Challenges for the new IRS commissioner

After almost a year without a confirmed IRS commissioner, on October 1 Charles Rettig took office as the nation’s 49th commissioner of Internal Revenue. The post dates to the Civil War and the agency has had its ups and downs over the decades. Recent years have been tough. Mr. Rettig finds himself with both challenges and opportunities; a good start will be critical. Having held the job as the 46th commissioner, here are a few observations.

The sine qua non of the new commissioner’s tenure will be restoration of a constructive relationship with the Congress. Even in the best of times the service is never popular. Nobody heads back home to campaign for reelection with the pitch, “Vote for me. I got more money for the IRS.” Still, the past five years have been disastrous for the IRS.

{mosads}The improper treatment of applications for tax exemption by conservative social welfare organizations, and how the service (and the administration) dealt with the mess after it erupted in 2013, confirmed their worst fears about IRS and government overreach to recently elected members of the Tea Party movement. Much as Watergate Babies elected in 1974 carried a wariness of West Wing abuse of power throughout their careers, the scandal will have a lasting impact.

At least for Republicans, Rettig’s timing is excellent. They need the IRS to deliver on tax reform, so they have every incentive to support the new commissioner. To properly reset relations with the Hill, the commissioner must treat members of both parties absolutely equally regardless of whether in the majority or minority. Given Democratic interest in the president’s tax returns and recent allegations concerning actions taken decades ago by the Trump family, Rettig must be seen by all as even handed. It bears mentioning that if Republicans do manage to hold onto majorities in both chambers come November, they’ll still be faced with defending the presidency and 21 of 33 Senate seats in 2020. It seems likely that for at least a portion of his four year mandate, Rettig will lead an agency subject to oversight by political adversaries of the current administration.

It is not easy to join an administration two years in. It will be tricky for the commissioner to be a respected team player who can secure desperately needed resources from Treasury and OMB, while also maintaining independence in enforcement matters. I met twice with the secretary of the Treasury to notify him of major cases being worked with the Department of Justice, but never with anyone at Treasury to consult with or seek approval on an enforcement matter (civil or criminal). Mr. Rettig will need to come up to speed quickly in an environment that is potentially challenging. The White House has drawn itself closer to the IRS by inserting OMB into writing tax regulations, and has been disdainful of DOJ. Neither development is positive for the IRS.

Chuck Rettig’s decades of tax experience suit him well for overseeing implementation of tax reform. And Michael Desmond, the Trump administration’s strong pick for Chief Counsel, will be an able partner. The IRS knows how to do this work and will continue to give it appropriate priority. The bigger challenge will be rebalancing service and enforcement priorities in an era of diminished capabilities. Rettig, Desmond and their career deputies will need to be ruthless in sorting through the myriad of programs administered by the service and determining which should be augmented, maintained or curtailed.

In terms of personnel, the service is not just smaller than a decade ago. Pound for pound it is weaker. Experienced auditors and collections personnel have rolled off. With little replacement hiring and inadequate training funds, expertise is not what it once was.

The same applies to information systems. Many most familiar with the agency’s infrastructure challenges fear it is a question of when, not if, there will be a major systems failure far more serious than what hit the agency on the last day of this year’s filing season. Probably the heaviest lift for Commissioner Rettig will be to envision the future of American tax administration (and all its linkages internationally) five or 10 years down the road, figure out what the IRS should look like and then explain and garner support from the various stakeholders to get there.

There won’t be any quick fixes. My measure of Chuck Rettig is that he is up to the task, but that it will take all his energies and then some.

Mark W. Everson is the Vice Chairman of alliantgroup, a leading provider of specialty tax services. Everson was the commissioner of internal revenue from 2003 through 2007.