Hamill: Leadership at the IRS comes with an expiration date

In the 29 weeks beginning on Jan. 20, 2025, the IRS had seven commissioners. That’s one per month.

For a long time, tax practitioners and members of the tax-writing committees of Congress have argued for modernization of the IRS. It is particularly challenging to discuss how that might look when the agency head turns over every month.

The Biden administration passed legislation to increase funding for the agency and to hire more workers. The Trump administration took back the bulk of the funding and fired workers or convinced them to leave the agency.

Tommy Smothers, half of the Smothers Brothers act, did an impressive bit as the “Yo-Yo Man.” Had he not died in 2023, perhaps Tommy Smothers could have served as the face of the IRS as it bounces from one initiative to the next.

The former Democratic Party majority wanted more people with tax training. The Republican majority favors technology over people.

A prominent member of the House tax-writing committee proposes hiring 1,000 database managers. These database managers would create algorithms to search private databases for information to be used in tax administration.

Right now, IRS computers match reported income sources against reported income on tax returns. This leads to “correspondence” audits where the taxpayer is informed that his reported income does not match the data the IRS has received.

Good luck getting this issue resolved. There have been few, and now even fewer, humans to talk to about the issue.

Donald Fagen, co-founder of the band Steely Dan, wrote a song “I.G.Y.” for a solo album. The 1957 and 1958 International Geophysical Year, lasting for about five commissioners longer than one year, was the source of Fagen’s I.G.Y.

“A just machine to make big decisions, programmed by fellows with compassion and vision, we’ll be clean when their work is done, we’ll be eternally free and eternally young.”

It’s déjà vu all over again. There is so much to unpack here that let me focus on just what these 1,000 database managers might be searching for.

I’ll follow up on a recent column about a tax research class I am teaching. Let’s review the assignments for that class.

The first one is whether a charitable contribution can be claimed. The taxpayer has a real estate development that he needs to get approved by the planning commission.

The city has a desire for open spaces and demands that the developer donate a large tract of land to create open space around the planned development.

The developer complies. The developer claims a charitable contribution deduction for the value of the contributed property.

Does this fly? This can only be answered by examining specific facts and case law. The statute itself does not provide a definitive answer. Some cases say no, some say yes.

Another project involves a corporation that sells its business assets. It is one of those “regular” corporations with two levels of tax.

The shareholder and the buyer agree that some of the purchase price will be paid directly to the shareholder for his “personal goodwill.”

This converts two levels of tax (corporation and shareholder) to one level (shareholder). The buyer is not affected as he has bought goodwill in either case.

Does this fly? This can only be answered by examining specific facts and case law. The statute itself does not provide a definitive answer. Some cases say no, some say yes.

Another project involves a partnership planning to sell land. It distributes undivided shares to the owners first. Each owner sells his share.

The purpose is to allow each owner to decide whether to defer his gain by engaging in a like-kind exchange.

Does this fly? This can only be answered by examining specific facts and case law. The statute itself does not provide a definitive answer. Some cases say no, some say yes.

Notice my “does this fly” response is a cut-and-paste. In each case, it depends on the facts. None of the facts can be found by database managers.

Database managers using technology can find inconsistent reporting of income. They cannot help with the much broader category of interpretations of the law.

Without trained people in the loop, we can’t resolve improper letters or aggressive reporting positions. This is so, even when the programmers have compassion and vision.