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TIGTA is doing some digging into the revolving door between the IRS and major accounting firms

The Treasury Inspector General for the Tax Administration issued a report on Tuesday (PDF) They began in response to a congressional request from Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) to evaluate employees who move between large accounting firms and the IRS, also known as the “revolving door.” The congressional request specifically cited interest in large accounting firms.

The request, which TIGTA received on February 18, 2022, urged TIGTA to “open an investigation into the revolving door between the nation’s largest accounting firms and the federal government and report (TIGTA) findings to Congress and the public.” The request indicated that the review should include “the extent to which large accounting firms and their employees benefit from the revolving door (i.e., the transfer of employees) between their firms and the government service in the IRS.”

Tegta said:

We have taken this request into account when developing the scope of our review.

The congressional request provides information showing that, like the IRS, large accounting firms also have codes of conduct and ethical standards. Specifically, in their response to the congressional investigation, the companies indicated that they review and comply with government restrictions. In addition, each company has resources available to its employees, such as ethics officers and hotlines, that individuals can contact if they have ethical questions and/or concerns.

The overall objective of this audit was to evaluate IRS 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-executives from Big Business and International Affairs, the Office of the Chief Counsel, and the Independent Appeals Office) who had received income from a large accounting firm or firm either before they joined or during their tenure. The time at or after you leave the IRS. Of these 496 employees:

  • 241 employees have income from a large accounting firm.
  • 255 employees have income from a large corporation.

Our review found no direct relationship between employees’ work assignments and the company or organization they came from or left for in the private sector. However, our review identified four non-executive employees in the Office of the Chief Counsel who timed to adjudicate a private letter in which the taxpayer representative was the same large accounting firm the employee had most recently worked for before joining the IRS or leaving the IRS to join. Although there is no direct relationship, this can raise concerns about neutrality.

Digging deeper into the report, some of the actual numbers have been revised.

Our analysis determined that 241 of the 496 employees received income from a large accounting firm either before joining the IRS, during their time with the IRS, or after leaving the IRS. Specifically, we identified:

  • 184 employees are currently in the IRS, including (revised) employees who have held an executive position and the remainder (revised) in a non-executive position.
  • 57 separate IRS employees, including employees (revised) who were IRS executives and the remainder (revised) who were non-executives. Of those 57 separate IRS employees, 20 had income from a large accounting firm before joining the IRS and later splitting from the IRS.

(Redacted) and (Redacted) The previously mentioned executives received retirement income from a large accounting firm during their time with the IRS, and they have disclosed this retirement income in their financial disclosures. (Hala Revised) and (Big Black Nugget) and (You Know the Deal). Figure 1 provides a list of current and past executive positions and examples of the types of non-executive positions within the IRS.

Figure 1 is also full of black blocks, although it says that the 232 non-executives included in this analysis hold positions such as revenue agents, attorneys general and prosecutors, tax law specialists, economists, and appellate officers.

On the large company side, 255 of the 496 employees earned income from a large company either before joining the IRS, during their time with the IRS, or after leaving the IRS. especially:

  • 177 employees are currently in the IRS, of which seven are in an executive position and the remaining 170 are in a non-executive position.
  • 78 separate IRS employees, including 21 employees who were IRS executives and the remaining 57 were non-executives. Of these 78 separate IRS employees, 13 had income from a large corporation before joining the IRS and subsequently separated from the IRS.

There were three employees included in the analysis with income from a major accounting firm and a large corporation.

Six of the previously mentioned executives earned income while working with the IRS from partnerships, wages, and other sources of compensation. All of these executives have reported sources of income in their annual financial statements.

Tegta said:

There is nothing inherently wrong or taboo with individuals moving from the private sector to or out of the public service, as mobility between sectors can contribute to employee career development and improve organizational efficiencies.

However, this practice increases the risk of conflicts of interest. For example, moving employees into and out of the private sector into the public service can increase the risk of conflicts of interest for new and departing employees and the possibility of undue influence on the part of former or potential employers that may result in preferential treatment or create an unfair advantage for entities or individuals specific. Processes for addressing these risks should include restrictions to protect government operations from misuse, but they should not be so burdensome that government is unable to attract the highly talented individuals it needs for public service positions.

When TIGTA provided its observations to the IRS, the administration stated that to conduct successful audits of large corporations, the IRS must rely on experienced agents with strong tax and accounting skills. Outside the IRS, prospective employees generally have tax expertise
They come from accounting firms, law firms, or internal tax departments of all sizes. As such, to hire experienced tax professionals, the IRS must take advantage of these sources of outside tax expertise.

More IRS employees used the Public Legal Services hotline — a phone or email system designated for them to seek ethical advice — regarding “outside employment” than any other topic from fiscal 2017 to fiscal 21.

TIGTA's report on the revolving door of an IRS accounting firm

Cases in the GLS management system also include direct inquiries from management or former employees.

GLS resolves cases either by oral discussion, emailing the employee, or in a more formal written response. However, the decision or advice issued to the employee is not documented within the case management system record. GLS said the system does not have a data field to track case decisions or aggregate data based on the types of advice given.

TIGTA recommended, and the IRS agreed, that GLS develop a process and procedures to track and aggregate data based on the types of advice provided in response to concerns raised. IRS management will review current reporting capabilities and case processing procedures to determine an effective means of tracking and compiling data and issue employee guidance once the improved process is implemented.

Processes are in place to identify and address potential conflicts of interest in the tax administration of large corporationsAugust 24, 2023 TIGTA Report No.: 2023-40-047 (PDF)

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