Looking back and looking forward: The National Commission on Restructuring the IRS

Armando Gomez is a partner with Skadden, Arps, Slate, Meagher & Flom LLP, resident in the firm’s Washington, D.C. office.  He is a past chair of the ABA Section of Taxation and past president of the American College of Tax Counsel.  From 1996-1997, he served as chief counsel to the National Commission on Restructuring the IRS, and advised the Co-Chairs of the Commission on the development of legislation implementing the Commission’s recommendations. Keith

A quarter century ago I had the honor of advising then-Senator Bob Kerrey and then-Congressman Rob Portman, the Co-Chairs of the National Commission on Restructuring the IRS, as they crafted a bipartisan report laying out a vision to transform the IRS into a responsive service organization for the 21st century.  Although progress has been made, the agency has yet achieve that vision.

Those who followed the debates around the Restructuring Commission will recall that a big issue was the recommendation for an independent oversight board.  As I wrote in the Pittsburgh Tax Review, the board established by Congress has been left to wither on the vine.  Whether it can be resuscitated is questionable.  But in the meantime, what’s really important is that all four of the key Presidentially-appointed tax positions be filled.  The Chief Counsel role has been empty for the first half of the Biden Administration, just as it was for the first half of the prior Administration.  Even worse, the Tax Division head has been vacant for almost nine years now.  These are critical positions that should be filled as soon as possible.   And while the Administration is thinking about appointments, there presently are three (soon to be five) vacancies on the Tax Court that also should be addressed promptly.

One thing that has changed remarkably in the past 25 years has been the focus in the tax world on the Administrative Procedure Act.  Back then, Treasury and the IRS took the view that most tax regulations were not subject to the APA.  Although the courts in recent years have set aside regulations, notices and other IRS rules for failure to comply with the APA, in many ways the agency continues to circumvent regular use of notice and comment.  For example, by issuing CCAs, GLAMs and other written determinations and FAQs, and then relying on those documents to make audit determinations and convincing IRS Appeals to follow them, the Chief Counsel’s office is effectively making outcome determinative rules.  In my paper I suggested two reforms to address this problem. 

First, the agency should provide Treasury with a quarterly report of all written determinations issued in the preceding calendar quarter, and Treasury would then have 90 days to decide whether to open a new guidance project to formalize any of those determinations.  This would ensure that the Office of Tax Policy would have visibility into newly issued positions of the Office of Chief Counsel, and that any new rules would be subjected to the formal rulemaking procedures.

Second, Congress should amend § 7803(e), or the Commissioner should issue a directive to the Chief of Appeals, to ensure that in evaluating cases referred to Appeals, no weight should be given to any FAQs, written determinations or other internal directives addressing how the agency or its lawyers would interpret the Code or regulations.  This would ensure that when evaluating the relative hazards of litigation, Appeals would treat such documents the same as any arguments made in the taxpayer’s protest.

Separately, I offered two recommendations to make the dispute resolution process more efficient.  In my view, the JCT refund review process harms taxpayers by significantly delaying resolution of their cases.  This was not what Congress had in mind when it enacted this process nearly a century ago, and it can be fixed easily.  The threshold for reviews should be increased significantly, strict time limits should be imposed on the JCT refund reviews, and the purpose of those reviews should be clarified to ensure that the reviews serve to inform Congress about significant refunds but not to infringe on the IRS’s role in administering the tax laws.

Finally, I suggest greater use of alternative dispute resolution to resolve tax disputes.  The rest of the world has learned that arbitration often can be more efficient that litigating cases in court.  And particularly in the case of valuation and transfer pricing disputes, “baseball” arbitration could lead parties to abandon extreme positions and thereby end up much closer to the “right” answer. 

These recommendations won’t solve everything, but implementing them will help ensure that the tax system is administered more fairly and efficiently, which would be a great thing for taxpayers and the IRS alike.

Reflections on the Impact of Nina Olson by Armando Gomez

We welcome Armando Gomez to provide this reflection on Nina on her final work day as National Taxpayer Advocate.  Armando is a partner with Skadden Arps and a former chair of the ABA Tax Section.  He was instrumental in Nina’s appointment to the position of National Taxpayer Advocate and so provides a perfect capstone to the reflections this month.    Keith

I first met Nina Olson some twenty-three years ago when, as a young lawyer for the National Commission on Restructuring the Internal Revenue Service, I was introduced to her by Janet Spragens. Just a few years out of law school, I had much to learn, and Nina and Janet were happy to educate me on what needed to be done to provide fairness and due process for taxpayers who could not afford to engage counsel to help them navigate the labyrinth that is the tax controversy process. The recommendations that they made to the Commission lead to important provisions of the 1998 Restructuring Act. More importantly, when it came time for the Secretary of the Treasury to appoint a National Taxpayer Advocate, Nina’s name quickly made it to the top of the list.

The Restructuring Commission’s mandate from Congress was to make recommendations for modernizing the IRS and improving its efficiency and taxpayer services. One of the lawyers working with me on the Commission’s staff had studied under Professor Spragens at American University’s Washington College of Law, and he invited her to meet with me to explain how tax clinics were starting to help fill a huge void in the tax system for unrepresented taxpayers. Janet introduced me to Nina, who wowed us all with her energy, determination and imagination. Through their advocacy, the Commission recommended that Congress enact various enhancements to the Taxpayer Bill of Rights, and to establish a matching grant program to support the development and expansion of low income taxpayer clinics. These recommendations, which were enacted as part of the 1998 Restructuring Act, were among the most meaningful and lasting changes that resulted from the Commission’s work.

Not long thereafter, when the IRS needed a new National Taxpayer Advocate, I received a call from former Deputy Commissioner Mike Murphy, who was helping to identify potential candidates for that role. It was obvious to me that Nina was already one of the nation’s leading taxpayer advocates, and Mike encouraged me to explore with her the possibility of putting her name in the hat for this appointment. Happily for all of us who care about the tax system, Nina eagerly accepted the challenge, and the rest is history. Nina tells this story a little differently, but what matters is not how she was appointed as the NTA, but that she received the appointment and made the most of it, building a lasting legacy that will benefit generations of taxpayers.

As reflected in the many tributes that have appeared on this blog, and as has been heard throughout the nation over the past months since Nina announced her retirement, Nina Olson has worked tirelessly as the National Taxpayer Advocate, working inside and outside of the IRS to bring attention to and address systemic problems. Although her predecessor did much to help establish the Taxpayer Advocate Service, Nina has forged TAS with her vision of how the organization can work proactively to ensure that all taxpayers get a fair shake, and to shine a bright light on problems requiring legislative solutions.

When the House Ways & Committee’s Oversight Subcommittee held a hearing on July 24, 1997 to consider the recommendations of the Restructuring Commission, then Senator Bob Kerrey, one of the two co-chairs of the Commission, testified that “there are twice as many people who pay taxes as vote” and that “Citizens’ faith that their government can be fair and efficient is dependent on a well-functioning IRS.” (Hearing before the Subcommittee on Oversight of the Committee on Ways & Means, House of Representatives, July 24, 1997 at 4.) Now more than ever, our Nation’s faith in government is being tested regularly. Fortunately, Nina Olson has helped to build important safeguards into the tax system to protect the rights of all taxpayers. She, more than anyone else, has helped to implement the “vision for a new IRS” contemplated in the 1997 report of the Restructuring Commission, and for that Nina will have the lasting thanks and gratitude of all of us who care about the tax system.