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Select Washington Officials to Choose Next IRS Commissioner

By William Hoffman
Tax Notes Today
The next IRS commissioner -- the public face of the federal agency more U.S. citizens encounter than any other -- will be chosen by a group of people who could fit comfortably in a hearing room on Capitol Hill.

The next IRS commissioner -- the public face of the federal agency more U.S. citizens encounter than any other -- will be chosen by a group of people who could fit comfortably in a hearing room on Capitol Hill.

The IRS announced October 10 that Douglas Shulman's last day will be November 8 and that Steven Miller, deputy commissioner for services and enforcement, will take over as acting commissioner. Regardless of whom the Senate confirms for a full five-year term, the choice of Shulman's successor is likely to be a quiet affair conducted in the upper reaches of the White House, Treasury, and Congress.

The White House considers presidential appointments within its purview, said Mark W. Everson, IRS commissioner from 2003 to 2007. Above all, presidents and their senior advisers want a competent IRS administrator who won't cause problems for taxpayers or the administration, he said. "They want the IRS to do its job, but they don't want it to be noticed," Everson said. "It's sort of like the old adage about being seen and not heard."

Yet while the IRS serves more than 150 million individual taxpayers and millions more businesses each year, the vast majority will have no input on the choice of the person who ultimately will answer for processing their returns and issuing prompt and accurate tax bills (or refunds). And that's not to mention responsibility for the growing number of tasks the IRS is increasingly called on to manage by Congress, more of which seem unrelated to the Service's primary mission of tax administration and enforcement.

"There is a certain urgency to this," Everson said. "While I have very high regard for Steve Miller, I think it's important that whoever is president work expeditiously on this, because it's an important organization of the United States government, and [the IRS is] going through unique pressures -- with the extenders, tax reform, healthcare reform, [and] identity theft, there's a convergence of very difficult issues. So it serves everybody's interest to have the president and the Senate work on this expeditiously."

Commissioner Wanted?

If the choice were left to some in Washington, the next commissioner would look a lot like the departing one.

"I would like to have a clone of Mr. Shulman as his successor," said Paul Cherecwich Jr., chair of the IRS Oversight Board. "He is very much a people-oriented person, and he recognizes the value of having a skilled workforce. He has committed to making the IRS one of the best places in government to work. He has recruited key people who have been responsible for certain game-changing activities, such as the implementation of CADE 2, the preparation of the return preparer program, and the crackdown on offshore tax evasion." Former Commissioner Charles Rossotti (1997-2002) agreed, saying he thinks Shulman is an example of the type of person needed to lead an agency like the IRS.

Tax community leaders said the IRS is in good hands with Miller and his senior officers. Some question whether the IRS even needs a commissioner, said Edward Karl, vice president of taxation at the American Institute of Certified Public Accountants. But pairing a commissioner who has private sector management experience with an IRS staff that has the strong technical expertise of tax administration, a concept introduced by the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 1998), seems to be the right balance, he said. "I think it's probably true of most agencies," Karl said. "The career people couldn't do it without the leadership, and the leader couldn't do it without the career people."

While a new commissioner may have his own agenda for changes at the IRS, Rossotti said Shulman's initiatives, including business systems modernization, offshore voluntary disclosure, and the foundations for a real-time tax system, will likely continue under the Service's career employees. "But you're going to have to deal with the things that [Shulman] left for you, and you're going to have to deal with whatever comes up on your watch," Rossotti said. "It's a very, very, very demanding job."

The IRS "doesn't run itself; that's nonsense," Rossotti said. "If people think it runs itself, that's the greatest compliment you could pay, because what that means is that the leadership is doing its job, and you're not careening from crisis to crisis like so many places. But trust me, having been there, that would be one of the most inaccurate observations I could even imagine."

Vetting Process

When it comes to choosing a new IRS commissioner, "each administration does it their own way," said former Commissioner Lawrence B. Gibbs (1986-1989).

Given the timing of Shulman's departure, the choice will depend on who wins the White House on November 6. "If the president is reelected, I expect the process to go fairly quickly," Gibbs said. "If Mr. Romney is elected, I suspect the process will take a little longer, because he will have to appoint his Cabinet, and that will be among his priorities as he comes into office." The selection process could be influenced by the winner's political priorities and by the fact that either man will have to fill the Treasury secretary's job, assuming the reportedly impending departure of Timothy Geithner.

Gibbs and others said the selection process will likely start with names compiled by the Treasury secretary, the White House, and the IRS Oversight Board, which has statutory responsibility under RRA 1998 to create that list (P.L. 105-206; section 1101, amending section 7802). Congressional leadership may be consulted. Shulman himself may be asked to provide names, Gibbs said.

There will be extensive background checks on those up for nomination, with the FBI looking into political and personal relationships. The IRS "is one of the largest enforcement agencies in the world, so you can't have any suspect arrangements in your past," said former Capitol Hill staffer Jeffery Trinca.

And, of course, "your tax returns had better be the cleanest thing they've ever seen," said Trinca, now at Van Scoyoc Associates. The vetting process will demand far-reaching financial disclosures and five to 10 years of tax returns, he said. "The best [nominees] are the ones who have a Schwab account and some 401(k) money," Trinca half-joked. "If your job is to make sure money isn't going to the Cayman Islands, you'd better not have any money in the Caymans."

Go See Grassley

Every administration seems to know somebody interested in the job, said Trinca, who served as tax counsel to former Sen. David Pryor, who worked on the Tax Reform Act of 1986. "The best thing you can do is get yourself a good informal manager to manage the confirmation process," Trinca said. Gibbs said he was shepherded along by then-Treasury Secretary James Baker. Trinca said then-Rep. (now Sen.) Rob Portman, R-Ohio, supported Shulman. Trinca pointed out that if Romney is elected, Portman's relationship with both Shulman and Romney could affect the new president's choice of commissioner.

Trinca said the informal manager -- preferably an experienced Washington hand who is perhaps an unpaid friend of the nominee or a consultant from Treasury -- will formulate the nominee's message to Congress about his qualifications and rationale for wanting the job. The manager should ensure the nominee meets the elected officials overseeing the confirmation process -- in this case, the chair and the ranking minority member of the Senate Finance Committee. "If either of those two people don't like you, your confirmation could take forever -- or never," Trinca said.

Then there will be other elected officials who could exert a powerful influence over the process. For example, "if you don't go see Sen. Charles Grassley, who has been doing IRS oversight since he got here, you're either stupid or you don't want the job," Trinca said.

House Oversight and Government Reform Committee oversight committee and subcommittee chairs, who don't have a vote on confirmation but could make a commissioner's life difficult, should be kept in mind, Trinca said. The nominee should keep his door open to all 100 senators (especially all members of the Finance Committee) and to any House members who want to talk, he added.

From selection through confirmation, the process can take more than a year. "I did find it frustrating, the length of time that it took to go through the process, but it was in fact relatively rapid compared to what is the norm now," Everson recalled.

Trinca agreed: "It's a long, expensive, laborious process, and I don't know why anyone would want to go through it, which is part of the reason that I think we have problems finding people who can fill these positions."

What Associations Want

Although they have little or no direct input into the selection, nomination, and confirmation processes, tax community groups have some ideas about what they want to see in the next commissioner.

Karl said the AICPA wants an individual who, regardless of professional background, has good communication skills and strong management ability. Knowing how to compromise between competing political and tax community interests will be integral to the job, he said. "Much more than knowledge of tax, knowledge of tax administration will be more important," Karl added.

Jackie Lynn Coleman of the National Community Tax Coalition said the next commissioner should continue technology improvement efforts to speed refund processing, especially for low-income taxpayers who might otherwise rely on costly private sector schemes like refund anticipation loans. She said the IRS should work with Treasury to offer direct deposit tools for low-income taxpayers without bank accounts; expand and improve return preparer regulations; and work to increase education about, and access to, earned income tax credits, volunteer preparer programs, and other initiatives for low-income people.

Lonnie Gary, chair of the National Association of Enrolled Agents' Government Relations Committee, said the next commissioner should tighten return preparer registration and testing requirements so that filers know the level of expertise they're getting. Gary said he'd like to see information reporting requirements under offshore financial disclosure initiatives tailored to small businesses that may be overwhelmed by a one-size-fits-all reporting regime. And while Shulman's pet project is nowhere near ready for prime time, Gary said enrolled agents would like to know more about a real-time tax system.

'You Have to Be Able to Say No'

Two attributes the new commissioner should have go mostly without question nowadays: private sector managerial expertise and experience in tax policy and administration.

Trinca said the American Bar Association Section of Taxation used to "own" the IRS commissioner's job. That changed with the 1997 appointment of Rossotti, whose background was in corporate management and technology. Whatever questions existed about the primacy of management experience over tax knowledge seem to have been settled, Trinca said. "The outlook, unless it changes, is for someone who knows how to operate a large organization, with some experience in customer service and compliance . . . and they'll probably know something about taxes, too," he said.

The IRS needs a commissioner who can administer an organization as large as some Fortune 500 companies, Gibbs said. "The IRS is a conglomeration of a lot of different business units," he said. "Everyone who is touched in any way by our tax system -- [the commissioner] is the face of that tax system. You have to deal with every problem that every large business in the country deals with, but in a fishbowl."

There are a few doubting Thomases. Besides overseeing tax administration and enforcement, managing congressional relationships, and cajoling a budget from Congress, the next commissioner will be responsible for managing a big chunk of healthcare reform and the challenges of increasingly international tax administration, said Timothy McCormally of the Tax Executives Institute. "While we appreciate the value of business acumen at the head of the agency, we do feel there are challenges at the agency that demand tax expertise," McCormally said.

Everson disagreed, saying, "Some people feel there's been enough progress in the management of the agency that you can go back to the old model, where tax expertise was justification enough to be commissioner. I don't agree with that. . . . I think the [RRA 1998] reforms were sound. It doesn't mean having tax experience is a negative -- hardly -- but you've got to have both, and it's more important to have the organizational and managerial experience."

"There are any number of extremely talented people both within the Service and within the chief counsel's office and over at Treasury who can do things like interpret regs and the law," Everson continued. "But keeping the trains running on time, which is a very large task, when Congress is continually assigning new duties to the Service -- that makes it a tall order to take a chance on someone who is a tax expert but does not have a sound grounding in management."

"You need to be able to say no, and you can't be concerned with popularity," Everson said. "I always thought the best way to serve the country and the president who appointed you was to call the shots right down the middle and say what you think is appropriate under the law. Not everybody likes that. And sometimes it's folks on your side of the political aisle, and sometimes it's people on the other side. But you need to be very nonpartisan." The American people and the White House expect the IRS commissioner not to play favorites, Everson said. "You have to be able to say no to people you'd like to say yes to."

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