IRS Leadership Shakeup Adds to Turmoil Among Slashed Workforce

The IRS has more holes in its senior leadership team and questions around morale of the remaining compliance workforce as two officials were put on administrative leave.

Longtime IRS staffers Holly Paz and Elizabeth Kastenberg are being investigated for their alleged conduct against Republicans, a person familiar with the situation said. The absences will likely worry workers already roiled by deep staff cuts and buyouts and hinder the functions of the compliance divisions just as new IRS Commissioner Billy Long takes over, tax professionals said.

Paz is commissioner of the Large Business and International Division and Kastenberg is acting director of the Office of Professional Responsibility.

“The new commissioner has done a nice job of reaching out to employees and trying to settle the place down,” John Koskinen, IRS commissioner from 2013 to 2017, said during an interview Wednesday. “This isn’t going to settle the place down.”

The IRS is losing about a quarter of its 100,000-person staff because of the Trump administration’s efforts to shrink the federal government. Over half of the IRS senior leadership has left this year.

Leadership Turnover

Losing two experienced officials will make it even harder for the IRS to administer and enforce the tax code, especially because of the recently passed GOP tax law, said Caroline Ciraolo, former acting assistant attorney general of the Justice Department Tax Division who is now a partner with Kostelanetz LLP and founder of its Washington office.

“The continuing departure of experienced and dedicated leaders within the IRS is having a substantial, adverse impact on the agency and nationwide tax administration,” Ciraolo said in an email. “The abrupt and inexplicable removal of Holly Paz and Elizabeth Kastenberg, two seasoned and highly respected tax professionals, will only exacerbate this crisis.”

The investigation into Paz and Kastenberg comes weeks after Long became commissioner and months after two reports by the right-leaning American Accountability Foundation were published by the Washington Examiner. The reports say LB&I and OPR include multiple critics of President Donald Trump. Paz and Kastenberg also have ties to a 2012 controversy in which the IRS tax-exempt division subjected conservative nonprofit applications to extra scrutiny.

“AAF has long been focused on the cadre of career civil servants who undermine the agenda that the American people voted for in November,” Thomas Jones, who leads the American Accountability Foundation, said in an email Wednesday. “Getting rid of leaders who weaponized the IRS against citizens is a good start and we are hopeful Billy Long goes deeper and roots out the endemic corruption at the IRS.”

Crimping Compliance Efforts?

The LB&I Division manages tax enforcement for domestic and foreign companies that have assets exceeding $10 million. Audits managed by the division already faced delays in the first months of the Trump administration because of workforce cuts. The division has lost 20% of its workers, according to a National Taxpayer Advocate report, shrinking it to about 5,400.

LB&I audits have been moving forward and delays have subsided, said Starling Marshall, a Crowell & Moring LLP partner. But Paz’s absence may create more problems, especially if no one fills her seat temporarily.

“It concerns me that my clients—who are both in large audits or appeals—are going to experience some severe delays,” Marshall said.

Taxpayers are typically more concerned with process questions—such as whether the agency is increasing audits—rather than personnel changes, said Jennifer Keegan, senior manager at Plante Moran.

“Usually the handing off a leadership role to someone new, generally we don’t see major impacts at the taxpayer experience level,” she said.

Koskinen said he’s worried that the IRS may be less likely to conduct audits if they’re construed as politically motivated or that the results of those audits will be second-guessed.

The LB&I Division head typically is in close consultation with the commissioner when it comes to enforcement priorities, which the IRS hasn’t yet revealed since Long took office.

OPR ensures tax practitioners and preparers adhere to professional standards, including Circular 230 regulations for those practicing in front of the IRS, and follow the law. Kastenberg was in the role in an acting capacity after Sharyn Fisk left at the end of January. The office had 21 employees as of January and dropped to 15 after the workforce cuts, according to the Taxpayer Advocate report.