Thursday, October 28, 2010

Excerpts from IRS Commissioner Shulman's speech to the AICPA

IRS Commissioner Douglas Shulman addressed the annual fall meeting of the American Institute of CPAs earlier this week. Many of themes in his speech highlighted important topics we have discussed in my fall term public finance class.

Here are some excerpts from that speech. The notes in brackets as well as the bold emphasis are my additions.

And today, I would like to spend my time with you talking about some of the changes in our tax system that we could have barely imagined 10…15…or 20 years ago … and how we are working smarter to stay on top of these changes and continually innovating to meet the challenges of tomorrow.

Our starting point is a given: our tax system is constantly changing. With its evolutions and revolutions, it’s anything but static. The dizzying pace of change continues to accelerate with no signs of slowing down. And it’s one hard stretch of road ahead full of dangerous curves, speed bumps and unexpected hazards.

For example, the sheer girth and complexity of the tax code continue to grow, in spite of efforts to simplify it. There have been an astonishing 4,400 legislative changes to the Code from 2000 to September of this year. [Blogger note: that is an average over one change daily!]

Our taxpayer base is also far more diverse and different than it was a mere 20 or 30 years ago, creating new needs and challenges to provide both innovative service channels and enforcement strategies. [Blogger note: due to welfare reform and the expansion of the Earned Income Credit, as well as other refundable credits, there are far more tax returns filed by low-income taxpayers than in the past. People receiving public assistance under the old AFDC or TANF did so through an in-person interview with a social worker at their county department of social services. People who receive assistance from the Earned Income Credit and other refundable credits available to working families do so through filing a tax return with the IRS.]

For example, S corporations and partnerships, which are more difficult to audit, have grown rapidly. From 2000 to 2009, they increased by 55 percent and 70 percent respectively.

We are also dealing with an expanding number of Limited English Proficiency taxpayers who need to be served. To meet this need, IRS has over 1,800 bilingual employees who provide service to them. We also created a Spanish language web site and an IRS Multilingual Gateway and offer over 600 tax products translated into Spanish, Chinese, Vietnamese and Russian. [Blogger note: Union College students in my winter term service-learning class, please let me know if you are fluent in any other languages. There is strong demand for preparers who can speak Chinese, Italian, or Spanish in the neighborhood our VITA site serves.]

And as this audience well knows, our tax system reflects an enormous and dynamic global economy and all that it has ushered in… …from complex transfer pricing issues to wealthy individuals using global capital markets to facilitate investment strategies. [Blogger note: recall the importance of elasticity in public finance, the high mobility of capital relative to labor in global markets, and particularly the role of transfer pricing in the elasticity of taxable income across national boundaries.]

Relationships and paradigms are shifting too as we break down barriers and open doors. This past year, I have spoken at length about the IRS retooling its relationship with large corporate taxpayers…how we are moving away from protracted trench warfare, which serves neither of us well, to earlier and speedier issue resolution and greater efficiency and certainty.

Congress has also expanded the IRS’ portfolio of duties as we are increasingly asked to administer the tax portion of new social and economic programs, such as the Economic Stimulus, the Recovery Act, the HIRE Act, the Small Business Act …and now, the tax provisions of the Affordable Care Act.

The simple fact is that our job is getting harder…much harder…with no let up in sight. And to make a tough job even tougher, resources are scarce and will continue to be for the foreseeable future. [Blogger note: if you are in my public finance class, you have seen the writing on the wall. Huge government deficits looming in the future due to an aging population and ever-expanding entitlement programs. Congress is fond of throwing responsibilities on the IRS, but the government does not have extra money to throw around to fund those responsibilities.]

My intention in describing the current state of play of our tax system is not to give you a pre-Halloween scare. Rather, I am hoping that by viewing the tax system through a wide angle lens, we can start to see how we can sort out and overcome some of the hurdles we face… improve our performance… and produce results we can all embrace, such as sound, fair and efficient tax administration…and of course, improved compliance.

Working smarter has been a theme of mine since I became Commissioner. But what does working smarter really mean? In the case of the IRS, it means evolving to keep pace with change, constantly looking ahead, and being innovative and more imaginative with available resources inside and outside the agency.

Let me dive down a little deeper into this concept. In many ways, it is all about a leveraged model. [Blogger note: this is what I have been talking about in class: the "make vs. buy" government decision--what to do in-house and what to outsource. It comes down to questions of comparative advantage and available resources.]

In a classic business sense, leveraging translates to applying a relatively small amount of capital that yields a high level of impact or return for the company and its shareholders. For the IRS, it means maximizing the use of our resources, while tapping into the experience, specialized knowledge, infrastructure, technology and activities of other players in the tax system and making them an integral part of our service and compliance strategies.

To be continued...

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