The 'revolving door' between accounting and the IRS

Nearly 500 Internal Revenue Service employees worked at large accounting firms or big companies either before, during or after they worked at the IRS, according to a new report examining the "revolving door" between the government agency and the tax industry.

The report, released Tuesday by the Treasury Inspector General for Tax Administration, found that 496 executives and non-executive employees from the IRS's Large Business and International Division, Office of Chief Counsel and Independent Office of Appeals received income from a large accounting firm or a large corporation either prior to joining, during their time at, or after leaving the IRS. Of these 496 employees, 241 employees received income from a large accounting firm and 255 employees from a large corporation. 

The report found no direct correlation between the employees' work assignments and the company or firm from which they came or left for in the private sector. However, TIGTA's review identified four non-executive employees from the IRS Office of Chief Counsel who charged time to a private letter ruling in which the taxpayer's representative was the same large accounting firm that the employee recently worked for before joining the IRS or left the IRS to join. "While not a direct correlation, this can raise impartiality concerns," said the report.

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The report came in response to a request last year from Sen. Elizabeth Warren, D-Massachusetts, and Rep. Pramila Jayapal, D-Washington, who sent a letter to TIGTA asking it to investigate what they called a "corrupt revolving door" between the largest accounting firms and the Treasury Department after a 2021 article in the New York Times (see story). "Accounting giants are abusing the public trust and taking advantage of the revolving door between public service and private profit," they wrote.

The TIGTA report found that "processes are in place to identify and address potential conflicts of interest in large corporate tax administration," but it did point to some lapses as well, such as the four Chief Counsel employees who charged time to a private letter ruling in which the taxpayer's representative was the same large accounting firm that the employee recently worked for before joining the IRS or left the IRS to join. It also found that the General Legal Services part of the IRS worked on 735 cases from 2017 through 2021 on issues related to financial conflicts of interest, impartiality, outside employment and post-employment issues. But the advice given to employees for these issues and questions wasn't maintained in its case management system, so the extent to which those cases required some type of mitigation or action wasn't apparent. 

"An ethical culture is essential to maintaining an environment in which the business of the IRS can be carried out with the utmost impartiality and integrity," said the report. "IRS employees are prohibited from working on government matters in which they have a financial interest. Additionally, they should not participate in matters that may cause questions of impartiality. The IRS must balance between recruiting highly talented individuals from the private sector and safeguarding its own public interests."

TIGTA made two recommendations in the report to the IRS to ensure employees who work on private letter rulings are aware of the disclosure requirements for conflicts of interest, and that the General Legal Services department develops a process and procedure to track and aggregate data based on the types of advice given in response to concerns raised. The IRS agreed with both recommendations. IRS officials told TIGTA that they have reinforced the impartiality rule, revised their 2023 ethics briefing, and plan to revise annual ethics training for financial disclosure filers. The IRS also plans to review its current reporting capabilities and case processing procedures to identify a way to track and aggregate data.

The IRS defended its hiring of corporate tax experts from accounting firms, however. "Given the report's focus on large corporate taxpayers, we note that effective tax administration for this segment of the population necessitates having a highly skilled and experienced workforce that can successfully conduct complex audits of large corporations," wrote Holly Paz, acting commissioner of the IRS's Large Business and International Division, in response to the report. "Outside of the IRS, that federal tax expertise lies in accounting firms, law firms or in-house tax departments; and those are the sources we must draw from when looking to expand our enforcement workforce. Talent acquisition from these sources enriches tax administration by bringing in an infusion of outside expertise and providing a line of sight into the latest tax planning and modeling strategies."