Will I Get Audited?

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
Lots of disruption going on in the federal government, and
nowhere more than at the Internal Revenue Service, where we
have up to twenty thousand employees leaving over the next
few months, and a lot of them senior employees. And
how is that going to affect you? How's that going
to affect your tax compliance? How's that going to affect
your risk of being audited. We're going to discuss all

(00:23):
of that today because this has a potential huge impact
on the entrepreneur, the investor, and in it I think
a different way than maybe you might have thought of.
And so today we have my friend Garrett Watson from
the Tax Foundation. Garrett, welcome back. Always good to have
you on the Wealth Ability Show.

Speaker 2 (00:43):
Thanks for having me. It's an exciting time.

Speaker 3 (00:46):
So let's get right into it. Garrett. I think people know.

Speaker 1 (00:51):
You're you're watching this probably at least as closely as
I'm watching it, and you know that three years ago
there was a big tax a big bill that was
going to increase the IRS by as many as eighty
thousand employees. And now not only are those employees not

(01:15):
being hired, we're seeing a reduction of really a really
nice offer. Frankly, by the government to let them retire early.
Is effectively what's going on as their early retirement. And
you've got twenty thousand people who rather than wait for
five or or six years to retire or retiring this year. So,

(01:37):
first of all, what's going on and how do you
see this in the short run, and then we'll talk
about the long run.

Speaker 4 (01:46):
Yeah, So it is definitely a time of change of
the IRS, and of course it is culminating after five
plus years of a lot of change, both due to
the pandemic and because of the infusion of funds that
we saw under the Biden administration that was an effort
to try to both expand the IRS's auditing capabilities and
to some extent, their taxpayer service. They're bulking up both

(02:07):
the resources and the number of folks who.

Speaker 2 (02:09):
They have on staff.

Speaker 4 (02:11):
And what you've seen since January twentieth, when the new
administration came in, is a big sort of bet in
the opposite direction, a vision of a more streamlined IRS
that is putting more emphasis on technology and streamlining processes
and less so on staffing and greater material resources. And
it really represents, you know, I think a very different

(02:32):
vision and framework we're thinking about what success looks like
at the IRS right, thinking about the relative emphasis on
taxpayer service versus auditing and the role of individual sort
of staff in that process too. And it comes with,
i think, both with opportunities and risks that we'll get into.
The big short term sort of question, of course, was

(02:54):
heading into this year and into the spring, was how
that would affect the filing season to what extent. Even
if a lot of these transitions and changes are good
in the long run, could that affect taxpayer experience or
IRS revenue collection in the short run. Generally speaking, the
good news has been that this season has generally been
running as we'd expect. There hasn't been a lot of

(03:16):
reporting of problems from customer service experience, and revenue collections
have been running at or ahead of where they were
last year. There was some reporting, you know, early on
in the spring, that maybe revenue collection was down for
a few different reasons. That seems to not be the case,
So let's go for federal government dealing with a debt
limit issue in Congress, it's also good news for taxpayers.

(03:40):
The big question moving forward is how long will that last?
Will we start seeing some of these eruptions, both from
some of the initial severance that was given in separations
for probationary employees earlier on in the spring, and now
for this next wave of twenty thousand folks where we're
seeing upwards of a third of the IRS's staff leave.

(04:01):
It's possible that they are going to be very smart
about changing sort of the work distribution so that that
minimizes effects on taxpayers, but the sheer scale of that
change may mean there will be some disruptions. The question
is on which taxpayers and how severe for how long?

Speaker 2 (04:17):
I think it's a question.

Speaker 1 (04:18):
Well, I think it's kind of I kind of smile
a little bit about this because in the first place,
IRS has had not had good customer service for twenty years.

Speaker 3 (04:29):
Okay, I mean we still we have refunds that have
been waiting. We've been waiting on for three years.

Speaker 1 (04:36):
Three years to wait for a refund that is that
is just crazy, ridiculous type of stuff. And so you know,
then the question is, okay, so does this mean that
there's just.

Speaker 3 (04:48):
Gonna be a lot fewer audits.

Speaker 1 (04:49):
They've disbanded some of the audit groups, they disbanded the
Captive group, They disbanded the high the high net worth group,
so that a lot of these people they had to
disband because were leaving, so they just weren't they and
and they've just disbanded these groups.

Speaker 2 (05:06):
Uh.

Speaker 3 (05:06):
Fundamentally, do you think it means, Okay.

Speaker 1 (05:11):
We're gonna get some temporary disruption in service? Do you
think necessarily though it means fewer audits. I suspect it
does not. I suspect it does not mean fewer audits.
It just means that there won't be these tax on
specific groups of taxpayers.

Speaker 4 (05:29):
I think you're generally right, right, especially when you know
it comes to yeh, having folks who specialize in very
specific and be very complicated tax situations. That requires of
course a lot of resources both in time and uh
and money and staffing expertise. That might be something that's
we're seeing that a little bit with some of these
more specialized groups being disbanded or downsized. But that, yeah,

(05:51):
that doesn't necessarily mean that overall audit levels will will fall,
especially when you're thinking about either correspondence or audit associated
with you know, the average instead of tax payer.

Speaker 2 (06:00):
I think we have.

Speaker 4 (06:01):
Seen that change over time, but it's unclear if that
will unless there's a deliberate effort on the part of
the irs and treasuries and move those audit rates in
a certain direction that I think that's far from matured,
and I think that's always that's been the challenge the
RS up up to this point, I think will still
be the case now, which is, how do they think
about the balance of resourcing between upfront proactive taxpayer experience

(06:24):
and proving the you know, solving the problems you just
mentioned that have been long standing aggravated during the pandemic,
and then also thinking about auditing and you know, making
sure folks are keeping up voluntary compliance. That is a
delicate balance, both politically and in terms of just efficient
operation of the agency. The one thing that I hope
to see at some point, and this might be optimistic,

(06:44):
right or sort of pollyannish, is I think stability for
the agency in terms.

Speaker 2 (06:49):
Of direction and leadership would be really helpful.

Speaker 4 (06:51):
That's been one thing, both from external events and just
changes in the political situation that we haven't had. And
that does make it hard, right, because you do have
a shifting political target. We obviously have had a lot
of transition in leadership, both the political leadership and the
underlying sort of civil staff, and that can also just
make it hard by any organization go undergoing that kind
of transition over years to deliver, and so I think

(07:15):
that's something that that's very hard to do because there's
just sharp political and policy disagreement on the direction of
the agency, and we're seeing that a lot in just
the general policy environment right now. But that would be
helpful too, I think, to get some stability and say, Okay,
we are going to go on this more lean version
of the IRS that's emphasizing tax payer experience and taking
advantage of AI where we can, and let's just roll

(07:35):
with that, and hopefully if we do see administrative changes
or changes in control in the coming years, that they
take that into account that some stability here would be helpful.

Speaker 1 (07:43):
So I think it was a conversation you and I
had on the same podcast a year ago where we
talked about one party actually proposing to raise taxes and
that in fact, there had been parties proposed to raise
tax in the past and they had never won, and
once again they didn't win. So I actually think that's

(08:05):
a good sign because what I think what it signifies
is the American public does not want increase taxes.

Speaker 3 (08:12):
They just do not.

Speaker 1 (08:13):
And I think the whole you know, I don't want
to talk about tariffs right now. That's subject for another time.
But terrorists are a tax increase. And then we have
the new bill, which is a tax decrease, which is
a logical offset. If you're gonna have an increase, you've
got to have a decreased offset.

Speaker 3 (08:30):
Is you're gonna have.

Speaker 1 (08:31):
Real problems with the economy. But here's my real question is,
so I've been an advocate for since before twenty twenty two,
that the money. I'm not saying that IRIS doesn't need
more money. I'm saying they don't need it in auditing.
Because what's happened over the years, and you've watched this

(08:52):
even more than I have, but you know, I've got
forty five years in this business, and what it seems
to happen is is that, oh, we're going to do
the technology and.

Speaker 3 (09:01):
Then we'll let people go.

Speaker 1 (09:04):
But the technology never comes because you have an easy
way out by just hiring more people. And that was
the Biden administrations. You go to, well, we're just going
to hire more people. Where we're in a world where
hiring more people makes no sense to anybody except the
Biden administration, because in the rest of the world, we're

(09:24):
using AI, we're using technology, and I know that, Danny,
We're full The former IRS commissioner was actually moving on
the technology, but they'd allocated such a small percentage of
that budget increase to technology and so much to administration
and people that it seemed like, well, we got our

(09:47):
emphasis wrong. Do you think that perhaps that this let's
reduce the workforce first and it will force us to
actually use technology. Do you think that is a possibility
that will actually get technology replacing so we'll actually get
more efficient audits, more effective audits rather than fewer audits.

Speaker 4 (10:11):
Yeah, I think it's a definite possibility because the sort of,
you know, the logic of sort of these types of bureaucracies,
both the IRS and elsewhere, is folks are going to
be more even implicitly or unconsciously oppositional or skeptical of
processes that can put themselves out of a job.

Speaker 2 (10:26):
Right.

Speaker 4 (10:27):
It's sort of a cynical take, but it's something we
see in a lot of bureaucracies, not just in the
federal government but elsewhere, and that may play a big
role in why we've seen such disappointing results in modernization
efforts and investments in technology the IRS in the past,
because it's very hard to sort of motivate them to
do that and to implement that moving forward. You could say,
you know, in the Bidomstrician's defense, maybe short term after

(10:49):
the pandemic, that was a way to catch up, right,
that was the easiest way to catch up in the
short term. It just as a sort of a way
to get them back on track. Right, That might be
your best sort of defense of that approach in the
short run, But that's not really a way to get
you to the vision that you're talking about, right, which
is a leaner IRS that is emphasizing more and relying
more on technology and AI.

Speaker 2 (11:10):
And then the question is how do you get there?

Speaker 4 (11:12):
It's unlikely to be getting there in a world where
you have a larger staff that may be resistant to it.
And so but it is very much a bet because
you are betting that you're sort of forcing the situation
that they go ahead and take advantage of that technology.
The downside risk the possibility and it's unclear at this
point what that you know, probability is is that they
falter in that and you just end up with worse
sort of outcomes across the board.

Speaker 2 (11:33):
So I think that's the risk. Right.

Speaker 4 (11:35):
So this is the thing we're seeing this across the
board with efforts at that Doge and elsewhere, right, which is, hey,
we can spur you need something to spur some change
that can really take us from what is a very
disappointing status quo that may involve some risks, and then
the question becomes, you know, very sort of un sexy
questions of how do you administratively do that? What is

(11:55):
the plan in practice to actually do this modernization and
leverage AI because we can get into I think there's
some really interesting questions on both the opportunities and there
in the specific risks with stuff like AI in a
taxpayer context, which could be interesting.

Speaker 3 (12:08):
Yeah, there's no question. It's a big bet.

Speaker 1 (12:10):
I mean, and nobody's nobody's gonna accuse Trump of not
being willing to make a big bet.

Speaker 3 (12:16):
I mean, the terifts are a big bet. Uh, those
is a big bet. I mean, this it's it's all
a big bet. But let's talk about technology.

Speaker 1 (12:24):
Because you watch not just the federal government, but you
watch state governments, and there are state governments that have
been effectively using technology for years and years. I'm reminded
of h of New York State that actually looks at
a convenience store and how many lottery tickets they sell,

(12:47):
and and they actually base an audit.

Speaker 3 (12:49):
On if you sold this many the lottery tickets, you should.

Speaker 1 (12:52):
Have had this much in in convenience store sales, and
you didn't report this much in convenience store sales. So
therefore we're just going to assess you prove that, prove
that we're wrong.

Speaker 3 (13:03):
And I think that there's an opportunity there. For example,
U there was a study that showed in.

Speaker 1 (13:11):
Twenty twenty there were two hundred and fifty thousand S
corporations with over one hundred thousand dollars of net income
and no salary, which goes which you're.

Speaker 3 (13:24):
Losing all that.

Speaker 1 (13:27):
Employment tax, right, all that Social Security, all those employment taxes,
because there's no employment tax on S corporation income unless
it's paid out in salary. So how do you think,
how do you think that could be used in order
to automate and actually make the process not just more

(13:49):
effective for.

Speaker 3 (13:50):
The government in other words, bringing in more.

Speaker 1 (13:52):
Money, but actually making it easier for the taxpayer because
right now, ha doly not it takes anywhere from six
months to two and a half years, and it's a
very big expense.

Speaker 3 (14:04):
For the tax payer and and a lot of stress.

Speaker 4 (14:07):
Frankly, right, yeah, I mean, on your first point of
the state experience, I think there is a lot more
learning that could be done by the part of the
IRS and Treasury on what states are doing well. Obviously,
like state revenue collection looks a little bit different, different
revenue sources. They obviously they are a little more a
little smaller in context, and of course there's a lot
of diversity in departments of revenue how well they're doing
things across the states. But the ones that are doing

(14:29):
sort of the best job, I think are at the
forefront of trying to improve tax payer experience and collecting
revenue efficiently, and that's something hopefully not super familiar with
whether or not they actually are adopting some of those
best practices. That's one advantage of our federal system is
you can learn from both, you know, the states and
vice versa on best practices. So I think that is
something that's probably underleverage and I talked about much in

(14:51):
this in this space outside of you know, specialist groups
doing this kind of work, and then on the AI
side and the tech sort of opportunity, I think there
is a lot of opportunity both on the taxpayer experience
and for the irs itself. Obviously, the leading edge of
this is sort of AI machine learning algorithms of various types, right,

(15:11):
which both from a sort of proactive sort of do
the numbers at up or there any discrepancies relative to
what may be owed? And from a more sort of
you know, enforcement or correspondence or auditing situation.

Speaker 2 (15:22):
There's a lot of opportunities for that both.

Speaker 4 (15:25):
You know, if you have sort of setting aside questions
of how do you get to the training data and
actually set these things up, which has its own set
of questions and challenges once you get there. Of course,
AI machine learning specializes in finding patterns in data, either
individual cases or more broadly that even you know, experts
may find challenging. We see this and of course the
commonly discussed example is in radiology, right in medicine, where

(15:48):
it can match or exceed the performance of trained experts
looking at you know, issues related to cancer could.

Speaker 2 (15:55):
Be applied here as well.

Speaker 4 (15:57):
The one of the big challenge among many, of course,
is it does make you know if something is flagged
as a discrepancy, we'd be really deliberate about trying to
get from the from the algorithm or from the AI
why is it that this has been flagged as a discrepancy,
Because we're not just talking about, you know, a false
positive or cancer, which is bad enough, and we're not
talking about the risk of correspondence or audit or at

(16:20):
the very minimum, right upsetting or scaring a taxpayer.

Speaker 2 (16:22):
Who may not have done anything wrong on.

Speaker 4 (16:24):
The basis of an algorithm that may not may or
may not be able to explain why it's flagging a
particular return for a closer look. So I think that's
you know, that's something we're already dealing with in other
domains where this technology is being deployed in a more
mature way. But you can see how this overlays with
the sort of the privacy and concerns and concerns about
dealing with how people think about interacting with the irs

(16:46):
in this context, right, And so I think that's going
to be something maybe leaning more on the proactive side
of the taxpayer experience rather than on the auditing first
makes more sense because it's very different to say, hey,
you know, you submitted this, there might be something off here.
Maybe not check again, you know, before you resubmit if
it's rejected, versus, hey, we're gonna lead lead on the
auditing side with AI and it develops all sorts of problems,

(17:10):
both for internal folks and for taxpayers. We're not even
assuming that the algorithm is wrong, it's just if it
cannot be explained in a way that makes sense to
auditors or to the taxpayer, that can be a challenge.
Sometimes it can depends on how it's being deployed. But
that's the first thing that sort of comes to my
mind that we're already seeing in other domains.

Speaker 2 (17:27):
That can be a challenge.

Speaker 1 (17:30):
No question that it depends on how it's deployed. But
number one, what technology is really good at now and
the IRIS has not been able to do because their
technology is so poor, is identifying where there might be
a challenge. Okay, so I mean we all we've all
gotten those notices in the mail where hey, your W

(17:51):
two didn't match your tax return. Okay, that is simply
what we're talking about. We're talking about a matching matching up.
Does it make sense. It's just that with AI you
can get a lot more, you can put a lot
finer point on it, right, because it's got there's so
much data that it can use. So it's not just
matching W two's, but it also could be matching K ones.

(18:16):
It could also be matching behavior. For example, there's a
there there's there's something going on in the social media
right now about hey, you don't have to pay income tax.

Speaker 3 (18:30):
You know this. We've heard this.

Speaker 1 (18:32):
Before, Garrett, We've seen it before where people say, hey,
the sixteenth Amendment.

Speaker 3 (18:35):
Wasn't properly ratified.

Speaker 1 (18:37):
And of course these people don't understand that the Supreme
Court says it was ratified, therefore it was ratified. Supreme
Court is the law of the land. The Constitution is
not the law of the land. It's the Supreme Court.
That's the law of land. And Supreme Court holds that
it's ratified, it's ratified. But when you take something like
that and you go okay, So, like I was telling
somebody yesterday, said he you know, somebody says I haven't

(19:01):
paid taxes in three or four years. I don't have
to pay taxes and he's got a business and he's
got all that.

Speaker 3 (19:06):
Well, a I would identify that right.

Speaker 1 (19:08):
AI would be able to go out and say, hey,
wait a minute, here's your lifestyle, here's what's going on,
how are you paying for that?

Speaker 3 (19:17):
And you know, we're asking questions.

Speaker 1 (19:19):
I think that's a really good point though, And I
think this is something that I think the IRIS has
missed for many, many years, is that customer service is
more important than auditing.

Speaker 3 (19:32):
Because if you if you you know.

Speaker 1 (19:35):
George hw Bush, he wanted a kinder, gentler IRS.

Speaker 3 (19:40):
And we actually moved towards that.

Speaker 1 (19:42):
We I mean in the profession and the tax profession,
we saw a definite move towards the IRIS was not
so harsh, they weren't angry. We've seen that go the
other direction in the last five to ten years. I
mean it is definitely the taxpayer has become which the
taxpayer is the customer, right, the taxpayers become the enemy.

Speaker 3 (20:03):
It's like your customer is your enemy. How does that
work for you?

Speaker 1 (20:07):
Right? But if you make the customer experience really easy,
I mean there are some things the IRS has done right.
I mean you can go in and check on your
on the irs website, you can see, okay, have they
got my payments right? How you know they process my
return that you can see that. And the more that
we can do customer experience. You know, every business knows,

(20:30):
the better the experience, the happier the customers, and the
more likely.

Speaker 3 (20:34):
They're going to give you their money.

Speaker 1 (20:36):
This is like, this is marketing business one oh one,
and it's it's nice to actually have some business people
looking at this as opposed to government people who think, hey,
you're you're you're bad because you're a taxpayer, so you're bad.

Speaker 3 (20:52):
You're you're the enemy.

Speaker 1 (20:53):
And it just seems like we could do it in
such a way where we first, I think you're right,
we first drive custom service.

Speaker 3 (21:00):
But then you know, I.

Speaker 1 (21:03):
Think we need to ask a question. Okay, well how
come you didn't pay any you know, you could say
as easy as you know your your option. Let's take
the S corporation, right, So this is a flow through
entity right where the tax is paid by the owner.
And normally you would expect, you know, fifty percent or
so of the net income to be paid in salary

(21:23):
and fifty percent to be paid in distribution something like that.

Speaker 3 (21:27):
So why not ask the question, well, what's going on here?
You know, can you justify this? Because remember the rule
is all income is taxbule. Everything's taxable.

Speaker 1 (21:40):
You have to prove it's not okay, so you don't
have to you don't the government doesn't have to prove
it's taxbule, and they don't have to prove that you
don't get a deduction.

Speaker 3 (21:50):
You have to prove you get a deduction. So that's
the way the tax law is set up.

Speaker 1 (21:55):
And so why not ask that question, why not go
through these technology steps that, yes, you're asked in question,
there may be a perfectly good answer, but do it
in such a way that is actually a customer service. Hey,
we're checking, make sure thing's okay. We'll help us understand
what's going on here.

Speaker 2 (22:16):
Yeah, I think that's right.

Speaker 4 (22:17):
Starting there sort of with the basics of making sure
the matching is working properly, that they're obviously discrepancies that
often are explained by just mistakes on the taxpayer's part.
When they're finally our return, there's just an innocuous mistake
is a good way to start here, and that can
be leveraged both by just more fully deploying tools that
the IRS already has and by you know, taking the
next step and moving toward your more sophisticated AI tools.

(22:40):
And I think it's exactly right that customer service needs
to be the sort of the front of this effort
moving forward, especially because I think it also sort of
sends a signal for folks when you think about from
an enforcement perspective or returning folks, you know, from trying
to evade taxes when they see an IRS that is
not just you know, potentially hostile to taxpayers in the

(23:02):
worst case, but also it's shymbolic and it's customer service interactions.
People rightly assume that, well, they're probably a shambolic on
enforcement as well, so I can get away with just
filing right or evading or you're changing some of the numbers,
because if they're so bad at this, I doubt they're
going to be sophisticated on the on detecting avoidance or invasion.
And so if we were to modernize the front phase

(23:24):
to make it to send a signal that hate agency
is taking all this seriously and is competent, I think
that would also help with uh, you know, the tax
gap and with reducing non payment of liability that's legitimately owed.

Speaker 2 (23:36):
So you know, there's a lot of synergies here between
these two things.

Speaker 1 (23:39):
Yeah, And the reality is you don't need more people
for the customer service. There is there is good AI
right now that businesses are using to do sales calls.

Speaker 2 (23:49):
That's right.

Speaker 1 (23:50):
You cannot literally, you cannot tell, I've I've listened to
it in action. You cannot tell it's not a person. Okay,
And we want we want a personal experience, that's what
we want. We don't want to be put on hold for.

Speaker 3 (24:03):
Two hours, which is currently I mean, and it's been
this way for years.

Speaker 1 (24:08):
And the irsays, well, we've got we answer eighty five
percent of the calls. Well, okay, if they answered eighty
five percent of the calls, the answer was hang up
and try again.

Speaker 3 (24:18):
That was that in their mind, was answering the call.

Speaker 2 (24:21):
Because I was a number.

Speaker 3 (24:22):
I guarantee you.

Speaker 1 (24:25):
That is no tax professionals experience that eighty five percent
of the calls are being answered. And on top of that,
I mean, you think about it, So, how many people
do you need. You might need twenty five thousand people
to answer twenty five thousand calls right.

Speaker 3 (24:44):
Every half hour, But if you have AI.

Speaker 1 (24:48):
Doing it, it takes it takes one minute to answer
twenty five thousand calls.

Speaker 3 (24:54):
You can answer infinite. You can answered two hundred and.

Speaker 1 (24:56):
Fifty thousand, two point five million, twenty five million, can
answer all those calls immediately.

Speaker 3 (25:02):
You'd call, you'd get, you'd get the phone would pick up.

Speaker 1 (25:05):
There would be no waiting at all, and you and
you'd be able to ask you a question and you'd
get an answer or a direction as to where to
go to get your answer. And so to me, it
seems like, wow, you could do a lot with a little.
Now here's here's where the rover meets the road, Garrett,
are they putting you know, they actually let Are they

(25:27):
putting money into this? Because they actually let a lot
of the people who were working on the technology, they
let them go, right, So.

Speaker 3 (25:34):
Are they putting money back.

Speaker 1 (25:36):
Into the technology?

Speaker 3 (25:39):
Are they going to bring that back or are we
gonna have a gut at I R S. Yeah.

Speaker 4 (25:44):
I think that is the single orders concern that I have,
which is there is a there's a right way to
do this in a not so great way, and I think.

Speaker 2 (25:50):
A lot of possibility is they do.

Speaker 4 (25:54):
Either let go or you know, folks who are more
who we command you know, higher oper higherries and great
opportunities in the private sector, who see sort of all
has change and decide to leave, and you sort of
brain drain of the best folks who should stay and
be motivated to help with this effort, and then you
end up in that in that world where you have
a leaner I r S. That isn't using these tools
in the in the best way possible, and that the

(26:17):
bigger risks long term is that could possibly invalidate in
the eyes of taxpayers and voters this approach, which would
be a big miss opportunity, right, because then folks who
are sort of advocates of the alternative vision of no,
let's just throw as much money in people as possible
at this and not try this technology modernization effort may
end up back in the driver's seat. So I think it, Yeah,
this is a big back to that bet language, right,

(26:39):
an opportunity here to do this right. But it does
require you know, a sensitivity and appreciation for the fact
that you do need good talent to be able to
deploy this stuff and to be able to maintain it
right and to bugget because it's likely to be iterative, right,
the first version of a lot of these tools does
need sort of experience behind it to get them deployed correctly.

Speaker 1 (26:57):
Is there somebody at the at the I r US
right now who's working on technology?

Speaker 3 (27:04):
They didn't? Did they get all of it?

Speaker 1 (27:06):
Or are there people working on are Is there somebody
going hey, yes, this is what we're gonna do. Yeah.

Speaker 4 (27:14):
My understanding is that there are, and especially was developed
and matured a bit under Nanny werfol you know both
you know, individual staff members and teams that are that
are working specifically on tech modernization. Back to our earlier point, right,
a lot of this has existed for a long time.
So that's not to say that these folks are like
without any additional motivation.

Speaker 2 (27:30):
Or change the ones, We're going to get it all done.

Speaker 4 (27:33):
But I think I think the risk right now is
and what we don't know is how many of those
folks are going to participate in the broader you know,
severance sort of resignation plan right or leave thereafter, depending
on how disruptive it is.

Speaker 2 (27:44):
I think that's the question.

Speaker 4 (27:46):
And so you know, I r S leadership, Treasury all
the way up to the White House needs to really
sort of lean in and make sure that talent is retained,
because it's gonna be hard to either bring them back
or entice them back if if they.

Speaker 2 (27:57):
End up leaving. So I think that's going to be
a part of it.

Speaker 4 (28:00):
The other part, of course, is all the nitty gritty
of sourcing of new technology.

Speaker 2 (28:04):
Right.

Speaker 4 (28:05):
One thing we've talked about a lot to day, but
will be a political concern is the privacy side. Right,
how do you do all of this if you're going
to And that's been something that's slowed stuff down for
a long time is dealing with you know, taxpayer return information.
To even do something as basic as providing uh information
on tax returns, you know, electronically on the RS website
has been a challenge. Identifying folks through you know, I

(28:26):
D dot me and other tools that have at best
mixed reception on the part of taxpayers. Is another just
whole other sort of side of this that can be
present some unique challenges.

Speaker 3 (28:37):
Interesting. So I'm curious what you think about.

Speaker 1 (28:42):
Are we we've had five acting I R S commissioners
in the last three months.

Speaker 3 (28:50):
Are we going to get an I R S commissioner?

Speaker 1 (28:53):
Will it be Billy Long or is it going to
be somebody else, what what what's going to happen there?
Because that you're you were talking about leadership, leaders is
important in order to move things forward.

Speaker 3 (29:03):
What do you see from a leadership standpoint?

Speaker 2 (29:06):
Yeah, I think it is.

Speaker 4 (29:07):
You know, it is to say, really important that they
get you know, a confirmed IRIS commissioner in the driver's seat.
It's trying to prognosticate on exactly when and how that
will happen. It does sound like it was just mostly
a matter of getting that hearing confirmation hearing scheduled for
Billy Long to get get him going. I know there's
been a lot of other hearings and activity on the
Hill that have may have delayed that, but I think

(29:28):
that's going to be important because part of PI was
driving a lot of this uh you know, transition of leadership,
and the introm has been folks who either maybe have
a difference of vision on various things the IRIS is
not getting involved with, like, for example, dealing with immigration enforcement,
or who don't want to be you know, tip of
the spear on that don't want to be the name
associated with that stuff a confirmed political point e. That's

(29:50):
part of why we have them, right is they're supposed
to take that heat, that exposure and drive that forward
and that allows the other folks who to focus on
the internal operation of the agency, and that's how it
should be. So I think that is something that could
help stabilize things, if anything, just to divide those really
both important rolls up a bit as designed in the system.

(30:11):
And so I think it's a matter of you know,
pressing on Congress, Hey, this is an important role.

Speaker 2 (30:15):
We want to hit this done.

Speaker 4 (30:16):
So there isn't further because that's the problem is the
morale is a cascading thingisitions right, that this can spiral
downward and that's going to take more time to rebuild,
all while we're trying to do this other stuff at
the same time on tech modernization.

Speaker 2 (30:29):
So I think that's going to be you know, that's
sort of common sense.

Speaker 4 (30:32):
But Congress isn't acting like that, right, We're not seeing
that that intivation. They're trying to deal with a lot
of other stuff, including of course the big tax package.
But getting the seat field will be important.

Speaker 3 (30:42):
So let's talk about the tax package.

Speaker 1 (30:44):
Just from the standpoint of all right, so you've you've
eliminated twenty thousand employees, from the I R S.

Speaker 3 (30:53):
How does that tax package get implemented?

Speaker 4 (30:56):
So I think that details here will matter a lot, because,
of course, a big part of it is going to
be sort of potentially extension or permanence for a lot
of the expiring individual provisions of t c JA. A
lot of that won't require a lot of additional work
right in the I R S, which would be good.
So then it comes down to what are the new
things that are being adjusted that they're going to have
to take take on board. Uh, you know, the biggest

(31:17):
things that sort of on my right are, of course,
are any of the new Trump tax cuts associated with uh,
you know, tax exemptions for tips over time, maybe something
for seniors or social security, depending on what passes the Senate.
A lot of that, you know, I could depend on
the legislative language, but a lot of the sort of
you know, avoidance anti avoidance measures, other administrative concerns might
be punted to I R S and Treasury, and that's

(31:39):
where they're going to take that on on top of
a lot of these other new efforts that are led
by the AD the administration, So that that that's one
sort area of work that they may have to deal
with and.

Speaker 1 (31:50):
Yet punting to the I R S is also problematic
under the local Bright decision, right where Okay, can they
can they actually do that?

Speaker 3 (31:59):
Can the IRS?

Speaker 1 (32:00):
You know, the IRIS is a under scrutiny like all
the other UH departments. Does this regulation really meet the
requirement of of this is actually the law and it's
not creating law?

Speaker 2 (32:16):
Right? Yeah, so they're gonna deal with that.

Speaker 4 (32:18):
That's a new hurdle, uh and UH, and then on
top of that, there's there may be additional revenue raisers
that come out of here. Right, we're hearing reporting on
changes to UH once cq M, which which disallows reductions
for highly paid executives for CEA corporations. There may be
other you know, changes to business salts that could obviously

(32:38):
not just require RAGS or implementation. But then you know, uh,
going back into enforcement, you know, new sort of efforts there.
There's and then on the TI the customer service side,
tax version needs to know what's going on with all
of this new stuff. So you're sitting out resources explainers, FAQs,
more detailed instructions, UH, new forms or adjustments to forms

(32:59):
that already exist. UH, that's all going to be thrown
on top of them as well. TJA produced over a
thousand pages of you know, news or finalized regulation and
I was in IRA produced a lot a bunch as well,
and so I expected that maybe not quite that size,
but we still could see uh, their work cut out
for them over the next couple of years.

Speaker 3 (33:19):
Yeah, So it's, uh, it's interesting times we're in.

Speaker 1 (33:22):
We're we're looking at a big new tax bill, but
like you said, Garrett, the big new tax bill is
mostly not new. There are certain things we've got to
pay attention to, like you know, how they're going to
monitor whether you qualify for the tips exemption, whether you
qualify for the overtime exemption. That's where the regulations I
think are going to come in. And uh and and
we're gonna have to watch this very carefully. In the meantime, though,

(33:46):
you know, the good news is most taxpayers are still
complying and there's there's not been that big disruption, So
that's really good. Uh, Garrett, You guys tax menation write
a lot about what's going on, and uh your where
can we go to get more of more from your

(34:07):
studies in your research so.

Speaker 4 (34:09):
You can find more on tax data and real time
analysis on everything that's going on federally in the States
and tax policy at tax Foundation dot org.

Speaker 1 (34:18):
Awesome, So thank you Garrett, Thanks everybody for listening. I
know talking about the i r S is nobody's favorite subject,
still a very critical part, and we like Garrett you say,
I think you really summarized it well when you said,
we have an enormous opportunity here, and actually the Trump
administration has created an enormous opportunity to significantly streamline and

(34:41):
improve the I r S, improve data collection, and most
of all, improve customer service. When we follow this, when
we understand what's going on, and when we understand the
tax law, remember, actually what happens is are we always
make more money and we pay less tax when we
actually know what we're doing. Thanks everyone, We'll see you

(35:03):
next time on The Waltability Show.

Speaker 3 (35:05):
This podcast is a presentation of Rich Dad Media Network.

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