Enforcement in 2021 - and Beyond: What can taxpayers realistically expect?

There's a new sheriff in D.C., but what does that mean for taxpayers in terms of enforcement? That's a difficult question. As you might expect, we convened a roundtable of some of the most notable forecasters in the tax space to discuss this issue, including Brad Pees, lead tax controversy for Nestle USA and vice chair of TEI s IRS Administrative Affairs Committee; Matt Lerner, partner with the law firm Sidley Austin and head of its global tax controversy practice; Starling Marshall, partner at Crowell & Moring in the tax and litigation groups; and Armando Gomez, partner at Skadden, Arps, Slate, Meagher & Flom LLP. Senior editor Michael Levin-Epstein moderated the discussion in April.

Michael Levin-Epstein: Do you expect to see changes in enforcement now that the Biden administration is up and running?

Brad Pees: From my experience, the IRS can go around in circles. They start at some point, and they end up back at the same point at some time in the future. Obviously, with a new administration coming in, you would expect that there would be some type of changes, including tax rates and things like that. How that feeds down to the enforcement at the IRS all the way down to the agent level, that's to be seen and to be heard. At the end of the day, I think we'll still be back, in my experience, to the same positions we've been in for years.

Matt Lerner: I think that we were already seeing, even before the new administration came in, a somewhat heightened enforcement effort from the IRS. For a number of years the IRS had been constrained in its ability to bring on new agents by budgetary limitations. Those constraints have been easing so that the IRS is able to hire additional revenue agents, which presumably will increase enforcement activity still more. We have heard the IRS making threats about going after ultra-high-net-worth individuals whom the IRS perceived as perhaps secreting their assets offshore, and also messages about using penalties more with corporations, launching criminal investigations of corporations, and employing outside investigators with experience in high-profile investigations to augment the IRS' capabilities with respect to the audits of corporations. There seems to be a growing sense at the IRS, or at least among some folks there, that there are many corporate bad actors out there who need to be brought to heel. When you add to that an administration that, at least from the outside looking in, makes lots of noises about having a less favorable view of big business and being more willing to seek funds from the corporate taxpayer community, and the statements about a $1 trillion tax gap that were recently made by Commissioner [Charles] Rettig, I think the only conclusion that one can draw is that there will be heightened enforcement and, unfortunately, enforcement that starts with more of an anti-taxpayer bent. I've been representing large corporate taxpayers for more than thirty-five years; my experience has been that they are among the most responsible taxpayers in our system. Certainly they take advantage of tax incentives in the Internal Revenue Code, but they seek to be compliant. Having a tax administration that has a view that they're trying not to comply or maybe to play fast and loose with the rules is unfortunate and not consistent with conduct I've observed.

Starling Marshall: I agree with Matt that there will be noises made about increasing enforcement and a focus on what Biden phrased in his campaign as "paying fair share," which has been largely interpreted as focusing on large corporations and high-net-worth individuals. But I also agree with what Brad said, that the noises made at the top announced through policies and legislative initiatives are interesting and will definitely have an effect on tax policy, but in terms of the trickle down to enforcement, it remains to be seen if they will really make a difference. I think that the answer is yes if this administration is successful in obtaining the additional funding that they have requested. In the past, we've seen lots of enforcement--I'll call them "trends"--campaigns and operations. But where the IRS did not have the staff or the resources to really pursue those in any kind of concerted and consistent way, they haven't made a big change in enforcement. Here, we see an administration and a commissioner who seem very focused on getting a large increase in funding for the IRS, and that could enable things like this new promoter office that was just announced to have real teeth behind it, because it won't be just words. There will be staff and money behind the enforcement priorities.

Armando Gomez: I agree with Matt and Starling. The Biden-Harris administration is asking Congress for $80 billion over the next decade to help the IRS increase its enforcement efforts. Just making...