Neither the IRS Office of Chief Counsel nor the U.S. Department of Justice’s Tax Division has presidentially appointed and Senate-confirmed leaders currently in charge, making it difficult for either to take on significant tax projects.
The U.S. Senate is expected to vote soon on President Joe Biden’s pick to fill the IRS commissioner role, former acting IRS Commissioner Daniel Werfel. On Wednesday, Werfel moved closer to confirmation by clearing a procedural vote on the Senate floor. However, since taking office in 2021, Biden hasn’t nominated anyone as the Internal Revenue Service’s chief counsel or as the DOJ’s assistant attorney general in charge of the Tax Division. While the wait continues for Biden to nominate and the Senate to confirm people for those roles, the IRS Office of Chief Counsel and the DOJ’s Tax Division continue operating under the direction of temporary leaders.
Nominated and confirmed leaders are best suited to make major decisions, observers told Law360. Their endorsements in the form of nominations and confirmations give them political capital, according to Nathan J. Hochman of Ross LLP, a former assistant attorney general for tax. “I think that gives you a lot of political weight to get projects done,” Hochman said.
Kathy Keneally of Jones Day, whom the Senate confirmed as assistant attorney general for tax in 2012, told Law360 her Senate confirmation was helpful in talks with the Swiss government on what became the Swiss Bank Program. Keneally said she made the initial proposal that led to the Swiss Bank Program, originally announced in 2013, which led to more than 80 Swiss banks providing information on potential tax crimes and the collection of more than $1 billion in fines. The program permitted banks to become eligible for nonprosecution agreements and resolve possible criminal tax liabilities if they met some conditions.
Keneally told Law360 it mattered to the Swiss government that a solution be found to “remove the cloud of investigation” over its country’s banking industry. She also said the U.S. participants wanted the Swiss to do something difficult — find an acceptable way for Swiss banks to cooperate in a way consistent with Swiss law.
“Having someone who was part of the administration lead the discussions was both respectful of the national interests of the Swiss and showed the importance of these issues to the United States,” she said.
The DOJ’s Tax Division and the IRS Office of Chief Counsel are more reluctant to make big decisions without Senate-confirmed leaders in place because interim leaders don’t want to get ahead of confirmed leaders on complicated and sensitive matters, former IRS Commissioner John Koskinen said. For instance, confirmed leaders are best suited to handle decisions about declaring a “tax scheme” a listed transaction, since it could generate some controversy, Koskinen said. Listed transactions are those the IRS has identified as tax avoidance transactions in published guidance or similar transactions.”If leaders of the Tax Division in Justice and the legal division in the IRS have not been confirmed and these divisions are led by interim leaders, the agencies become more hesitant or tentative in making major decisions that may trigger public pushback or raise significant questions,” Koskinen told Law360.
The IRS chief counsel is the IRS commissioner’s top lawyer. An assistant attorney general administers the DOJ’s Tax Division, which is tasked with enforcing tax law through civil and criminal litigation. The IRS Office of Chief Counsel is currently headed by William Paul, principal deputy chief counsel and deputy chief counsel, technical, and Drita Tonuzi, deputy chief counsel, operations. David Hubbert, deputy assistant attorney general, serves as the head of the DOJ’s Tax Division.
The chief counsel and assistant attorney general roles are always important, but particularly so for the Biden administration, which is working to act on tax administration as a key part of its agenda, Mark Everson, a former IRS commissioner and now vice chairman of Alliantgroup, told Law360. Biden has spoken about it multiple times, including last month during the State of the Union, Everson said.
“It’s inexplicable that the administration has not moved to fill these two important positions,” he said.
Confirming an assistant attorney general for the DOJ’s Tax Division nominee is important in light of the nearly $80 billion funding increase the IRS is set to receive under the Inflation Reduction Act, including $45.6 billion for enforcement.
The DOJ’s Tax Division will need to set priorities and make choices about allocating resources because of the burden it will face following the funding increase to the IRS and the heightened enforcement resulting from it, Keneally said.
“A political appointee hopefully will have the ability to negotiate both internally in the Department of Justice and externally with the White House and Congress to get commensurate resources dedicated to the Tax Division in order to meet what seems to be a future explosion of cases coming in from the IRS,” Ross LLP’s Hochman said.
When asked, a representative of the U.S. Department of the Treasury had no update on the timing for an IRS chief counsel nominee. A spokesperson for Senate Finance Chairman Ron Wyden, D-Ore., didn’t have an update on the timing for an IRS chief counsel nomination. A spokesperson for Senate Judiciary Chairman Dick Durbin, D-Ill., referred Law360 to the White House regarding the assistant attorney general nomination.
Political appointees to executive branch roles largely serve at the pleasure of the president and typically resign when the president who appointed them leaves office. Hochman, who was nominated by former President George W. Bush, said he followed what he understood as a “time-honored tradition” when resigning when the administration changed. Anyone Biden nominates for IRS chief counsel or assistant attorney general for tax could be in the same position depending on the result of the 2024 election.
Koskinen said some people may hesitate to interrupt their careers for what could be a short stay in Washington, D.C., which makes the search harder. However, many people eager for public service may still be excited about the opportunity to hold a senior role, even if it’s only guaranteed for less than two years, he said.
The lengthy period it can take for a nominee to be confirmed is another challenge facing a potential nominee for either the IRS chief counsel or the assistant attorney general for tax, though confirmations can happen as soon as a month after nomination, as in Hochman’s case. For Michael Desmond, who the Senate confirmed as IRS chief counsel in 2019, the process took just short of a year. Desmond is now with Gibson Dunn & Crutcher LLP.
Keneally, who was confirmed in an election year, said she chose not to allow the election to affect her decision to go into government, and would encourage anyone considering it now to take the same approach. She said she loved the job and it ultimately helped her practice.
“It’s invaluable to have an inside view of how the government works — of how enforcement decisions are made,” she said, adding it gave her a broader perspective on some issues that hadn’t been part of her work, which she could take the time to focus on.
“There’s no question it made me a better lawyer,” she said.
Those who serve as IRS chief counsel or head of the DOJ’s Tax Division will also face restrictions upon leaving government. Section 207 of Title 18 imposes restrictions on former executive branch officers and employees. Those officers and employees are permanently barred from representing anyone before or against the federal government in the same matters they had worked on while in government, according to the Congressional Research Service.
The post-government employment restrictions, the prospect of a limited time to serve depending on the election, the time it may take to get confirmed, and the prospect of a limited period to serve are among the hurdles any nominee would face, Hochman said. Those challenges limit qualified candidates for IRS chief counsel and assistant attorney general, but the roles are still attractive opportunities, he said.
“To be in the room where it’s happening and hopefully be a productive member of the decision-making that goes into tax enforcement in this country” is an honor and a privilege, he said.
About the Author
The Honorable Mark W. Everson was the nation’s 46th Commissioner of Internal Revenue Service serving from 2003 until 2007. Prior to joining the IRS, Everson held Bush administration posts as Deputy Director for Management at the Office of Management and Budget and Controller of the Office of Federal Financial Management. Everson also served in the Reagan administration, holding several positions at the United States Information Agency and the Department of Justice, where his assignments included Deputy Commissioner of the Immigration and Naturalization Service. At the state level, Everson oversaw the Indiana Workforce and Unemployment Insurance Systems under Governor Mitch Daniels.
In the private sector, Everson served as Group Vice President of Finance at SC International Services, Inc. (SkyChefs), a $2 billion food services company, and as Senior Vice President with the Pechiney Group, then one of France’s largest industrial groups and the largest packaging company in the world.
As Vice Chairman of alliantgroup, Mark helps guide strategic and operational planning for the firm. Mark’s extensive private sector and government background afford him insights on tax incentives and regulatory matters which he shares with businesses across the country on behalf of alliantgroup. Mark is consulted regularly by the media concerning issues of tax administration and tax policy and how they impact businesses.