Steven Miller, IRS commissioner for Tax Exempt and Government Entities (TE/GE) made some interesting comments during a January 28th speech before the Los Angeles Benefits Conference. He began his speech with a statement that he had come to discuss “how the Employee Plans office of TE/GE needs to change in order to ensure that the IRS is effective in the future in its mission of promoting and protecting retirement benefits.” Here are some excerpts from his speech, capturing some of his thoughts on how the IRS will seek to bolster its enforcement programs:
1. “In my mind, we need to rebalance our efforts with the goal of establishing a prominent IRS enforcement presence in the benefits community. And we need to do it at once. . . [W]e need to be involved with a vigorous enforcement program because we are finding increasing numbers of abusive transactions in every segment of the TE/GE community – every segment! . . [T]he EP community has not been immune to the lure of the huckster or the promoter.”
2. “I am sorry to say that when we look at the current universe of 30 or so listed transactions, fully half of them involve, in one form or another, an entity that is a TE/GE customer. This is a real concern. Some within the benefits community have played an unfortunate role – certain municipal pension plans acting as accommodation parties, Sub-S ESOPs, 401(k) plans, and 412(i) plans have all been involved in listed transactions.”
3. “Paul Shultz and Michael Julianelle discussed the impact that the GUST amendments had on our examination program. In 1999, we performed 14,066 employee plans exams. By 2003, that figure had fallen to 6,119 exams. That figure is less than half of what it should be, even for a modest examination program. In response to this trend, we committed ourselves to rebuilding our examination capability, and we already have made an impressive start. We will conduct 11,000 exams this year, and 12,500 next year. In short, we are returning to the field of play.”
4. “Nonetheless, because of decisions made at the very top of the IRS, TE/GE is hiring this year, and we have a generous budget increase. Part of this increase will go to EP Examinations. We are going to hire 55 new EP agents this year. In addition, we will be building the EP compliance unit. The goal of this unit is to expand our compliance presence with a “soft contact” approach in such areas as pension underfunding and follow-up on voluntary compliance agreements. In the long term, we expect the unit to conduct correspondence examinations and to support our efforts to attack abusive tax schemes.”
5. “Circular 230 continues to contain an exclusion from some of the tax shelter opinion rules for pension opinions. But lawyers, CPAs and actuaries who practice before us are still bound to the high standards contained in other parts of Circular 230 that apply to tax advice and practice.”
6. “There is one other issue I would like to discuss in the area of professional responsibility. Lawyers, accountants and actuaries are covered by our practice rules, but there are many professionals in the EP community who are responsible for maintaining plans, and ensuring their compliance, but who are not covered by IRS practice rules. That situation presents the question of whether this gap in the practice regime represents a barrier to compliance and to our ability to enforce the rules. I think that it does. Our Tax Exempt and Government Entities Advisory Committee, a group of outside experts whom we depend on for stakeholder input, has a project underway that speaks directly to this issue. Should we expand the list of those who may practice before the Service to others, for example to third party administrators? If the answer is yes, then how should the IRS regulate their practice? The advisory committee report is due to us in the spring.”