Every Friday, we feature Tax Law & Policy Perspectives from Monte A. Jackel, UBalt Law’s graduate tax program scholar-in-residence. The posts reflect the views of the author and do not reflect the views of the University of Baltimore. Although we strive to be accurate in our posts, they do not constitute legal advice. Independent advice should therefore be sought if it is deemed advisable.
A revolving door is a door that starts at one place, goes to another place, and then returns to the starting place, all in a smooth circle. In that vein, Senator Elizabeth Warren, D-Mass., and Representative Pramila Jayapal, D-Wash., recently wrote a letter to the Office of the Inspector General (OIG) at the Treasury Department relating to a report from the latter on the so-called “revolving door” at the Treasury Office of Tax Policy.
This so-called revolving door was first highlighted by the New York Times almost three years ago in an investigative report. The report dealt with a group of highly qualified attorneys who leave their current high paying job at one of the large accounting or international law firms to join the Treasury Department’s Office of Tax Policy (OTP), then spend a few years at OTP writing and advising on regulations, recommending tax legislative changes, and writing and advising on other rules, and then, without prior contractual commitment to their prior firm, return to the former firm with a substantial salary increase and a promotion in status (such as making partner).[1] During their tenure at OTP, it is alleged that favorable rules to clients of the former firm were adopted with the help and assistance of the former employee.
The letter and the accompanying press release[2] from the senator and the representative address this so-called “revolving door”. The letter severely criticizes the Office of Inspector General’s (OIG) Treasury Report on this subject issued several months earlier.[3] The principal criticism was that the OIG report was incomplete and deficient in addressing the specific allegations asserted about the revolving door and was a “whitewash” because the report did nothing other than recite that Treasury OTP complied with all current ethics rules. The letter demanded that the OIG report should be retracted and redone.[4]
In response to this latest letter and the importance of this issue, I wanted to raise some points that relate to this subject. But first, I must affirm that I do not have any personal knowledge about what has been asserted in this controversy. I was an employee of both OTP and the IRS Office of Chief Counsel in the national office at various times during my career. I also do not intend to create any inference that the assertions made by either the New York Times or the senator and representative, on the one hand, or the OIG report, on the other hand, are either true or not true.
First, on a pro and con basis, the pros of this practice are being able to be reasonably assured that the hires at OTP are of good quality and highly technically competent. Although having been successful in that practice, I have heard indirectly that a currently serving OTP member may be given authority by the higher ups at OTP to interview and hire his or her replacement on that person’s own volition (that is, without the higher ups at OTP being really involved in that process or having the final say). That does lead to a lack of fresh blood and does lead to some incestuous behavior and continuity of thought. There is truly something positive about having fresh blood and not having OTP personnel who will automatically “toe the party line”. To its credit, I have seen that OTP is becoming more diverse with its hiring, recognizing that there is more hiring risk in doing that but that the risk is worth it, at least in some cases.
Second, there is no clear dividing line in practice between what OTP’s role is and what the IRS Office of Chief Counsel’s role is in the guidance process[5]. In recent times, at least for the last couple of decades, OTP, through the assistant secretary of tax policy, has exerted much more influence and power over the guidance process than the IRS Chief Counsel. The Office of Chief Counsel has become more like scriveners than original drafters of the guidance project. That is, it seems that OTP is more in the practice of directing not only what is to be done but also how it is to be done. OTP is supposed to be principally a tax policy group, hence its name, and not the actual drafting of regulations, including both writing style as well as content. The IRS Chief Counsel office is supposed to function more as the tax technical experts, who guide the regulatory nuts and bolts. I don’t think that the current real-world practice was intended when the system was first set up seventy plus years ago. Perhaps a statutory reordering by Congress is now necessary?
Third, based on what I know and have seen from the Big 4 accounting firms and the large international law firms, turning over on a voluntary basis the materials requested previously by the senator and the representative seems unlikely to occur unless compulsory process can be used (subpoenas and whatnot). Is that likely to occur under any circumstance? And I candidly do not see the likelihood of having whistleblowers come forward from the outside as being foreseeable or realistic.
Finally, I doubt that OIG will retract and reissue its report as demanded by the senator and the representative. Even if OIG wanted to do so, without the cooperation of the Big 4 and the large international law firms, how would OIG get the necessary information? That information will be viewed as highly personal and confidential to affected accounting and law firms, as well as the affected employee or partner. Can or will this process end up in a setting where compulsory process can be used?
[1] See New York Times, “How Accounting Giants Craft Favorable Tax Rules from Inside Government,” Jesse Drucker and Danny Hakim, September 19, 2021, https://www.nytimes.com/2021/09/19/business/accounting-firms-tax-loopholes-government.html?searchResultPosition=1.
[2] See Press Release, “Warren, Jayapal Slam Treasury Inspector General’s ‘Irresponsible Whitewash’ of Big Accounting Firm’s Revolving Door Influence over Tax Policy”, May 14, 2024, https://www.warren.senate.gov/newsroom/press-releases; Letter to Richard K. Delmar, Acting Inspector General Treasury, from Senator Elizabeth Warren, D-Mass, and Representative Pramila Jayapal, D-Wash, May 10, 2024; Samantha Handler, “‘Warren Demands New Review of Big Accounting-to-US Revolving Door”, Bloomberg Law News, May 15, 2024.
[3] See U.S. Department of the Treasury, Office of Inspector General, “Inquiry on Revolving Door Between the Largest Accounting Firms and the Department of the Treasury,” OIG-CA-24-015, March 21, 2024, https://oig.treasury.gov/sites/oig/files/2024-03/OIG-CA-24-015%20(508%20compliant%20-%20secured).pdf.
[4] This is not the first time that this subject was raised by the senator and the representative. For some prior history on this subject, see Senator Elizabeth Warren, “Warren, Jayapal Call on Treasury, Tax Inspectors General to Investigate Unethical Revolving Door Between Treasury and ‘Big Five’ Accounting Firms,” press release, February 22, 2022, https://www.warren.senate.gov/newsroom/press-releases/warren-jayapal-call-on-treasury-tax-inspectors-general-to-investigate-unethical-revolving-door-between-treasury-and-big-five-accounting-firms. See, also,
“Letter from Senator Elizabeth Warren and Representative Pramila Jayapal to Department of the Treasury Inspector General Richard K. Delmar and Treasury Inspector General for Tax Administration J. Russell George,” February 18, 2022, https://www.warren.senate.gov/imo/media/doc/2022.02.18%20Letter%20to%20Treasury%20IGs%20on%20Revolving%20Door.pdf. The senator and the representative sent letters to the large accounting firms seeking to obtain information on this practice. For the most part, these letters from the accounting firms in response to the senator, dated October 19 and 22, 2021, and December 23, 2021, https://www.warren.senate.gov/imo/media/doc/Accounting%20Firm%20Responses_Redacted.pdf, denied any improper conduct and asserted being in compliance with all ethical standards.
[5] See IRM parts 32.1.1.3.1(a) (OTP establishes policy criteria); 32.1.1.4.4 (associate chief counsel office with jurisdiction is responsible for issuing published guidance); and 32.1.1.4.5 (OTP provides assistance in drafting of regulations). https://www.irs.gov/irm/part32/irm_32-001-001#idm140524182845408.
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