As we all know from reading any major newspaper, the Internal Revenue Service is an organization under siege. The challenges faced by the IRS include inadequate funding, hiring freezes, loss of talented senior personnel, degradation of audit and litigation capabilities, an ever-increasing regulatory workload fed by recent legislative enactments, and loss of credibility with a Republican-controlled Congress. The IRS obviously plays a vital role in our tax system, and these challenges are beginning to erode its capacity to accomplish its critical missions of taxpayer service and collecting taxes properly due. The natural consequence of this capacity erosion is a gradual loss of faith by the American public in the IRS and in our voluntary compliance tax system generally. I worry that, at some point in the not too distant future, the damage to the IRS and our tax system could become irreversible.
Because of the severity of these problems and issues, the IRS now more than ever needs the help of the Section and its members. This column describes some of the ways that the Section is providing assistance to the IRS.
On March 17th, the Section submitted a letter to the House and Senate Committees on Appropriations expressing strong support for providing increased and adequate funding for the IRS. The letter acknowledges the budgetary pressures facing Congress and applauds the $290 million funding increase for fiscal year 2016. However, the IRS’s budget is still approximately $1 billion below its fiscal year 2010 level, which translates into a reduction of about 17% on an inflation-adjusted basis.1 The letter goes on to make what I believe is a compelling case for increased IRS funding in fiscal year 2017 and subsequent years.
In particular, the letter makes the following salient points about the need for increased and adequate funding:
- More tax revenue. Providing appropriate funding to the IRS is one of the few governmental expenditures that provides both an immediate monetary return—each dollar spent on enforcement produces several dollars of additional tax collections2—and a long-term benefit to the capacity and credibility of our tax system. Failure to collect taxes properly due undermines public confidence in our voluntary compliance system by causing honest and diligent taxpayers to believe that other taxpayers are not paying their proper share.
- Improve quality of taxpayer service. Since 2010, there has been a clear reduction in the quality of taxpayer service. For example, the IRS received over 100 million phone calls last year, but was able to answer only 38% of those calls.3 Moreover, the ability of taxpayers to meet with IRS personnel to resolve disputes administratively has also been negatively affected. While other factors have contributed to some of these problems, the common denominator is a shortage of trained IRS personnel resulting from inadequate funding.4
- Loss of personnel. With many senior IRS personnel opting for retirement, and funding pressures preventing many vacancies from being filled and limiting training resources, there is concern that the IRS does not have sufficient personnel to provide appropriate taxpayer service and to properly administer the tax system.
- Modernization of systems and technology. While the IRS has made significant headway in automating its systems and otherwise reducing costs, much remains to be done to assure that the IRS can continue to properly serve taxpayers and enforce the tax laws. There has been controversy recently regarding the emphasis that the Service places on internet and web-based interfaces with taxpayers as compared to personal contact, but there is general agreement that there will be evolution over time towards internet and web-based service delivery.5 In addition, it seems indisputable that improved cybersecurity and fraud detection are vital to the Service’s mission. These developments and objectives will require substantial investments in new and improved technology.
- Implementation of new tax legislation. Congress regularly enacts new tax laws, many of which are complex and require the issuance of substantial regulatory guidance. Recent examples include the Foreign Account Tax Compliance Act and the Affordable Care Act. Inadequate funding compromises the IRS’s ability to provide regulatory guidance.
- Support for programs that aid elderly and low income taxpayers. Last year, over 90,000 volunteers assisted with 3.7 million returns through volunteer programs administered by the IRS.6 If the IRS does not have the resources to support these programs, many elderly and low-income taxpayers will be unable to access important tax services.
Based on the foregoing, the letter urges Congress to provide the IRS with appropriate and adequate funding so that it can fulfill its core functions of providing taxpayer service and collecting taxes properly due.
Another form of assistance that the Section provides to the IRS is the comment letters that the Section submits on proposed regulations and other administrative guidance. So far during the 2015-2016 year, the Section has made 30 government submissions, including 22 comment letters to the IRS, which is more than were submitted during all of 2014-2015. The submissions to the IRS cover a broad spectrum of topics ranging from the definition of marriage under the tax laws to notional principal contracts to the arcane rules of section 751(b). Based on the high quality and timeliness of these submissions, I am confident that they have provided, and will continue to provide, significant assistance to the IRS in developing regulatory guidance. Details about these submissions are available in the Government Submissions Boxscore inside this issue with links to the full text of the comment letters on the website.
The government submissions completed to date represent the work product of a wide variety of committees, but other committees have yet to participate. I would urge all committees to become involved in one or more law improvement projects. Participation in these projects is both the right thing to do in terms of giving back to the tax system and a wonderful tool for encouraging younger members to become more involved in a committee.
Capitol Hill Courtesy Calls
This year’s legislative courtesy calls took place on March 30, 2016. Section representatives met with the majority and minority tax staffs of both the House Ways and Means Committee and the Senate Finance Committee, as well as the staff of the Joint Committee on Taxation. These meetings were very productive and covered a wide range of topics and issues.
There are two topics of discussion with the tax-writing staffs that I want to highlight in particular. First, following up on the letter that had been submitted two weeks earlier to the House and Senate Appropriations Committees, the Section’s representatives emphasized the need for increased and adequate funding for the IRS. Although the tax-writing staffs do not have direct responsibility for IRS funding, they periodically communicate with their counterparts on the two Appropriations Committees about this topic. Second, all five of the tax-writing staffs were keenly interested in the partnership audit rules and wanted the Section’s views about the need for technical corrections and the appropriate contents of regulatory guidance. In addition to informal dialogue with the tax-writing staffs about this topic, the Section plans to submit detailed comments to Treasury and IRS about the regulatory guidance that is needed to implement the new rules. The tax-writing staffs have indicated that they also will review our comment letter as an aid in determining where technical corrections may be appropriate. This is an exciting opportunity for the Section to have a significant impact on the development of the new partnership audit regime.
The May Meeting in Washington drew over 2,000 attendees, including nearly 500 government guests—150 of whom spoke on committee panels and other programs. The presence of so many government representatives greatly enhanced the experience of the other attendees.
I sat in on a number of committee programs, all of which were interesting and well done. Bracketing the meeting on Thursday and Saturday afternoons were the excellent programs geared to new tax lawyers and those interested in representing low-income clients.
The meeting was kicked off by the popular “Tax Bridge to Practice” program, which is organized by the Young Lawyers Forum and Diversity Committee and offers nuts-and-bolts panels. This program also included a conversation with Caroline Ciraolo, Acting Assistant Attorney General in charge of the DOJ Tax Division and a longtime member of the Section. I invite you to view video clips from Caroline’s remarks and the “Tax Bridge” program at http://apps.americanbar.org/dch/committee.cfm?com=TX717030.
Also on Thursday afternoon, the Pro Bono and Tax Clinics Committee presented the annual “Low Income Taxpayers Representation Workshop,” which was devoted to issues that impact low-income clients, including those that arise outside of federal income tax controversies. One of the Section’s key focus areas is pro bono and public service, and the work of the Pro Bono and Tax Clinics Committee in lending a voice to and helping to support low-income taxpayer clinics is an important component of our efforts in this area.
Closing out the meeting on Saturday afternoon, our CLE Committee, together with the Committees on U.S. Activities of Foreigners and Tax Treaties and Foreign Activities of U.S. Taxpayers, presented a three-part workshop on the fundamentals of international tax, designed as an introduction for young attorneys, as well as a refresher for more seasoned practitioners. I applaud all of these programs and their sponsors for giving us a reason to come early on Thursday and stay late on Saturday for Section meetings.
Another highlight of the May Meeting was the Plenary Luncheon remarks of Mark Mazur, Assistant Secretary of the Treasury for Tax Policy. Over his long career, Mark has served in a wide range of positions in the government, experience that was evident in his informative and thought-provoking presentation.
Last but by no means least, the Section’s highest honor—its Distinguished Service Award—was presented posthumously to Ken Gideon. Ironically, the Distinguished Service Award Committee chose Ken for this award before his untimely passing, but never had the opportunity to inform Ken of his selection. Ken’s wife, Carol, accepted the award and gave us a glimpse into Ken’s personal world, as not only a brilliant tax lawyer, but as a loving husband, father, and grandfather. I recommend that you read the biographical sketch about Ken inside this issue of ATT, prepared by the chair of the DSA Committee, Ruddy Ramelli.
As always, my thanks goes out to the Section’s staff, led by Janet In, for all their hard work in connection with the May Meeting. Once again, the staff’s efforts assured a successful and smoothly run meeting. I am fortunate to have the opportunity to collaborate with such a talented and highly motivated group of individuals. ■
5 Hearing to Review the FY 2017 Budget Request & Budget Justification for the U.S. Department of Treasury Before the S. Subcomm. on Fin. Servs. and Gen. Gov't. of the S. Comm. on Appropriations, 114th Cong. (2016) (opening statement of Sen. John Boozman, Chairman).