce someone, it could take a long time for that individual to be confirmed.

In the meantime, there’s going to be an acting commissioner holding down the fort.

David D. Stewart: Now I understand you recently talked to someone about this. Could you tell us about your guest and what you talked about?

Jonathan Curry: I had the privilege of speaking with Mark Everson from Alliantgroup. He has had a long career in government. Most notably for us, he’s a former IRS commissioner. He held that role from 2003 to 2007.

He’s also held various government roles during the George W. Bush and Ronald Reagan administrations. He was in the Office of Management and Budget. He was working with immigration and that area as well.

He was also a Republican presidential candidate for a short spell in 2016. You can imagine tax reform was one of his big policy priorities.

Mark really was the perfect guest for this moment. As we were just talking about, the IRS is really on the cusp of making some really huge organizational changes. And who better to weigh in on this than someone who’s been in that chair and had to make those decisions?

We talked about how the IRS should be spending this money, what they should prioritize, some of the challenges they’re going to be facing, and so much more.

David D. Stewart: All right, let’s go to that interview.

Jonathan Curry: Well, Mark, it’s great to have you here with us.

We brought you on to talk about the Inflation Reduction Act and the next IRS commissioner. You’re someone that’s going to be greatly positioned to talk about this with us because you’re a former IRS commissioner yourself. You know how this works.

To jump right into it, the IRS has an extra $80 billion to spend. What are some challenges that you think the IRS is going to run into as they try to put this $80 billion to work?

They already have a budget of about $13 billion a year. This adds up to a lot of extra money. What do you think they’re going to be facing?

Mark Everson: Well, there are a lot of issues here. First, they’re starting from a poor position because the Service has had tremendous problems in terms of the manual that it issues requiring human intervention: processing returns, answering the phone calls — that’s all well documented.

Plus the real problem of data security, which is increasingly the subject of the Treasury Inspector General for Tax Administration reports or the inspector general. Also, we all know about the ProPublica and the more recent data breaches.

The secretary, at least on the services issue, has said, “Hey, first thing you have to do is get IRS services right.” I agree with that. They also have to work on the data security, but while they do that, they have to develop an implementation plan to build the agency. That is easier said than done.

It is harder, in my experience, to add, to grow, if you will, than it is to maintain or contract. Particularly we have a government agency that is controversial. Not everybody wants to go work for the IRS. Getting good people, training them up, and putting in the new systems, it’s going to be a very significant task.

Jonathan Curry: On that point about the hiring, I think that’s a very important point to raise. Of course, we’ve all heard about 87,000 armed IRS agents. That’s a bit misleading to say the least. But to be fair, Treasury has said they want to hire 87,000 employees over the next 10 years with this money. What are some challenges that you think that the IRS will face?

They’re looking to hire a whole range of employees, everything from customer service on the phone lines, processing paper tax returns, to top-flight lawyers to handle these audits of complex partnerships and along with IT as well.

Do you think all those areas are going to be challenging to hire in? Are some more difficult than others?

Mark Everson: I think they all present unique problems. Anybody who’s in business today knows that it’s tough to find the right people.

We have a shortage of workers right now for a variety of reasons, and I think that’s very true across accounting and tax in the private sector.

It’s also of course true for the IRS. They’ve struggled to bring on people that they had authority to bring on with the COVID-19 relief funds.

Yes, I think this will be hard. What I would say to you, Jonathan, is that I’d rather see the Service get this right and hire three good people, than hire three good people, a couple of average folks, and somebody who’s going to cause them problems.

Because if they end up hiring people who don’t understand what they’re doing or who are an ill fit and overreach, that’s going to cause — in this environment of great scrutiny of the IRS — more problems than it’s worth.

So do this right; do it deliberately.

Jonathan Curry: Yeah. It sounds like it’s just a tough labor market overall.

Perhaps the IRS might be crossing its fingers, hoping for a recession maybe to make it a little bit easier to hire.

Mark Everson: I don’t know that that’s the case, but for sure they have a real challenge.

Jonathan Curry: You’ve actually been a little bit critical of the amount of funding. You’ve been pushing for more funding for the IRS, but I think, if I can recall correctly, you’ve been critical both of the total amounts and also the way it’s kind of divvied up.

Mark Everson: Yes, that is true. For the reasons we really just articulated, I didn’t favor a doubling of the size of the agency, which was clearly contemplative after the president spoke and then the Treasury issued its white paper rolling out the $80 billion justification. I don’t support something of that magnitude.

I support 3 to 5 percent real growth and that means adjusted for inflation each year. I think they can absorb that, hire diligently, spend the money on the systems, and that would be healthy.

To your other point, yes, absolutely. The money is skewed way too much for enforcement. There’s 14 times the amount of money provided for enforcement as for services.

It’s true: A lot of the systems money will help improve services to taxpayers. But I still think that they could have done a better job in terms of splitting that.

You see that the secretary has correctly challenged the Service in its implementation plan. Again to give emphasis to taxpayer services. Recognizing that there’s some real controversy here.

Jonathan Curry: Now let’s say that you were back in the commissioner spot at this very moment. What would you pick out as the biggest priorities for the IRS?

You know they have $80 billion extra to spend, but they also have a normal agency to run and filing season coming up. Where do you think things rank in terms of critical importance?

Mark Everson: Well, right now, they absolutely have to clear the backlogs, and that includes the correspondence. Because as practitioners know, there have been lots of notices issued. People are confused. Until you clear the backlogs, including the correspondence, you’re still going to have untold volumes of people calling in because they don’t know what’s happening.

You have to get that all corrected and fast. They’ve done a good job of getting extra people to work who’ve done submissions processing in the past. But I would assign tag teams or teams of regular auditors and collections people, ship them out to the service processing centers, and have them work on two-to-three-week rotating sort of duties, if you will. Let go some of the other things that they’re doing, which are discretionary. They have to get this backlog cleared.

The other thing is the data security that I mentioned before. That’s a terrible problem. It’s a great concern to everybody.

Before they spend these billions of dollars on new systems, I think the American people and Congress are entitled to an explanation of what happened with the ProPublica leak. Was it inside? Was it contractors? They’re going to go out and have a lot more contractors doing many, many things. We better understand that they’re doing it right.

If you follow this, Jonathan, TIGTA has just issued a series of reports criticizing the IT security issues.

This is going to be a continuing focus. They have to do those two things first. Then they really need to focus on the implementation plan in terms of building up the infrastructure, making sure they have enough folks on the hiring side, and making sure the procurement staff is staffed appropriately.

If you build up the infrastructure side, this multiyear plan will unfold with a lot fewer problems.

Jonathan Curry: I think you’re absolutely right that data security will continue to be a big focus. Republicans have certainly made it a key focus at hearings and press releases all year long, and it’s showing no signs of letting up. Then as the IRS is spending a lot of extra money, that’s going to draw a lot of scrutiny, I think.

In terms of how soon we can expect to see the effects of this extra $80 billion being put to use, this money’s going to a lot of different things: to boost enforcement, for improving taxpayer service, and modernizing the IT infrastructure of the entire IRS.

How soon do you think we should expect to see that take effect?

Mark Everson: Because the secretary is giving priority in certain things, I think you’ll see some impact, obviously on the service side and hopefully on the data security side, sooner in terms of those sides.

But hiring people and training them takes a long time. I know the Service is quite properly looking at trying to bring in midcareer professionals from companies or from CPA firms to do some of the work that you alluded to before — the more sophisticated audits or a lot of the complexity in the international area.

But just because somebody understands the code — it takes a long time to understand the procedures in government and the rules of the road in terms of dealing with taxpayers at the IRS. You don’t just hire somebody, which takes time on its own, and they don’t just head out there and do the job properly on day 1.

The other point on this is if you’re a group leader in — I live down in Mississippi. They have a small office in Gulfport. If you’re in Gulfport there, if you’re training two new people in your group, that makes you less productive. You’re not doing as much in terms of your day-to-day audits or collections, whatever it is.

There may be actually a deterioration in some of their numbers on the enforcement side, as they hire and train up.

Jonathan Curry: Yeah, that’ll be interesting to watch for and see if that materializes.

On the modernization side, there is a top IRS official who handled a lot of the IT modernization issues, and he recently said he’s excited to have all this money at his disposal.

He also described it as a “waking nightmare” every morning when he has to get back to it because there’s a lot of expectation over what the IRS will be able to accomplish. He was somewhat trying to temper expectations of, “OK, it’ll take some time.”

It’s interesting to see the view from inside the IRS on that.

Mark Everson: Well, I think that gets to the overall challenge for the IRS right now, which to some degree, there has been a “woe is me” mentality. “We can’t do anything because we don’t have enough money.” That has served as an explanation that has occasionally been offered up to Congress or the taxpayer for why things aren’t better.

That explanation is now gone so that’s a different reality. One of the things they really need to do here is communicate openly and regularly with the stakeholders about what they’re doing and why certain things, as we just discussed, will take time before you’ll see certain improvements. That’s what they have to do because the expectations are higher.

Jonathan Curry: Yeah, certainly.

Another thing too, the Republicans have made it pretty clear — especially with midterm elections coming up — that rolling this extra funding for the IRS back has become quite a key part of the Republican platform going into the election here.

Say that you were back again in the IRS commissioner hot seat. How does the threat of this extra funding being rolled back in the near future — I mean, would that affect the plans you put into place now? Would you try to be more cautious in what you try to set up to do, or do you think you just have to take what you have and deal with things as they come?

Mark Everson: Well, I think what you do is — at least, what I did in the job was you try to treat both sides equally. I always felt that I served the country best — and frankly served the president who’d appointed me, George W. Bush, best — if I called the shots right down the middle because in the end, it sticks to the administration if there are problems at the IRS.

What you want to do is call it right down the middle and then communicate effectively with both sides of the aisle. You want both sides of the aisle to believe and conclude that you’re telling them the same thing. If you do that, then you just follow the law. I think you have to execute the law as written and that money is there.

So yes, they should be developing the plans. They should proceed. They shouldn’t pull their punches for political reasons.

Of course, you’re right, you do have to be always thinking, “Well, what happens if there’s a change here or there?” But this is way premature. We haven’t had the elections yet, and we’re a long way from stripping out that money, I think.

That money’s there, it’s a sea change for the IRS, and they need to go forward. They have an implementation plan deadline in February. Develop that plan.

Jonathan Curry: The $80 billion is coming in at an interesting time. IRS Commissioner Charles Rettig is set to step down. His term expires on November 12, and there will be an acting commissioner to fill his shoes until a confirmed commissioner can come along. But that could be quite a bit of time.

This is a crucial time, the very beginning of this new funding coming into the IRS’s hands, and they’re trying to decide how they want to spend it.

Mark, are you surprised, one, that we don’t have a nominee lined up or publicly announced yet, and then two, what kind of person should this nominee be?

Mark Everson: Yes, it’s very unfortunate that there’s not a nominee who is already in the midst or going through the confirmation process. The individual who’s going to run this for the next four or five years and own the performance of the agency, both in terms of its operations and building up the capabilities through the new funding, should be participating in the development of the implementation plan. It’s just wrong to have them come in and take a look afterwards and execute against it.

That’s not an effective way to do things. The same thing is true. The IRS just issued a strategic plan a few months ago. That’s way out of sequence. The new commissioner should be the one who is developing that and getting the proper approval of it.

It’s very unfortunate that the administration hasn’t moved by this time to put in place someone to oversee this agency.

I feel strongly, and with some of my colleagues, former commissioners, just issued a statement recently on this saying they need to move promptly.

But also, to your question about what kind of person, I think we feel that you need someone who’s had major management experience, delivering a major growth and transformation in a complex situation, because the IRS is complex.

There’s a tension between the service mission and the enforcement mission. That’s going to be difficult because of the skewing of the funding that we talked about earlier. There’s a lot to do that the person who comes in, I think, should have that experience.

You’re not going to find a total matchup, Jonathan. But experience doing something like that, in acquisitions in the corporate area, integrating big companies, and also the systems side, I think is helpful.

You don’t have to be an IT person, but very comfortable with overseeing big IT projects. Because there’s going to be a lot of transformation at the IRS.

The last thing that I would emphasize in particular is: It’s not a job for the bashful. I testified 50 times before Congress, and I can tell you they were never trying to make me look good.

Senator Chuck Grassley (R-Iowa) didn’t go home to Iowa and say, “I really told IRS Commissioner Everson what a great job he was doing.” That’s not what happens when they’re running for reelection.

But the oversight is important. I always felt that I did a better job because of the preparation and the surfacing of the issues that took place in the congressional testimony and the interaction with the Hill. That is important, but it’s not easy.

The person who takes on this assignment needs to be comfortable with that situation. It is unpleasant at times. You have to be able to fight for your position with any administration in terms of issues that take place with the Treasury Department or the White House.

Then you have to be able to stand up and speak, not just for IRS employees or the agency, but about the entire tax system and explain it to the country, Congress, the media, and trade groups.

It all depends. But you have to be comfortable in that public space, if you will. It’s not a backroom job.

Jonathan Curry: Do you anticipate it’s going to be a contentious confirmation process? This is a presidential-appointed but Senate-confirmed position, so the president will be able make his pick and then the Senate has to vote to confirm it.

Do you anticipate it’ll be contentious, or do you think both parties are going to be equally interested in getting someone confirmed at the top as soon as possible?

Mark Everson: Well, I would hope that both parties will be thorough in their examination of the nominee, but I don’t think it’ll be contentious.

I think there’ll be a lot of thanking the nominee for being willing to take this on. But I do also think there will be markers that will be put down. There will be questions that will be asked to the nominee, particularly this area: “Are there going to be more audits of people earning $400,000 or less?” The administration’s been incredibly vague on this.

The president talked about this in April of 2021, and that was for tax policy legislation. It jumped the rails to where it then became, as it heated up in these election contests, sort of, “Oh no, no, no, we’re not going to increase audits.” But from historic levels, the words were very vague. I can tell you that audits of individuals were almost five times as great when I was at the IRS my last year there in fiscal 2006 as they were in 2019.

That leaves a lot of space for increased audits from where they’ve been in recent years, but still complying with that directive. I’m sure the nominee’s going to get questions like, “Where are you on this? What does this mean?” There will be efforts as there always are with senators to extract certain positions from the nominee.

What’ll come down to a lot will be who will have the Senate? Will the Democrats still have the Senate? In which case, I would think it would be relatively smoother. But it will be obviously a little more rough and tumble if the Republicans prevail on November 8.

Jonathan Curry: Now this $80 billion, it’s not just about keeping the lights on at the IRS as we talked about. It’s really envisioning transforming the agency in big ways in really just about every area.

Treasury Secretary Janet Yellen has already suggested that they want to be closely involved in shaping this. I’m curious: Is that a good thing?

Should the next IRS commissioner be on guard about trying to maintain some degree of independence from Treasury? Or is it necessary that Treasury is going to be having its hand on this pretty tightly?

Mark Everson: I believe that the IRS is accountable, as a part of the Treasury Department, to the secretary and the deputy secretary. But I am very concerned about increasing sort of how closely held the agency is.

The White House, if you go back to the Trump administration, reversed ground. Going back to the Reagan administration, the White House OMB, which I came from by the way, did not for decades have a role in the writing of tax regulations. Those were done at Treasury.

The IRS and the Trump administration reversed that, bringing the tax regs into the White House. That’s a concern to me.

Then they appointed an acting commissioner after John Koskinen completed his term, who was also a senior Treasury official. I’m not suggesting there were any particular problems, but I think it’s a bad precedent.

I think that the Service is like the CIA or the FBI. It’s viewed by the American people as having to be absolutely nonpartisan. And it has operated with a degree of independence.

I think that comes to this issue now. If the commissioner is just taking instruction from the Treasury Department on all these issues, there’s a potential for meddling, and it’s already changed. The piece of the Treasury Department that’s been most closely associated with this initiative is the Office of Economic Policy. That’s totally unprecedented.

Some people have written that they’ve been supervising the IRS. That’s not a good thing. You need the IRS to be operating independently, but held accountable by the administration and also by the Congress. I felt I was held accountable by Grassley, James Bacchus (D-Fla.), Bill Thomas (R-Calif.), and Charles Rangel (D-N.Y.) too. They asked very probing questions and got answers. I think it can be done.

But to your point, I am concerned that especially with all this, it’s already become too political. Tax administration has become much more visible as an issue in the elections. That’s not good for tax administration. It really is not.

Jonathan Curry: As we talked about earlier, there’s going to be an acting IRS commissioner filling that role for at least a few months until a new commissioner is confirmed.

Mark, do you think that’s going to be a problem for the agency? Are they going to have trouble defending? Does it pose any trouble for the agency that tries to defend its interests or unpack these plans? What’s your take on that?

Mark Everson: Acting commissioners are frequently what happens when a commissioner completes his or her term. You end up with an acting commissioner. That’s totally, totally normal, but it’s difficult at this particular moment.

We’re in the post-season in baseball right now, and the acting commissioner is like the closer who comes in and is trying to keep things really in check. Very important. You can count on the acting commissioner to get a lot of things done.

But the trajectory of a baseball game is usually set by the starters. That’s more like the confirmed commissioner. That’s where you are right now. We have to get started on the implementation of this new law.

The person who’s going to see it through and have the authority to execute it has to be in place. The confirmed commissioner has the confidence of the president and the Treasury secretary and a little more latitude to get things done.

The acting commissioner by definition is going to be a little more cautious, and perhaps too cautious, in how they build things up and get things done.

I think it’s a normal occurrence, but in this case, it’s unfortunate that there’s going to be what would seem to be a fairly significant gap before you get a confirmed commissioner in the chair.

Jonathan Curry: We’ll conclude with this, Mark: some of the top challenges you would identify that the next commissioner is going to be facing.

Mark Everson: Well, I think obviously coming back to where we started, they have to get the services better and the data security better. That’s an absolute.

Then the second thing is the commissioner has to oversee the development of this implementation plan and build up the infrastructure while maintaining the operations.

The third thing is I think relationships with practitioners have been strained in recent years. This is a fresh start. It’s a good time to take a fresh look at how the government is interacting with practitioners.

Because you really have three elements, Jonathan, in the tax system. You have the government, taxpayers, and then practitioners, and they play an essential role.

Last thing I would say: My guidance to a new commissioner would be this point you just talked about, which is make sure that you have an appropriate degree of independence and latitude as you go forward, in terms of within the administration, and get the respect of both sides of the aisle. You have to earn the respect of both sides of the aisle so that you have the ability to keep the agency respected and viewed as nonpartisan by the American people.

Jonathan Curry: Very good. Well, Mark, thank you so much for your time. There’s a lot to watch in the coming months.

Mark Everson: It’ll be very interesting. Thanks for having me, sir.

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