IRS commissioner won’t stay for second term

Internal Revenue Commissioner Doug Shulman said he plans to leave the agency when his five-year term ends in November. In a speech Thursday at the National Press Club, he also expressed hope that Congress would not wait until after the presidential election to address expiring tax provisions such as the 2001 and 2003 tax cuts, the payroll tax cut and the batch of evolving “tax extenders” such as the alternative minimum tax.

Highlighting the IRS’ “continuous improvements” since he was appointed by President George W. Bush, Shulman stated that the 100,000-employee service is “recognized as an efficient and effective agency to carry out high-profile activities,” among them pushing out nearly one-third of 2009 Recovery Act money through the tax system. “We can be nimble and agile when called upon,” he said.

In his nationally televised talk, Shulman said, “Unfortunately, Congress has a habit of passing tax legislation very late. If they wait until after the election, we’re going to have real risk in the system, which may delay the opening of filing season for a whole lot of people,” as occurred two years ago.

Crediting the work of his predecessors for a “sustained arc of progress,” Shulman recalled that in the 1990s, press coverage of the IRS was “not all positive.” The agency was “seen as one mired in the past, that hadn’t kept pace with technology, that was slow to adapt to analytics and customer service, and slow to recognize an evolving taxpayer base operating in a global economy.” Since then, he said, “We’ve made a lot of progress that will serve the nation well for years to come.”

Shulman said the IRS views itself as a financial services institution, moving money to 235 million customers. The two keys to progress, he said, are, first, to make sure the agency has a strategy that people on the inside and outside believe in and understand. The second is to keep a “relentless and myopic focus on priorities, not getting distracted by crisis and incoming demands. It’s easier said than done,” he said.

The IRS’ top six priorities in the past few years, he said, have been new capabilities in technology; the relationship with the community of paid tax return preparers; leveraging analytics; enhancing service; transforming the agency for a global economy; and positioning the IRS to prepare for modern challenges.

The successful mounting of the agency’s new data system, called CADE II, is high on its accomplishment list. The system has allowed what for decades was a weekly cycle of return processing steps to be trimmed to a daily cycle. Shulman noted the IRS still uses some of the computer technologies from the 1960s -- engineering marvels of their time, when the agency was one of the “first large institutions to deploy data processing on a large scale.” The reason some of it is still used, in combination with more-modern components, he added, is it works, though “the number of people who know how to run it is dwindling.”

There is a “reluctance to fund our technology in a way that is commensurate with our mission,” Shulman said, calling his long-term IT funding of less than 3 percent of his budget, “shockingly low.”

Even so, he made IT modernization a key focus, and the new system’s advantages -- speed, up-to-date data and a ready-made platform for real-time analytics on taxpayer compliance -- are an “incredible milestone.”

Shulman also spoke proudly of the IRS’ now-complete effort to require all tax preparers register and certify adequate training, through tests if necessary. Some 95 million businesses and individuals in 2011 used paid preparers, with $5.7 trillion in income reported, he said. “If in most states, you need a license to cut hair,” he said, then there should be a “competency requirement” for paid tax preparers.

Asked about a lawsuit filed in March by the nonprofit Institute for Justice arguing that such regulatory requirements violate free enterprise, Shulman said he is confident the program is “both legal and a benefit to taxpayers.”

In a related development, IRS business units are better coordinating the use of analytics, Shulman said. Though results are not yet in, the expectation is data analysis will improve detection of tax fraud by spotting trends earlier and zeroing in on preparers whose returns have repeated compliance problems.

The long-sought shift to electronic tax filing is succeeding, Shulman said, having risen from 16 percent of returns to 77 percent in the past 15 years. This also saves the government money because the cost to process an electronic return is 15 cents, compared with $3.50 for a paper one.

Though his agency is known to most Americans for “compliance and enforcement,” he said, “our overwhelming interaction with people is through customer service,” and survey results show satisfaction is on the upswing.

In an increasingly global economy, the IRS also has made progress anticipating corporate strategies in its approach to enforcement and to combatting offshore tax evasion. “We’ve upped the ante substantially on Swiss banks,” he said. The agency’s voluntary disclosure program -- in which U.S. tax debtors with overseas accounts are allowed to come forward, pay back taxes and penalties but avoid jail -- has attracted 33,000 takers and collected $4.4 billion so far. Only 1,000 were originally expected, he said.

More important, stepped-up enforcement overseas also has a deterrent effect, according to Shulman. “We are well on the way to having the next generation from never think about hiding assets overseas,” he said.

Asked about prospects for tax simplification, Shulman noted about 3,000 changes have been made to the tax code since 2000. “We’re hitting a critical mass of sentiment around the country that something needs to be done,” he said.

Responding to a more personal question, Shulman said his own tax returns are done by a paid preparer, and he considers them as having been audited because the government’s top tax lawyers looked at his past returns when he was nominated to be the IRS’ commissioner.