Empty IRS Chief Counsel Spot Creates Vacuum, Congress, Tax Pros Say

Democratic lawmakers and tax professionals are eagerly awaiting a nominee for and subsequent confirmation of an IRS chief counsel, saying it is a key role to fill as the agency implements the $80 billion received in the Inflation Reduction Act.

Chief counsel is one of only two Senate-confirmed positions at the IRS, along with commissioner. The position has lacked a Senate-confirmed appointee since the start of President Joe Biden’s administration, and the president has never formally nominated anyone.

Lawmakers and tax professionals say the position is significant because the chief counsel leads an office that helps to craft regulations and other guidance, advises other divisions of the IRS during audits, and provides general legal services to the agency. A presidentially appointed chief counsel could provide more leadership and be instrumental in helping the office hire more employees and working with the Treasury Department, tax professionals said.

The importance of the chief counsel position is “probably heightened significantly” due to the Inflation Reduction Act funding, said Michael Desmond, a partner at Gibson Dunn who was the Senate-confirmed chief counsel during former President Donald Trump’s administration.

David Kautter, a partner at RSM who served as acting IRS commissioner and Treasury assistant secretary for tax policy during the Trump administration, said that “when you’re in the acting role, it’s hard to commit the agency to future actions because you know you’re not going to be there to implement them.”

A White House spokesperson declined comment on where the administration is in the process of vetting and selecting a nominee. Any nominee could face a lengthy confirmation process given the limited bandwidth for Senate floor votes.

The chief counsel’s office is currently being led by William Paul, the principal deputy chief counsel. Tax professionals praised Paul, but said a Senate-confirmed chief counsel can bring leadership to the position that someone filling the job on a temporary basis cannot.

When there are Senate-confirmed officials in place, “it is, I think, the sense of practitioners that things run better,” said Lisa Zarlenga, a partner at Steptoe & Johnson LLP. She noted that there also isn’t a Senate-confirmed assistant attorney general in the Justice Department’s tax division.

Bloomberg News reported in September 2022 that Biden would likely nominate estate-tax lawyer Beth Shapiro Kaufman to the position, but it’s unclear whether she is still a top candidate. Kaufman, who declined to comment, changed law firms earlier this month, becoming national chair of the private client services group at Lowenstein Sandler after more than 20 years at Caplin & Drysdale.

Hiring Up

The IRS’s strategic operating plan for the $80 billion calls for hiring more legal specialists in chief counsel to expand the amount of guidance the agency issues, in an effort to provide more legal clarity to taxpayers. The plan also calls for more staffing in the office to provide advice to enforcement and appeals personnel and to litigate cases when needed.

Tax professionals said a Senate-confirmed chief counsel could help with recruitment efforts. They also said there are a lot of places where the office would be helpful in spending the new funds in addition to regulations and audits, such as providing the IRS with legal advice as it negotiates contracts with outside vendors and advising the agency about which of four appropriations accounts an expenditure would fall into.

“A lot of people think the chief counsel’s role is just with respect to regulations and trying to implement the tax laws that are on the books. But the chief counsel role goes well beyond that,” Kautter said.

Zarlenga said a Senate-confirmed chief counsel would be useful in coordinating with political appointees at Treasury about the new funds.

“You don’t get that overall strategic vision without the confirmed chief counsel,” she said.

Lawmakers Waiting

Senate Democrats also say it’s important to have a confirmed chief counsel in place promptly.

During an April 19 Finance Committee hearing with IRS Commissioner Danny Werfel, Sen. Michael Bennet (D-Colo.) expressed concerns that the absence of a chief counsel contributed to confusion about taxability of state refunds.

“The confusion the IRS caused in the middle of tax season by announcing they were considering taxing state tax refunds only underscores the need for Senate-confirmed leadership at the IRS,” Bennet said in a statement provided to Bloomberg Tax this week. “We need to fill the IRS Chief Counsel’s position as soon as possible.”

Finance Chairman Ron Wyden (D-Ore.) called the chief counsel job important and challenging, particularly as Congress looks to the tax code to administer more and more laws. Wyden also chastised Republicans for undermining people who work at the agency.

“There have obviously been challenges in finding a nominee for this position, and it doesn’t help that Republicans are constantly demonizing the agency and its workforce,” he said. “Whenever the administration does put a nominee forward, the Finance Committee will move quickly to process it.”