IRS Chief Counsel Candidate Is a New Turn of the Revolving Door

The potential appointment of a former Ernst & Young executive as the IRS’s chief counsel raises the enduring issue of the revolving door in Washington—the movement of individuals between roles as legislators or regulators, and executives in industries affected by the legislation and regulation.

Research has documented the role the revolving door can play in influencing policymaking. A 2023 analysis from researchers at Copenhagen Business School showed that US companies employing former members of Congress receive more favorable regulatory and tax treatment and are less likely to be audited by the IRS. And 2018 research from the National Bureau of Economic Research showed that patent examiners were more lenient toward future private sector employers in adjudicating their patent applications.

The IRS chief counsel nominee, Marjorie Rollinson, has pledged to recuse herself from matters involving her former clients to avoid potential conflicts of interest. But what would this mean for the efficacy and integrity of the IRS? What is the ideal way to navigate the trade-off between expertise and the risk of capture in policymaking?

Longstanding Concerns

The IRS chief counsel is the principal legal adviser to the IRS commissioner and provides legal guidance and interpretative support to the agency, the Treasury Department, and the public. The role requires a comprehensive and deep understanding of federal tax law and regulations, as well as negotiation and communication skills. Individuals with robust experience at big accounting firms are likely to have acquired all these skills.

Rollinson’s experience at EY offers the IRS an inside perspective on large corporate strategies, which could prove invaluable in interpreting tax laws and closing loopholes. However, selecting a former executive from a Big Four accounting firm has caused concern among some lawmakers, because her experience gives her the tools to offer former clients potentially favorable treatment.

The IRS chief counsel’s position isn’t the only example of revolving door concerns in the Treasury Department. In February 2022, Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal, (D-Wash.) sent a letter to the Treasury Inspector General for Tax Administration asking to investigate the revolving door inside the Treasury.

Warren and Jayapal cited reporting from the New York Times about “how large accounting firms send their lawyers into high-ranking positions in the federal government to create new tax loopholes for their clients, and then reward the same lawyers with bigger paychecks and promotions upon their return.”

In August 2023, the Treasury Inspector General for Tax Administration published a report that identified 496, or 15%, of current or former IRS employees from 2017 to 2021 had received income from either a large accounting firm or a large corporation before, during, or after joining the IRS.

The report highlighted how “there is nothing inherently wrong with or prohibitions on individuals moving in and out of the private sector to public service, as the movement between sectors can contribute to the career development of personnel and improved organizational competencies. However, this practice increases the risk for conflicts of interest.”

Recusal and Cooling Off

Recusal is a powerful tool to preserve the integrity of the decision-making process. Rollinson’s promise of recusal could ensure that the agency’s decisions are made without bias. It underscores a commitment to impartiality that is foundational to public trust.

But recusal comes with costs. It means the IRS would have to navigate certain matters without the full benefit of the chief counsel’s expertise. Given the complexity of modern tax structures, this is no small concession. This constraint could lead to less informed and less effective decisions and slow the process, as the agency must rely on other, potentially less experienced, counsel to fill the gap.

There also is the broader perception to consider. Recusals could send a positive signal of guaranteed independence to the public, but people might be skeptical about the effective application of the recusal.

To navigate this, transparency is key. The recusal process must be clear and public; there can only be accountability with this transparency.

Looking ahead, we must acknowledge the impossibility of finding experienced candidates without ties to the industry they regulate. The very expertise that makes them valuable carries the seed of potential conflict. We must ensure robust ethics rules and enforcement mechanisms.

These rules should govern recusal and post-employment more clearly. This is the rationale behind revolving door laws that have become more common across the US and in other countries. These laws usually dictate cooling-off periods for former legislators or regulators before becoming lobbyists or working with private-sector parties that are directly affected by the agencies they used to work for.

The IRS should consider establishing a more stringent cooling-off period for incoming officials or creating an independent advisory panel to weigh in on potential conflicts.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Silvia Vannutelli is an assistant professor of economics at Northwestern University.

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