Note: The Author gratefully acknowledges the contributions of NTU Foundation Vice President of Research Demian Brady and Policy Manager Debbie Jennings to this article.
Amid many years of scandals about the political independence and objectivity of top Internal Revenue Service (IRS) leaders (and allegations that have continued to recent times), the number of IRS posts subject to the normal nomination and hearing process remains at just two positions: tiny, compared to dozens for some federal departments.
That’s a big reason why taxpayers have such a direct stake in finding out how those two leaders, the IRS Commissioner and the IRS Chief Counsel, would perform their jobs before they get Congress’s blessing. With the IRS on its seventh commissioner this year, all eyes this week are on the Senate Finance Committee hearing for Chief Counsel Nominee Donald Korb.
As a former IRS Chief Counsel under the George W. Bush Administration and Partner at the Sullivan and Cromwell firm, Korb’s writings and speeches on a variety of topics are likely to come under scrutiny. The following is a list of questions, in no particular order, that taxpayers hope Senate Finance Committee members will ask today.
What role will clarity and timeliness of guidance have in tax law enforcement under a Chief Counsel Korb? The Chief Counsel works with other IRS divisions to compile the forms, memoranda, opinions, and other official IRS documents intended to help taxpayers comply with the laws—and “clarity and timeliness” haven’t always been at the top of the IRS’s collective mind.
How will a Chief Counsel Korb work with the Commissioner and Treasury Department to repeal anti-taxpayer rulemakings from the previous Administration? Many of these rules were issued at the last minute and touch on issues including partnership basis adjustments, captive insurance arrangements for small businesses, and supervisory approval for penalties.
How will a Chief Counsel Korb rein in peculiar IRS enforcement strategies? Under the previous Administration, the IRS took an aggressive stance in application of the Economic Substance Doctrine (ESD). Recent court cases including Patel v. Commissioner of Internal Revenue and Liberty Global Inc. v. United States demonstrate a troubling trend toward overly broad application of the principle. Prior comments from Korb suggest that if he were to return as Chief Counsel, the Economic Substance Doctrine would “not be used as a general anti-abuse rule to be asserted every time the IRS confronts a tax shelter transaction it simply does not like.” Taxpayers should know whether this stance still holds, and whether recent IRS activities around ESD will be reined in. Another helpful sign would be for Korb to disavow and disband what amounted to a “strike force” formed between the IRS and Department of Justice under Biden that conducted harsh special enforcement against pass-through businesses and partnerships.
How will a Chief Counsel Korb work to rebuild trust with the practitioner community, trust that has been eroded by poor IRS customer service and murky IRS rules aimed at disciplining tax professionals?
How will a Chief Counsel Korb address the massive backlog of cases in Tax Court where the IRS is taking largely procedural positions? Between partnership conservation easement arrangements, which the IRS has audited at a near 100% rate, and small business captive insurance, which the IRS has treated with similar suspicion, over 2,500 cases sit on court dockets, some of them for years. As the IRS’s top lawyer, a Chief Counsel Korb could instruct the attorneys on his team to pursue strategies that would thin this caseload to allow more types of taxpayer issues to receive a fair and speedy hearing.
What new tools will a Chief Counsel Korb use to improve law enforcement in a collaborative manner that respects taxpayer rights? Just two recommendations from NTU and NTU Foundation are the use of regulatory sandboxes (which encourage regulators and regulated entities to experiment in optimizing rules) and settlement initiatives (which allow the IRS to reach an accord on a common legal dispute with a class of taxpayers under audit or in Tax Court). The former would help to reduce front-end enforcement and compliance headaches for both the government and taxpayers; the latter would ease the pain on the back-end.
Would a Chief Counsel Korb support expanded use of Alternative Dispute Resolution (ADR) to keep more cases out of court and give taxpayers an affordable way to be heard when they disagree with the IRS? The IRS recently began efforts to revitalize the languishing ADR program through a new dedicated program office and several pilot programs designed to expand ADR options after revelations that taxpayer use of the ADR process has decreased by 65% since 2013. While these recent developments seem promising, it is essential that the IRS encourage use of ADR to prevent lengthy disputes that cause tax uncertainty.
Will a Chief Counsel Korb respect the taxpayer’s right to appeal by allowing the Independent Office of Appeals to function as intended? In 2022, the IRS issued a rulemaking proposing to create or memorialize nearly two dozen exceptions to a taxpayer’s right to appeal (which NTU Foundation called into question via comments to the IRS). Even prior to that time, the presence of Chief Counsel staff at appeals hearings and allegations of ex parte communications between IRS enforcement lawyers and appeals officers were troubling enough to result in remedial legislation being proposed. A Chief Counsel Korb could reverse these trends by proposing a rulemaking to repeal or modify the appeals exceptions, and issuing new guidance to IRS attorneys about respecting the appeals office’s procedures.
What would a Chief Counsel Korb do, within the limits of his authority, to help implement recommendations from advisory panels such as the Electronic Tax Administration Advisory Committee (ETAAC) or the National Taxpayer Advocate? For example, ETAAC’s recommendations to develop more plain-language guidance for taxpayers, human-centered design in services, and additional tools to combat tax scams all touch upon the responsibilities and interests of the Chief Counsel’s office.
How will a Chief Counsel Korb incorporate artificial intelligence (AI) into his office’s operations without compromising quality of service or respect for taxpayer rights? Scholars have already noted the dangers of “symplexity” with regard to IRS use of AI chat bots, where the use of plain language to explain complex tax law sometimes misconstrues the actual law. While taxpayers welcome innovation at the IRS, new tools must be implemented transparently and with safeguards for taxpayers who communicate with AI tools.
How will a Chief Counsel Korb incorporate the Taxpayer Bill of Rights into all guidance and enforcement decisions, ensuring that due process, clarity, and fairness are central to the IRS legal actions and determinations? The Taxpayer Bill of Rights, codified into statute in 2015, has all too often been an afterthought with the IRS, as the National Taxpayer Advocate has documented.
These are just some of the urgent matters taxpayers hope to learn more about from Chief Counsel Nominee Korb, today and in the weeks to come. Congress should insist on specific, detailed views now to get a clearer picture of where the IRS is headed in the future.