The Treasury Inspector General for Tax Administration released a report Tuesday [PDF] they initiated in response to a Congressional request from Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) to evaluate employees moving between large accounting firms and the IRS, a.k.a the “revolving door”. The Congressional request specifically noted interest in large accounting firms.
The request, received by TIGTA on February 18, 2022 urged TIGTA to “open an inquiry into the revolving door between the country’s top accounting firms and the Federal Government and to inform Congress and the public about [TIGTA’s] findings.” The request noted that the review should include “the extent to which large accounting firms and their employees are taking advantage of the revolving door [i.e., employees moving] between their firms and Government service at the IRS.”
We considered this request when developing the scope of our review.
The Congressional request provides information that shows that similar to the IRS, the large accounting firms also have Codes of Conduct and Ethical standards. Specifically, in their response to a Congressional inquiry, the firms noted that they review and adhere to post Government restrictions. Additionally, each of the firms have resources available to their employees, such as ethics officers and Hotlines, for individuals to contact if they have ethical questions and/or concerns.
The overall objective of this audit was to assess the IRS’s processes and procedures to identify and address potential conflicts of interest regarding tax administration matters involving large corporations. Here’s what they found:
Our analysis identified 496 employees (executives and non-executive employees from the Large Business and International Division, Office of Chief Counsel, and Independent Office of Appeals) who 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 had income from a large accounting firm.
- 255 employees had income from a large corporation.
Our review 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, our review identified four Office of Chief Counsel non-executive 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. While not a direct correlation, this can raise impartiality concerns.
Deeper into the report some of the actual numbers are redacted.
Our analysis identified that 241 of the 496 employees received income from a large accounting firm either prior to joining the IRS, during their time at the IRS, or after leaving the IRS. Specifically, we identified:
- 184 current IRS employees, including [redacted] employees who held an executive position and the remaining [redacted] a non-executive position.
- 57 separated IRS employees, including [redacted] employees who were executives with the IRS and the remaining [redacted] who were non-executives. Of these 57 separated IRS employees, 20 had income from a large accounting firm prior to joining the IRS and subsequently separated from the IRS.
[redacted] and [redacted] of the executives previously mentioned received retirement income from a large accounting firm during their time at the IRS, and they disclosed this retirement income on their financial disclosures. [hella redacted] and [big black block] and [you know the deal]. Figure 1 provides a list of the current and former executive-level positions and examples of the types of non-executive positions within the IRS.
Figure 1 is also full of black blocks, though it does say 232 of the non-executives included in this analysis held positions such as Revenue Agents, General and Trial Attorneys, Tax Law Specialists, Economists, and Appeals Officers.
On the large corporation side, 255 of the 496 employees received income from a large corporation either prior to joining the IRS, during their time at the IRS, or after leaving the IRS. Specifically:
- 177 current IRS employees, including seven employees who held an executive position and the remaining 170 a non-executive position.
- 78 separated IRS employees, including 21 employees who were executives with the IRS and the remaining 57 who were non-executives. Of these 78 separated IRS employees, 13 had income from a large corporation prior to joining the IRS and subsequently separated from the IRS.
There were three employees included in the analysis with income from both a top accounting firm and large corporation.
Six of the executives previously mentioned received income during their employment with the IRS from partnerships, wages, and other compensation sources. All of these executives reported the sources of income on their annual financial disclosures.
There is nothing inherently wrong with or prohibitions on individuals moving in and out of the private sector to public service, as the movement between sectors can contribute to the career development of personnel and improved organizational competencies.
However, this practice increases the risk for conflicts of interest. For example, the movement of employees in and out of the private sector to public service can increase the risk of conflicts of interest for incoming and outgoing employees and the possibility of undue influence by former or prospective employers that might lead to preferential treatment or create an unfair advantage for specific entities or individuals. Processes to address this risk should include restrictions to protect Governmental processes from abuse, but should not be so onerous that the Government can no longer attract the highly talented individuals it needs for positions in public service.
When TIGTA brought their observations to the IRS, management stated that to successfully conduct audits of large corporations, the IRS must rely on experienced agents with strong tax and accounting skills. Outside of the IRS, prospective employees with tax expertise generally
come from accounting firms, law firms, or in‐house tax departments of all sizes. As such, to recruit experienced tax professionals, the IRS must draw from these sources of outside tax expertise.
More IRS employees used the General Legal Services hotline — a phone or email system in place for them to seek ethics advice — regarding “Outside Employment” than any other topic from FY17 to FY21.
Cases in the GLS management system also include direct inquiries from management or former employees.
The GLS resolves cases either by oral discussion, e-mail to the employee, or in a more formal written response. However, the resolution or advice issued to the employee is not documented within the case management system of record. The GLS stated that the system does not contain a data field for it to track case resolutions or aggregate data based on the types of advice given.
TIGTA recommended, and the IRS agreed, that the GLS should develop a process and procedure to track and aggregate data based on the types of advice given in response to concerns raised. IRS management will review current reporting capabilities and case processing procedures to identify an effective means to track and aggregate the data and issue employee guidance once an improved process is in place.
Processes Are in Place to Identify and Address Potential Conflicts of Interest in Large Corporate Tax Administration, August 24, 2023 TIGTA Report Number: 2023-40-047 [PDF]