IRS Scandal Heats up as Lerner Refuses to Testify

It is normal for the IRS to be all over the news in April, but this year, heading into the last week of May, they remain the talk of the nation.  As you probably know, at the heart of the controversy is the IRS’ unfair targeting of conservative groups applying for tax-exempt status.  Many top-level Internal Revenue Service officials are coming under fire for either failing to detect the practice earlier or for failing to timely report it to Congress.  Former IRS Commissioner, Doug Shulman, has said he didn’t know for sure what was going on.  Steven Miller, the man that replaced him, has also denied any wrongdoing, before being fired by President Obama last week.

Today Lois Lerner was called to testify before Congress but, following the advice of her attorney, plead the 5th and refused to testify.  Lerner is the individual considered to be directly in charge of the branch in Cincinnati that was running afoul of IRS procedures.

I have not broken any laws. I have not violated any IRS rules or regulations, and I have not provided false information to this or any congressional committee.

Because I am asserting my right not to testify, I know that some people will assume that I have done something wrong. I have not.

~ Lois Lerner, speaking before the House Oversight and Government Reform Committee

J. Russell George, the head of TIGTA (Treasury Inspector General for Tax Administration) is also a target, and I think rightly so.  It has always bothered me that TIGTA’s audits, probes, and reports seem to be rather pointless, leaving it up to the IRS to agree or disagree with TIGTA recommendations.  If there was some kind of cover up, people are going to wonder about TIGTA’s involvement.

The next step appears to be appointment of a special prosecutor, which, in the eye of the public, may elevate things to the level of the Bill Clinton scandal and Watergate.  I don’t recall the last time the IRS was in the spotlight like this, much less involving something that could be called a “scandal.”  From the looks of it, it will be a while before they can go back to the processing of amended tax returns, and the bean counting, and whatever else they usually do this time of year.

Shulman Looks Back on His Accomplishments

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Doug Shulman will be completing his term as IRS Commissioner on November 11, 2012. He spoke to the AICPA in Washington D.C. today. Shulman said that he likes to focus on priorities and not get distracted by crises that tend to crop up. His principal achievements:

  1. Shutting down international tax evasion through voluntary disclosure programs
  2. Softening the “adversarial relationship” between the IRS and corporate taxpayers
  3. Transforming the IRS’ account processing from a weekly cycle to a daily cycle to achieve more real-time processing and analytics
  4. ensuring basic competency for paid tax return preparers by getting them registered and keeping them educated
  5. leveraging data analytics to, for example, vet out tax return preparers who make a habit of preparing inaccurate returns or avoid paying out fraudulent returns
  6. improving the customer service experience when taxpayers phone the IRS seeking tax relief and account-related questions
  7. performing all the other tasks that the IRS is called upon to do (such as the enforcement function of the Affordable Care Act)

 [P]roviding quality customer service is a key priority of mine…and every bit as important as enforcement.

~ Doug Shulman, Commissioner of the IRS

At the End of Shulman's Term

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With Doug Shulman concluding his service as Commissioner of the Internal Revenue Service early next month, I thought it might be nice to look at some of the details of the office itself and look back at some prior Commissioners.

The Office of Commissioner was created by Congress on July 1, 1862 even though the modern history of the IRS really began in 1913, ten years after the income tax was abolished.  IRS Commissioners are appointed by the President of the United States with the approval of Congress.  There was no set term prior to 1998.  For example, Guy T. Helvering was “sentenced” to over 10 years of service (from 1933 to 1943).  He holds the record for the longest term as Commissioner.  The shortest term was just over 3 months by Robert E. Hannegan which, coincidentally, was immediately following Helvering’s term in 1943.

Shulman came very close to serving a full 5-year term as he got his start back in March 2008.  Shulman took over after Mark W. Everson, who also served a 4-year term.  IRS has a complete list of all past Commissioners, in case you’re curious.

According to Shulman’s bio, his emphasis has been to strike a balance between providing excellent service to taxpayers (hopefully offering tax relief where appropriate) and enforcement of tax laws (i.e., collection back tax debt).  Has Shulman succeeded?

Steven Miller to Serve as Acting IRS Commissioner After November 9th

We had heard this was coming: the Commish is officially stepping down on November 9th.

Doug Shulman, Commissioner of the Internal Revenue Service, the grand overseer and bestower of tax relief, tax policy, and tax programs good and bad, has served in this post ever since March 2008 when he was appointed by President George W. Bush.  He will be replaced by a “acting commissioner,” Steven Miller until a permanent replacement is named.

Since the position of commissioner is a presidential appointment, we won’t know who the permanent replacement is until after we know the outcome of the presidential election.  Experts agree that whoever it is that fills this position will be coming in at a critical and difficult time.  But there is also agreement among those that know him, that Mr. Miller will do a fine job in the interim.  In fact, one writer believes that Steven Miller will do a much better job with the Whistleblower Program than Shulman ever did.

The Commish on “Risk and Uncertainty”

One attribute of our tax system that adds uncertainty is its impermanence.  Short term provisions, that sunset but are then often extended, have an unsettling effect on both clarity and stability.

In 2010, the Joint Committee on Taxation identified more than 130 tax provisions that were set to expire at the end of 2010, with approximately another 70 to sunset at the end of 2011. And 40 more tax provisions are set to expire at the end of 2012. This year, we actually had a tax provision that was set to expire in two months.

 A perfect example of uncertainty for business taxpayers caused by expiring provisions is the Research and Experimentation tax credit. Its purpose is to foster innovation and technological development while spurring economic growth and competitiveness.

However, for the past 30 years, it has been extended 14 times, many of those retroactively, for periods ranging from six months to five years. Such persistent uncertainty about the future availability of the R&E credit diminishes its incentive effect as taxpayers often do not know if they can depend on the credit when making decisions on future investments in research and development.

~ IRS Commissioner Douglas Shulman, February 15, 2012

The 4809 “Informational” Letter Campaign

Throughout the month of November, tax preparers across the nation will be grumbling about having received IRS Notice 4809, some under their breath, and some publicly.

One of the gripes I am seeing is that people don’t appreciate feeling like the target of some IRS sting operation. The letters were meant to be informative, but the tone of the letter comes across a little accusatory and condescending.

Funny how 4809 is indicative of a broader problem with our nation’s tax system, one which the Commish touched on in his recent speech to an audience at Harvard’s Kennedy School of Government. Much of his speech focused on the need to simplify the tax code:

[M]aking the tax code less complex is the single most important thing that could be done to improve taxpayer service and boost compliance.

~ IRS Commissioner, Douglas Shulman


Changes to the tax code, even for the goal everyone agrees on – simplicity – are hard because inevitably it means more money for some and less for others.

~ IRS Commissioner, Douglas Shulman

The problem is that “to simplify” usually means “to generalize,” and when you generalize, some people get the shaft. I think that’s what the Commish is saying here. These 4809 letters are no different. The IRS could have made this campaign very complex: it could have conducted extensive research to determine which tax preparers are complying with the law and which are not. The Service could have spent a huge amount of time and money on this project. But instead the IRS decided to simplify and send them out in a “shot gun” strategy to all return preparers who may ever remotely encounter the issues that they wanted to emphasize. In the process, some top notch, extremely competent return preparers are going to be insulted and offended. And, unfortunately, many of those who should be paying attention to the contents of these letters will toss them aside without giving them a second thought.

What we have these days is a tax system that tries to be tailored to every individual and situation, but it’s way too complex. As policymakers consider making drastic changes to the tax code, hopefully they can achieve the desired simplicity without lumping everyone together unfairly.