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Tax News Now Ep. 17 - Behind the Curtain: How the IRS Really Works and What It Means for Your Practice with Terry Lemons
40 Plays1 hour ago
In this episode of Tax News Now, Mark Gallegos and his guest, Terry Lemons, Public Relations Director at Frost Law and former Communications and Liaison Chief at the Internal Revenue Service, takes listeners inside the IRS, exploring how the agency is structured, how it operates, and what really happens when major tax legislation gets passed and implemented. Topics covered include the IRS's internal decision-making process, the ongoing challenges of staffing reductions and processing backlogs, and the critical role that tax professionals play in keeping the tax system functioning.
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Transcript
Introduction to the Episode
00:00:09
Speaker
Welcome back to Tax News Now, where we go beyond the headlines and break down what actually is happening in the tax world. And more importantly, what it means for you as a practitioner, advisor, and business leader.
00:00:20
Speaker
I'm your host, Mark Gallegos, and today we're going to do something a little different. ah We're not just talking about tax law, planning strategies or compliance. We're stepping or getting a step inside the IRS, because if you really want to understand where tax is going, what's working, what's breaking and what's coming next, you have to understand how the system actually operates behind the scenes.
00:00:41
Speaker
And there are very few people who can speak to that better than today's guest.
Terry Lemons' Background
00:00:44
Speaker
Joining me is Terry Lemons. Terry has spent more than 25 years at the IRS, including over a decade as the communications and liason chief readvised six IRS commissioners and led a team of over 300 professionals responsible for congressional relations, stakeholderer stakeholder engagement, and national communications.
00:01:03
Speaker
He helped create the IRS Dirty Dozen tax scams list, which I'm sure everyone's aware of, launched the agency's social media presence, and worked directly with the tax professional community. Today, he's bringing the experience into the private sector as public relations director at Frost Law.
00:01:19
Speaker
Terry, welcome to the show. It's great to have you here. Thanks for having me, Mark. So Terry, let's start at the beginning because your path into the IRS is not your typical one. You began in journalism covering the Congress and the White House.
00:01:32
Speaker
So walk us through what got you into journalism and what got you to Washington in the first place. It's a pretty interesting journey you know from my standpoint. I've always been interested in the news really you know throughout my life.
00:01:46
Speaker
And that led me to go into the newspaper world. I went to the University of Missouri. I'm a St. Louis native. I wound up down in Little Rock, Arkansas in the early 1990s. And there was this guy named Bill Clinton there.
00:02:02
Speaker
And he was a really interesting, charismatic politician. And I thought there would be a real chance he could at least win the Democratic nomination. As it turned out, he won the 1992 election. And I ended up having a ringside seat, not just to the 1992 campaign, but ended up coming to Washington from Little Rock, where I covered both Congress and the White House for the newspaper based in a Little Rock, the Democratic Gazette.
00:02:31
Speaker
But then the babies started coming and newspaper hours back then were very long and unpredictable. And the newspaper industry was already starting to go into decline. So I decided to you know reinvent myself, essentially.
00:02:46
Speaker
And the IRS had just had the stuffing beat out of it back in the Roth hearings in 1998 and 97. So I ended up coming into the IRS as a media relations specialist and through the years just kind of worked my way up until I was a direct report to the commissioner and, you know, had a fascinating career over at the IRS.
00:03:07
Speaker
Well, that's amazing and in quite a journey for sure. um So when you have that ringside seat that you mentioned, um how did that teach you about how the government actually works behind the scenes?
Complexity of the IRS
00:03:19
Speaker
If you're a newspaper reporter or interested in government at all, Washington, D.C. is the most fascinating place to be, Congress in particular. It really gives you an insight in terms of how the nation's political system and how government operates. There's a lot of different levers going on.
00:03:39
Speaker
And particularly, you know, for me, you know, both as a journalist and then later as a communicator and IRS executive, it really gave me some insight in terms of how things work in Washington and the interconnectivity between, you know, for example, people who write the tax laws in Congress, the tax professional community, and then actually making those laws work at the IRS.
00:04:03
Speaker
Wow. Yeah. No, that's that's pretty pretty amazing. And when you think about it, what surprised you most about the IRS once you were um working within that jurisdiction?
00:04:15
Speaker
It was pretty intimidating coming into the IRS. I did not have a real strong tax background. I'm not an accountant. I'm i'm a reporter by trade. So it was very interesting coming in. It was very much one of those fish out of water scenarios at first.
00:04:32
Speaker
But I had a lot of good people around me and were willing to help, which was very helpful. The thing that really surprised me most about coming into a place like the IRS was that as an outsider, I always assumed the agency was monolithic.
00:04:48
Speaker
And by that, I mean everybody was really kind of on the same page. But in reality, f the IRS, like in a lot of places in the private sector and government, There are a lot of different constituencies, and there were a lot of divided opinions inside the agency. So I was very surprised at some of the internal disagreements that went on.
00:05:10
Speaker
And the other thing that really carried over for me from my journalism career, as a reporter, I spent a lot of time trying to get government agencies to open up and talk. And I discovered inside the IRS, I still had the same battle.
00:05:24
Speaker
you know, convincing, you know, executives or parts of the agency that they really needed to be out talking in public about what they were doing. Wow. Yeah. I mean, the typical things we see in just general life, you know, go all the way through organizations, including the government, right?
00:05:39
Speaker
Now, was there a moment early on or or a time where you realize the government, the IRS is completely different world? and And what was that moment like? Was there like ah an aha moment for you?
Growth at the IRS
00:05:53
Speaker
I think the whole entry into the IRS was fascinating to me. And professionally, it was really invigorating because as a reporter, I just talked about what was in the news. But at the IRS, I was behind the scenes and really had a chance to help shape important issues.
00:06:13
Speaker
Policy decisions helped shape how programs were developed. And for me, it really became more of a 360 degree view in terms of professional skills. You weren't just really concerned about, you know, what the end product was. It was how do you get there? How do you make it successful? So for me, there were a lot of different gears there professionally that I'd never used before. and it was quite invigorating, really.
00:06:39
Speaker
Wow. And it's interesting because in many ways, tax is about translation and we're constantly taking something complex in the tax world and trying to make it understandable. And obviously, you know, from journalism, you're taking complexity and reporting on it and trying to boil it down to the reader, right? Yeah.
00:06:59
Speaker
Yeah, that's right. And that was really a cornerstone of my skills at the IRS was that translating concept of being able to translate what the chief counsel attorneys were saying, what the business units were trying to do with new tax law and things like that. The translation piece is really complicated.
00:07:18
Speaker
And for a place like the IRS that interacts with such a wide spectrum of audiences, that's really important to be able to translate it into a voice if you know somebody who is at a nonprofit group or somebody who is in the tax community. The IRS had to be able to speak to all those different voices and at the same time also get it down to a level where an average taxpayer who didn't know anything about tax could understand something complex. Well, yeah, exactly.
00:07:46
Speaker
Now, from your perspective, what are the biggest misconceptions about how the IRS actually operates from both the public and tax professionals? yeah it's It's a really easy agency to stereotype.
00:07:59
Speaker
There's a lot of misperceptions about it. yeah One of the things I constantly run into when I'm talking to people is that you know they assume the IRS enjoys the complexity They assume that the IRS just revels in making things difficult for folks. The reality of it is that complexity is just as hard on IRS employees as it is on the taxpaying public, especially the tax professional community.
00:08:27
Speaker
The phone assisters, if you call in they have got to move between five or six different computer screens to yeah to resolve issues. The internal programs don't talk to each other. And you know for rank and file employees, just dealing with those kind of internal you know red tape situations and the barriers can be really frustrating.
00:08:50
Speaker
And the other thing I think that that really gets stereotyped about the IRS or the people who work there It's an amazing, dedicated group of people that go in. i mean, it takes a certain personality to go to the IRS, but at the end of the day, you're not there to collect a paycheck. You want to be able to make a difference and help on things, whether it's helping taxpayers or even just helping make sure the nation's tax laws are followed.
IRS Leadership and Decision-Making
00:09:15
Speaker
No, I think that's, you hit some great points there. And I think there is a perception at times that, you know, the IRS is the big bad wolf and and in and they're just partying and having fun and high-fiving every time the complexity is there and and taxpayers are, you know, getting audited, right? And I think there's this there's this perception out there that in reality, that's not what's happening.
00:09:37
Speaker
um How centralized is decision-making at the IRS? Yeah. It's a little bit of both. The key thing to keep in mind with the IRS, if you want to use a football parallel, is the commissioner or right now the chief executive officer, they're really the quarterback.
00:09:55
Speaker
And they're the ones that draw up the plays. They define where the goal lines are for the agency. So in that sense, it is a very leader-driven culture in terms of what the specific priorities are.
00:10:08
Speaker
But at the same time, you have a big diffuse organization. There's 13 specific organizations and they have their own priorities. And you know there are decisions made at that level, particularly if you're dealing with things like exam, you know how to run operationally. So it's it's a mixture of the two, Mark, really. right But in terms of those priority areas, it's really the person that's in the command chair that makes the calls.
00:10:34
Speaker
And would you say, you know, like you described the commissioner, like the quarterback or maybe even the head coach, ah you know, when they're making those decisions, you know, how do they get the buy-in from everyone? Because obviously when you have an organization, when strong leadership and strong people that have maybe some strong leadership personalities, how does the commissioner really drive that quarterback role?
00:10:59
Speaker
It really... That's a great question, Mark. One of the things that commissioners and you know the CEOs tend to do is that they have what I call a kitchen cabinet.
00:11:10
Speaker
They have a group of executives or senior officials inside the agency that they lean on to get advice and to make sure the path the agency is taking is the right one. So that includes key people like the chief counsel of the agency, the taxpayer advocate,
00:11:27
Speaker
is usually involved with those. The heads of the big operating divisions, places like Taxpayer Services, SBSC, LBNI, TEGE, those are all in there. Criminal investigation can be involved. My old team, communications and liaison, is in there.
00:11:43
Speaker
So really, you kind of get a cross-section of the agency. And in a sense, you get a cross-section of the tax community. And for me, this is a really important point. When the agency is healthy and operating normally, they're also getting perspective from outside sources to help guide those
Structural and IT Challenges
00:12:03
Speaker
decisions. That means input from the tax professional community, input from Congress, and other important external voices.
00:12:10
Speaker
Got it. Now, that's... that's Very great, insightful information there, Terry. i appreciate that. um You know, a question that I think comes up quite a bit when I talk to people and practitioners out there is challenges the IRS experience or is currently experiencing.
00:12:25
Speaker
How much of those IRS challenges are structural versus resource-driven in general? There are a lot of structural challenges inside the IRS. The biggest one really is the ongoing IT t issues. This has been a bugaboo for the IRS really going back into the 60s and 70s.
00:12:46
Speaker
There was a time where the IRS was cutting edge on technology back in the early 60s when they set up the core master files set up. But the technology challenges have been just a huge hurdle for the agency. A lot of government agencies face that as well, but it's been an ongoing issue. It's a big, complex system, and they've been trying to get their hands around you know the IT t solutions on things for a long time.
00:13:13
Speaker
um There are also a lot of resource decisions that are in there. But part of it is just a it's a structural problem inside the agency. It's a complex tax law that Congress has handed the IRS.
00:13:25
Speaker
The systems aren't always able to keep up with it. And then you've got the human element involved there, too, where you've got to have people who understand You know, everything from IT t to tax law to, you know, how all these systems interact on things. So it's a very complicated mosaic that the agency has to deal with. Right.
00:13:43
Speaker
No, it's, i'm I'm sure, highly complicated and a lot of moving parts, right? What differentiates effective leadership within the IRS?
00:13:54
Speaker
If I had to boil it down, i would say it's engagement and collaboration. There are a lot of different leadership styles that I saw at my time at the IRS. The ones that I thought worked best were the leaders who came in and really listen to the employees. But at the same time, they were also listening to the tax professional community, yeah talking to Treasury, talking to Congress and things like that. But for me, it was that engagement and collaboration with all these very different groups that had you know an interest essentially in the success of the agency.
00:14:31
Speaker
Yeah, no, I think, I think, you know, yeah you know, when you have engagement and collaboration within any organization, you really find that it's just not about, you know, someone making a decision, slamming their hand on the table and saying, this is the way we're going to do it, but really getting the buy-in from various groups to say, hey, how do we move from point
Implementing New Tax Legislation
00:14:49
Speaker
A to point B? So I think that's, that's very encouraging.
00:14:53
Speaker
Now, let's talk about what happens, let's say, a new tax law has passed, like we just had this past year, right? um Because this is where it gets interesting. So kind of walk us through what actually happens inside the IRS from a legislation to implementation in a, you know, say, ah you know, an H.R. 1 tax law change or a TCGA, um you know, tu tell us what kind of happens behind the scenes.
00:15:16
Speaker
There is a process for that inside the IRS. As you know, Mark, there's been so many big pieces of tax legislation out over the last 20 years. I mean, really, it's a Campbell's soup um of alphabet acronyms that are out there. But the IRS has a good process for dealing with with this and basically what they do some of this starts even before legislation is being passed depending on the situation where people at irs and treasury are talking to the tax writers in senate finance and house ways and means to help in crafting a legislation that is you know administrable that means it
00:15:55
Speaker
can fit and work easily inside the IRS. That doesn't always happen because Congress has a lot of political demands they have to to do as well. They're not just looking at administrability for the IRS. But ideally, some of that work is going on before the bill is actually passed.
00:16:12
Speaker
But after passage, that bill comes into the IRS and there is a team that reviews the details of it And there is an an executive level group that decides which part of the agency is going to be responsible for implementing the bill.
00:16:27
Speaker
Does it go over to taxpayer services? Does a place like small business self-employed oversee it? So part of it is a division of labor. Another key piece on this is that when that bill comes in, you need chief counsel to write the legal guidance.
00:16:44
Speaker
That kind of sets the blueprint for how the law is going to be administered inside the IRS. So you need that guidance there. before the business units can really go in and assess how they are going to run the program.
00:16:59
Speaker
That's important because the business units have to set the programming parameters for the IT side of the house. So it's really a multi-step process. And you've got to go all the way through that, chief counsel writing the guidance, the business units deciding how to run it, IT t setting up the program parameters. And then at at the end of that process,
00:17:21
Speaker
And this actually can start in the middle sections. You've got to get the communications people involved to help write material. You have to figure out how to put it up on the website. You have to get people inside the agency up to speed in terms of how these work. So they can go out and they can talk to groups in the tax community and elsewhere about how the new law provisions prevail. So this is a really heavy lift when a big piece of legislation like TCJA,
00:17:48
Speaker
or the OBBBA legislation comes out. There's not a lot of time and, you know, people really have to hustle to make this stuff work. Absolutely. and And again, like, you know, going back to the point you made earlier, you know, engagement and collaboration and working with strong leadership are key to making sure that You know, coordinating between chief counsel, treasury, IT, taxpayer services, all the different channels, you know, um are kind of coming together on on a big, and you know, i'll lift like this.
00:18:20
Speaker
When it comes to the implementation, what kind of challenges typically arise that you see when, you know, in your history of working with legislation and stuff? There are several challenges that come up.
00:18:32
Speaker
Depending on how the legislation has been written, there can be a lot of ambiguity in the law. And you get into questions about, well, what did they intend? How can we do this in a way that works with IRS systems?
00:18:45
Speaker
That's a ongoing issue. The other challenge on this legislation really is just timing. And you've just got to keep this stuff moving. And last year's big tax bill, for instance, had immediate changes. So timing was critical. You know you can't have chief counsel spending six to eight months you know mowing you know the legal scenarios on this. You've got to get the guidance out. You need to make decisions.
00:19:14
Speaker
And you've got to set this whole operating machine up inside the IRS and get it running. So I do think during this you know most recent legislation, i think Treasury and IRS chief counsel, and this is largely Treasury, made some decisions where they really were going to be expansive and try removing as many hurdles to make that legislation as easy to implement as possible. And that's why I think you saw some very generous decisions for this tax season on things like the no overtime on tips.
00:19:47
Speaker
yeah And, you know, there's ah still a lot of gray area on a lot of these issues, but ah there was a decision made. Clearly they, you know they needed to get things moving. So they took a very expansive sweeping view in terms of implementing these for year one.
Congress and IRS Relationship
00:20:02
Speaker
Absolutely. Yeah. Now I've seen that more on a lot of these provisions where, hey, we're not going update the W-2s. We're not going update certain um processes. We're kind of give you a use your best foot forward, good faith effort. And and then we'll kind of come out in 2026 here with you know specific guidance that you can follow, which I think um I can say from the taxpayer, and the tax preparation community is probably easier to deal with when you're trying to roll something out and get used to it.
00:20:30
Speaker
Yeah. ah One thing I'd add there, Mark, you talked about the W-2. The other thing on implementing a bill is that it's not just internal to the IRS. There's a huge piece of implementation that many tax professionals may not you know realize or may not understand the implications. But for instance, if you've got a W-2 change, you've got to work with the payroll community on that.
00:20:52
Speaker
The IRS just can't, you know, pull up the curtain and say, ta-da, we added a new box on the W-2. You've got to work that with the payroll community. And similarly, A huge part of the tax system rides on the software industry.
00:21:06
Speaker
So you've got to get those rules out there for the software industry, you know, for those, you know, for all that commercial tax preparation material to be able to integrate these changes in. So that's another big piece of this that the IRS has to factor in. You know, they've got to get this stuff done in time. So those key partners have time to implement it.
00:21:28
Speaker
Yeah, no, I get that. Right. Now, bill gets, you know, finally passed, you know, let's say it goes to the House. We got a simple majority. It passes in the Senate. However, we're you whether we're using reconciliation or or true bill process and it gets signed by the president. How often does Congress underestimate the complexity of rolling something out um for the IRS to kind of handle, you know, in their view is hey, we got the bill done. Now we're passing the baton concept.
00:21:59
Speaker
Just to pick on Congress a little bit, I think almost every time that ends up being the case where there's underestimation of it, I do think Ultimately, you've got, you know some really skilled staff at Senate Finance and House Ways and Means who do understand it.
00:22:16
Speaker
But frequently there ends up being political decisions injected on it. But I also think, you know, one of the things about the IRS, you know, it's an easy agency to knock.
00:22:27
Speaker
But my argument is if you go back over the last 25 years and probably really even further than that, If Congress really has an important piece of legislation they want to get done, it's the IRS they end up turning to. And, you know, if you even go back into the 70s, things like the earned income tax credit, Congress sent that to the IRS s because there was faith in the agency to be able to administer and run it.
00:22:54
Speaker
That's why I think you saw programs like the employee retention credit during the pandemic come over. The IRS has a reputation of being able to deliver complex legislation.
00:23:06
Speaker
And I do think there is a bit of a mentality through the years where it's like, we just need to get the bill passed. The IRS will figure out how to implement it. So and it's it's a bit of a double-edged sword for the agency. I mean, you know it speaks to a record of success. I don't think the agency always gets...
00:23:25
Speaker
credit for. I mean, none of these pieces of legislation, you know, are are perfect, clean administration. There's always bumps along the road, as the tax community well knows. But I think, you know by and large, you just look at, you know all of the alphabet soup legislation that's come out over the last couple decades, the IRS has been pretty successful overall. So
Operational Challenges of H.R. 1
00:23:45
Speaker
I think that's kind of a backstop for Congress to kind of consider as they're looking at implementation, passage of legislation, that at the end of the day, the IRS is going to figure out a way to make it work.
00:23:56
Speaker
Yeah. and And we know that, you know, ah the president, um part of his campaign promises were, hey, we we didn't want to tax tips. They don't want to tax overtime. And then, you know, he gets elected and Congress aligns where now they have party control. And and so now we have the H.R. one, one big, beautiful bill act that gets signed July 4th last year.
00:24:20
Speaker
With that, you have the no tax on tips, no tax on overtime, which kind of sounds simple when you just say it like that, right? And to a lot of people, like simple, what's the big deal? But from an operational standpoint, as you know, it's anything but.
00:24:32
Speaker
So what does it actually take to turn something like that into reality from what you've seen based on past experience? It takes a lot of coordination between you know the IRS units, Treasury.
00:24:46
Speaker
and And I do think when when everything is lined up and things get in sync, you can really see quick implementations on things. For instance, the third economic impact payment stimulus that came out in, I believe it was early 2021,
00:25:02
Speaker
The IRS was able to you know kind of get that whole thing pre-wired. and We knew what the program was. We had been in conversations with Congress. And those you know payments ended up going out literally within days of passage of it.
00:25:16
Speaker
So when you've got that kind of synchronization lined up on something and there's no disagreement in terms about what the law is what the changes are, You know, the IRS can, you know really move quickly on things. But when you get into a situation like with H.R. 1, one big, beautiful bill, there's a lot of complications in there with overtime.
00:25:36
Speaker
And turning those specifics into something that, you know, is is actually actionable for the agency and for the tax communities more complicated. And I mean, you know, look at the whole situation involving the first half of overtime,
00:25:53
Speaker
At first, 50% isn't taxable, but you know when you get into double overtime, well, it's not all. And you've got a lot of confusion going on right now among taxpayers in terms of you know what is taxable and what isn't when it comes to overtime.
00:26:07
Speaker
And I know the tax professionals really are bearing the burden on that, and a lot of other education issues stem from this legislation. No, that's correct. Absolutely. um And, you know, you were part of, you know, ah you were at the agency when we had the pandemic and, you know, we had the whole, the whole world shut down. Right. And, and one of the, the CARES Act coming out, one of the components of that, that kind of was meant to help people was the employee retention credit, ERC credits.
00:26:35
Speaker
ah What made that challenging from the IRS standpoint? That is one of the most complex bills and maybe the most complex piece of legislation the IRS has ever dealt with.
Administering the Employee Retention Credit
00:26:48
Speaker
If you go back to 2020, Congress set up a number of different provisions, you given the crisis that was facing the country, the IRS ended up picking the employee retention credit up.
00:27:00
Speaker
And the early versions of the bill were more narrowly scaled. And at the same time, you had things like PPP going on and you know and other relief programs that you know ran into more issues and stumbles.
00:27:13
Speaker
People liked the early ERC results and Congress ended up expanding it. And yeah know even some of the people that were behind the drafting of that, you know some of the elected members later regretted that they expanded it too much.
00:27:26
Speaker
For the IRS, I mean, you know, the pandemic was a challenging period because we were all working remotely during that time. But, you know, it was amazing. And it it goes back to that earlier point. The IRS, you know will rally and deliver in times of crisis. It did that with ERC. It got the payments going out.
00:27:43
Speaker
But it was really in those subsequent, you know, months and years of the program where a lot of problems developed with it. You did have you know some unscrupulous promoters out there really you know pushing anybody to apply for it.
00:27:56
Speaker
And what really happened was a well-intentioned program just became a runaway train. And unfortunately, what's happened now is that you've got a lot of legitimate claims that are kind of stuck.
00:28:09
Speaker
ERC was a nightmare for the IRS, ultimately. it was a complicated program. It involved you know filings that didn't really have a lot of visibility inside the IRS in terms of some of the data required to qualify for it.
00:28:25
Speaker
And here we are six years after the pandemic and yeah ERC still has parts of the IRS tied in knots. The big concern right now about ERC, and this is something I haven't been able to get away from either inside the government or outside, but one of the big problems right now with ERC is that if you don't agree with the IRS decision on a denial of an ERC claim, you know only have a two-year window to go in and dispute it. But before you can dispute it, the IRS compliance folks have to take a look at it.
00:28:57
Speaker
Or if theyve they can look at it, you have to go to IRS appeals. Well, there's only a two-year window after that initial disallowance to get your refund. So what we've got going on right now is a bottleneck at the IRS caused by staff shortages, the government closure last fall.
00:29:15
Speaker
And a lot of other different factors, you know, the paperwork on ERC disputes is one of a number of things that's just kind of jammed up in the IRS system. So where we're at now, six years later, is we've still got a lot of yeah ERC cases at the IRS that hasn't been resolved. And for me, that's just pretty amazing that, you know, six years later, the after effects are still there.
00:29:40
Speaker
It was a really hard program for the IRS to administer. A lot of people worked really hard on it. And I think on the whole, they did a really good job of balancing the need to get money out with also the need to check for compliance issues. But this is just a program the agency's got to get wrapped up and move on.
00:29:57
Speaker
I would agree. I mean, it's, it is, i mean, if I think about it back in, you know, 2020, when that piece of legislation on the CARES Act, I mean, it got put together really fast, right? Yeah. Because there was a high sense of urgency to get something done. With that being said, I i know i still have clients, a few clients that are still waiting on refunds for specific periods.
Role of Tax Professionals
00:30:20
Speaker
um due to, you know, maybe there were notices and, you know, unfortunately there were a lot of bad actors that entered the yeah ERC world. And as we know, and unfortunately kind of made it a problem for processing, you know, claims um and also then kind of held up the train for, you know, legit taxpayers that honestly, you know, qualified for the money. So again, i know it's complex and as practitioners, we feel it at our level because clients call and they're like, well, Can't you just call the IRS and get this moving? And it's it's not that simple, as you know.
00:30:54
Speaker
Exactly. And this is part of the problem, i think, with the IRS right now is that they have a lot of responsibilities on them. And they can be really good at quickly delivering and implementing. But a lot of times it's those follow-up issues that cause problems for the agency. Being able to reach somebody on the phone if there's an issue with an ERC claim, a tax return, an identity theft issue,
00:31:21
Speaker
This is where, you know, the bureaucracy and just the overwhelming portfolio of the IRS come into play. And they you the agency just doesn't have enough people to handle all this stuff. Right.
00:31:33
Speaker
You know, at the end of the day. Yeah, no, i agree. One of the things that you said that really stood out to me is that the IRS cannot run their system without tax professionals.
00:31:45
Speaker
And, you know, how does the IRS view the tax practitioner community in general?
00:31:52
Speaker
That's another great question, Mark. I think there is recognition inside the IRS that they needed the help of tax professionals. One of my concerns, particularly over the last 10 years or so at the IRS, when the agency was not able to hire as many new people, I don't think there's enough of a tax professional insight in the agency. It could really benefit from having more tax professionals in there.
00:32:22
Speaker
The people who retired over the last decade really took a lot of institutional knowledge about the tax system with them. And I just found that the perspective of tax pros, whether you were an accounting or lawyer or just, you know just dealing with average taxpayers, that perspective I felt like was increasingly missing inside the agency.
00:32:48
Speaker
And one of the things with the Inflation Reduction Act funding, my area was able to do was to go out and hire a lot of people with accounting and tax backgrounds to come in and work in the stakeholder liaison organization. Those are the folks who go out and work at the state level and the local level with CPAs and other tax professionals.
00:33:11
Speaker
And for me, that was a really important piece that I felt like we were missing was people who had real world experience dealing with issues that matter to tax pros as well as taxpayers.
00:33:24
Speaker
But that perspective Missing that perspective inside the agency, I think, hurts it when it comes to implementing rules in a way that can reduce headaches for tax pros.
00:33:37
Speaker
And this is where the leadership of the IRS really comes into play, where if you've got a leader that says, we're going to go out and we're going to have a two-way dialogue with the community up front, that's really important.
00:33:52
Speaker
And I think through the years, the agency could have done a better job of bringing tax professionals in and getting their opinions before operational decisions were made.
00:34:04
Speaker
When they did bring those people in, there was a project called the Security Summit. that worked jointly between tax pros, the software community, and state tax administrators, where basically all of these people joined together to join forces to battle identity theft back in the period around 2014, 2015, 2016, when it was threatening to overwhelm the tax system.
00:34:29
Speaker
And for me, that's a great example when you bring people to the table, you can come up with common solutions and address a common threat like identity theft that was just really threatening to overwhelm everybody, the states, the IRS and the tax community.
00:34:45
Speaker
When you do that, I just think there's a record of track success. And where you get more complications is when a program is designed and you don't have input from the tax community that comes out and there's all these shortcomings. And then the IRS is playing catch up on things. So for me,
00:35:02
Speaker
That's a key thing for any leader of the IRS to be doing is making sure he and his senior team or her senior team is out talking to the tax community and understanding some of the real world problems that face them and getting the IRS to address those up front.
Future Challenges for the IRS
00:35:18
Speaker
Yeah. And I think, you know, the tax professionals are not just part of the process. They're an extension of the IRS system itself, right? Because in in essence, we have to practice within the guidelines and the rules that have been set forth. And the IRS is kind of like, you know, administrating all that. So the more we can work together, I think the better the system will get to help the average taxpayer out there.
00:35:41
Speaker
Yeah, it really is a symbiotic relationship because let's face it, the IRS can't run the tax system without the work of tax professionals, work of the tax software community. Those two are like key spokes.
00:35:55
Speaker
The agency and the nation's tax revenue collection system doesn't work without those. you know The payroll system, you know the payroll community is another vital component that frequently gets overlooked. But you've got to have those The IRS and the tax system doesn't work unless those other pieces of it are healthy and operating well.
00:36:17
Speaker
Yeah, I agree. Let's talk about what's happening now. There's a lot of discussion or i know within the professional community around, you know, IRS staffing changes, buyouts, potential loss of institutional knowledge, like you mentioned.
00:36:31
Speaker
Of all those things, and I'm sure there's many others, what concerns you most?
00:36:37
Speaker
The loss of institutional knowledge is a really big one for the agency. The last year has been devastating inside the IRS for both senior executives as well as frontline employees.
00:36:52
Speaker
The morale continues to be pretty low. They've lost a lot of people. People are scrambling on things. um You know, there's big piece of tax law that came out. You know, the employees of the agency are under a lot of pressure.
00:37:07
Speaker
i think it's a testament to them that the filing season has gone as well as it has this year. But I just ultimately, i think the biggest concern is the employees of the IRS and where are we going to be at in a year from now, two years from now, five years from now,
00:37:29
Speaker
You've lost really, i think, a generation of talent. The people that got let go in 2025 were a lot of new hires that had a lot of potential for the agency.
00:37:42
Speaker
And I think this is going to be something it's going to manifest itself through the tax system for years, that staff loss that that was seen last year. So that's that's one of my biggest concerns. um I continue to be concerned that There could be more you know layoffs coming for the IRS after this tax season.
00:38:03
Speaker
And you know ultimately, i think it's somebody something everybody really ought to be concerned about because the nation doesn't run without revenue collection. And the IRS is certainly not without its flaws. The IRS certainly could be more efficient.
00:38:20
Speaker
If you want to talk about efficiency inside government, talk to somebody that works inside government. Everybody will agree the government can be more efficient. But the IRS has really become kind of a whipping dog in terms of, you know, the poster child for government.
00:38:35
Speaker
governments that's too big or too complex. The reality of it is, is that the complexity is there not because of the IRS, but because the law is passed by Congress. Yeah, the IRS could make things simpler, but ultimately it you know, it falls back on Congress to simplify things.
00:38:50
Speaker
At the end of the day, though, I mean, this ends up taking a big toll on employees and losing staff and cutting the agency's budget is going to create more and more problems down the road. And, you know, the tax professionals, unfortunately, are going to have to bear the burden of it in terms of trying to get paperwork through the system, trying to get through on the phones.
IRS Processing Backlogs and Impacts
00:39:12
Speaker
the The tax pros really carry a heavy burden in this scenario. Yeah. And I know, you know, hearing all that, I know. So a tax practitioner might be listening going, hey, that's all fine and dandy, but, you know, I'm doing my job, you know, unless something comes up, I don't have to deal with the IRS. But they really should keep their eye on what's actually happening there. And, you know, what are some of those things the next, you know, 12 to 24 months that a practitioner should be concerned about from the IRS perspective?
00:39:41
Speaker
Practitioners really should be keeping an eye on the general backlog at the IRS. I think that's a really big concern right now. If you take a look at identity theft cases, the last time I looked, the backlog and to resolve those was roughly about two years. And I know Taxpayer Advocate Service and National Taxpayer Advocate Aaron Collins have been raising this concern as well.
00:40:09
Speaker
not being able to resolve of identity victims case for two years is unacceptable in my book but i think you're going to see this same issue involving you know any anybody that has an irs problem whether they're trying to resolve a collection notice whether they are trying to file an amended return there's just a lot of complexity and when this paper goes in This is where it takes time to resolve issues. And this is going to be a downstream effect of the staff cuts and the budget cuts the agency has had. It's going to take a long time to resolve them.
00:40:46
Speaker
If you file your 1040 and you don't have any issues, great. You know, the refunds have been going out this tax season. But if you have an issue, if you've got a problem with that return, if you've got to go in and amend it,
00:40:58
Speaker
That's going to take time. And supposedly they're they're talking about streamlining the amended return process inside the IRS. I mean, that'd be great. I mean, it'd be amazing. Because right now, I mean, it takes an IRS employee about 45 minutes to work an individual amended return. And if you quantify that out across you know the whole spectrum of what the agency gets, that's a tremendous amount of time. So for me, it's it's the paper backlog and resolving issues is where the real problem is going to be.
00:41:28
Speaker
Yeah, and i think I think, you know, you mentioned amended returns. I mean, a lot of us, when we file an amended return for a client, we e-file the amended return. But what I think a lot of people don't realize is that when we think e-file, we think, okay, it's electronically delivered to the IRS s and that, you know, everybody then sees everything electronically. And when it comes to amended returns, that is not really how it works. And so this is this is things that we need to be aware of. and and im And I'm glad you're bringing these things up because- Movement of paper processing, not having enough people, resources is is going to put a ah lot more strain because guess what? It's the American taxpayer that who they picking up the phone and calling? Not the IRS. Typically, they're calling the the the tax preparer community, the CPAs, the enrolled agents, people that are actually preparing the returns and saying, you need to help me get this resolved.
00:42:21
Speaker
and And it's up to us then to get in hold of the IRS properly. So there's a lot there, right? Yeah, and that, for me, unfairly puts a lot of burden on on practitioners out there because they're the ones that are dealing with the taxpayers.
00:42:38
Speaker
And, you know, the taxpayer, well, why don't you just call the IRS s up and resolve this? Or if there's an IRS, you know, why why can't the practitioner resolve that? And the practitioner has to take time and explain. It's like, well, they've cut the IRS budget.
00:42:54
Speaker
Or, you know, I've been trying, but I can't get through. I can't get somebody to return my calls. I spent two hours on hold last week. I mean, that's it. It's a really difficult position on things.
00:43:06
Speaker
And it just underscores to me that, you know, you don't want to have issues with the IRS. And even if material is coming in electronic, there's still a human that has to, like, deal with it.
00:43:17
Speaker
You've got multiple systems to sort through. and you know, you still have these chronic problems where, you know, you get something fixed and, you know, one system isn't talking to the other and the notices are still coming out and the taxpayers upset.
00:43:33
Speaker
And for me, this is where, yeah you know, my heart just goes out to tax pros, you know, especially this time of the year or, you know, later in the year when, you know, notices start going out. It's just they have to really explain a lot of stuff to taxpayers that really isn't, you know, it's not the fault of the tax practitioner.
00:43:53
Speaker
Correct. Now, kind of a little bit of a slight turn. I've i' read a lot of your stuff over the years and you did write on the 1985 tax season from hell and which I find very fascinating. um And for those that aren't familiar, can you kind of tell our listeners what happened and why it was the tax season from hell?
00:44:14
Speaker
Sure, sure. So the IRS, generally speaking, has had successful tax seasons. It's almost like a given. And I think it's something that people take for granted, you know, just out in the country that, you know, the refund checks are going to flow.
00:44:33
Speaker
But it shouldn't just be a given. and last April, i had been talking with former Commissioner Gibbs who you know worked back you know in the 80s on a number of things.
00:44:45
Speaker
And Commissioner Gibbs had to do cleanup work the last time there was a wide scale massive failure inside the IRS on a tax season. And that was 1985. I mean, look, every every tax season has bumps and issues. you know But by and large, the IRS has delivered successful tax seasons throughout that timeframe.
00:45:08
Speaker
But I thought, especially last spring, it was helpful to go back and take a look at 1985, where you had this confluence of a number of different events, new technology coming in new tax law, limited staff who didn't have time to train on new systems.
00:45:26
Speaker
And what ended up happening was the tax season from hell. And that was one where many people did not get refunds for six months. Many people had to refile their tax returns because paper returns got lost. to The IRS processing centers were overwhelmed with paper.
00:45:45
Speaker
It just ran out of room to store the tax returns to be processed. For me, 1985 cautionary tale. That whether you're in Congress or, you know, you're in the White House, you shouldn't take the IRS for granted on things.
00:46:02
Speaker
That when the system does fail, it has real world impacts. Those refund checks are the biggest checks many taxpayers get all year. So for me, last spring, when Doge was coming in, making the cuts,
00:46:16
Speaker
And I just thought it was a cautionary tale from history that people shouldn't forget. Now, did these issues come to pass? You know, have we had a tax season from hell this year? You know, I i think it depends on who you talk to. By and large, they've done a good job of getting checks out.
00:46:36
Speaker
I do think if you talk to some tax professionals, it's been a really bumpy tax season. They've had to do a lot of education and a lot of handholding for taxpayers. But, you know it has not been a disaster like 1985. But the lessons from 1985 shouldn't be forgotten.
00:46:52
Speaker
People shouldn't take the IRS for granted. If they're thinking about cutting the budget, they should think about the implications of it. It's the one agency that ultimately touches every American.
00:47:03
Speaker
Correct. No. And I think, you know, with all everything that has been going on and obviously, you know, some tax practitioners may always say every tax season is a tax season from hell. But with that being said, there's a lot of parallels going back to 85 going to today and what's actually happening.
00:47:19
Speaker
And what would a modern disruption look like today? um i mean, right. You know, people couldn't get their refunds timely and and or, you know, notices and they can't get them resolved. And it just creates this timing of anxiety, I guess, that spreads over the taxpayer community.
00:47:38
Speaker
Yeah, there's a lot of different implications when things start going wrong. You know, we certainly had glimpses of when specific programs get sideways. i mean, if you go back, I don't know, 15 years, there was a first time homebuyers credit.
00:47:52
Speaker
for some areas. and that one, there was a programming issue. And what ended up happening was it got tax returns hung up. And it's kind of a snowball effect on the system when when you've got a major problem inside the processing system.
Terry's New Role and Reflections
00:48:09
Speaker
It basically, you know, people start calling in, the phone lines get locked up, and, you know, the phone lines are locked up, you know, legitimate taxpayers with other issues can't get through. So it really is kind of a snowball effect.
00:48:24
Speaker
And it's a very thin line between having a successful tax season and things getting haywire. But, you know, for instance, the phone lines, you know, that is, you know, indicator of a healthy tax season. You know, are people able to get through on the phones?
00:48:39
Speaker
And the IRS has certainly put a lot of emphasis on the main 1040 lines the last couple of years. But you know practitioner priority service, that service could be better. you know The other thing, you know the other downstream effect is, again, you know going back to this paper issue, you know what's the correspondence look like? Are people having to write in?
00:48:58
Speaker
um you know it it really is, if you get problems inside the system, it very quickly snowballs. And this is where if you know you're contemplating cutting the budget, if you're up in Congress, you need to think about that because if a refunds don't go out, they're not just calling the IRS. They're not just calling a tax professional. They're also calling a member of Congress. So, you know, it's something, you know, it's really important to keep in mind that people shouldn't just assume the system is going to work just because it always has. That's correct.
00:49:30
Speaker
Now, this past year, um speaking, you joined Frost Law. a firm that brings together, you know, tax attorneys, CPAs, financial professionals, and litigators. Which attracted you about the opportunity and tell us about your new role and position there.
00:49:46
Speaker
So I had ah a planned retirement from the IRS a year ago in February. i hit a magic date. And, you know, when when you've been at the IRS for 25 years, you know, you you kind of need a break from the pressure cooker, essentially. so you know, I retired from government in February.
00:50:05
Speaker
i had a lot of side projects I was interested in doing. It was not a full retirement, certainly. um yeah i actually wrote a book last summer on baseball that'll be coming out this summer. I had a lot of you know speaking appearances and things like that. I wasn't actively looking for a job, but I had been, you know i told some folks I was open to doing something part time.
00:50:26
Speaker
And one of the um several of the people that I kept running into out of tax conferences and things were people who work at Frost Law. This is an operation that is based in Metro, D.C.
00:50:40
Speaker
And they have a lot of intersection with what my experience is with the IRS and tax issues, legal issues. And i you know, they approached me and it it felt like a really good fit.
00:50:53
Speaker
um It felt like a good intersection for me in terms of my experiences in IRS, my experience as a communicator. But I also really like the people there and they've got a lot of things going on there. um They're very interested in engaging with the tax professional community.
00:51:09
Speaker
um For, you know, for tax pros that have clients that are having, know, legal challenges on things, they're very familiar with IRS issues, and you know, and how to you take the litigation angle on things, but it's it's really been, it was an unexpected turn for me, but it's been a ah ah real good fit. And the thing that I really enjoy about it is it's going to allow me to keep staying engaged with the tax community.
00:51:33
Speaker
and I think it's just it's it's a huge area that, you know, people you know outside of the tax community need to pay attention to.
Advice for Tax Professionals
00:51:40
Speaker
And yet it it just it felt like a really good fit, given my background and an exciting way to stay active on a lot of issues I feel passionately about.
00:51:47
Speaker
No, that's great. So how would you think your IRS experience, 25 years, has enhanced what, you know, you can do now for frost Law? Yeah, I think that inside perspective really helps out quite a bit. There's a language that's spoken inside the IRS. And, you know, if you're out, if you're outside of government, trying to figure out what is going on inside government is like, it's like a whole different language. So my perspective inside the agency
00:52:18
Speaker
I think is helpful in terms of really just being able to translate, give them some insights in terms of what's going on. And the other thing that I'm i'm you know continuing to use is my translation skills. There's a lot of bright attorneys at Frost Law and you know the firm is growing and you know it's it's been a nice opportunity for me to bring some of my writing and communication skills to you know basically help make some really complicated issues more understandable for folks. There's been several important court rulings recently that have implications for a lot of taxpayers that people may not understand. One ruling, the Quang ruling,
00:52:59
Speaker
postpone federal deadlines basically inside the pandemic. And it's got a lot of implications for somebody who paid penalties and interest during the pandemic. And, you know, for businesses and some high net worth individuals, there's a huge amount of money they may have paid and, you people just don't realize it. So it's it's been interesting to bring my communication skills to bear on things like that. And, you know, even as, you know, far afield as things like tariff issues. So it's it's it's been a really interesting situation.
00:53:28
Speaker
Yeah, no, it feels like a logical evolution, you know, you spend all those years inside the pressure cooker and you have all that knowledge. And now you take it to a different experience level that I think continues to enhance, you know, the knowledge base that you have developed and led throughout all those years. So I love that. I think this is a great opportunity for you.
00:53:49
Speaker
Yeah. and it it really does give me an opportunity to continue a lot of the work I had at the IRS. I still see myself as an advocate for IRS employees. I really see myself as an advocate advocate for the tax professional community. And this is just a nice alignment of those things that, you know, is is coming to bear with my work at Frost. Yes. Thank you.
00:54:11
Speaker
And one of the things that I think, um you know, when I talk to, you know, firms around the country, tax professionals, even even professionals around the world, um you know, what your experience has been and and the knowledge you have is you had a front row seat seeing, you know, one of the biggest agencies operate through good and bad and everything in between, which I think is phenomenal. So if you were sitting down with a partner in a CPA firm you or a tax preparer or somebody that's just out there kind of doing their thing in the tax community, what would you tell them to start focusing on that maybe they've had a blind eye to in their and their career to start focusing on now?
00:54:56
Speaker
That's a great question. There is a whole array of issues that I think they should be aware of. Number one, i a lot of this goes back to client relationships from my standpoint.
00:55:10
Speaker
I think for a tax professional, you know given the landscape of what we're seeing taking place at the IRS, there's gonna continue to be you know a lot of guidance coming out on HR1.
00:55:22
Speaker
I think the key thing for me, for a tax professional, is making sure you really keep close relations with those clients. And that is gonna help explain all of the unusual things going to the IRS And I also think right now there is a real question hanging out there for the tax community, you know, as well as the IRS is this whole question of AI.
00:55:48
Speaker
And what is that going to mean for tax pros? What is it going to mean for work at the IRS? And I think a lot of this just goes back to the basics. If you're a tax professional, you need to stay in touch with that client to help them understand what's going on with the IRS, to help them understand why you don't want to rely on AI to do your tax return.
00:56:09
Speaker
And I think that's one of the biggest lessons that I picked up at the IRS, you know, watching, you know leadership at work. You've got to stay in in close contact with your audience.
00:56:22
Speaker
And right now, I think for tax pros, that's the most important thing is staying in touch with your clients and being reassuring to them that you're on top of tax law changes. You're going to be looking out for their best interests and especially whatever curve balls come from the IRS.
00:56:37
Speaker
No, that's so good. And um i think I think there's a lot to be, you know, these are conversations I know I'm constantly having with people and, um you know, right no right or wrong answer to them. But I think, you know, as we continue to see where the profession is headed, where the IRS is headed, are we all moving in the same direction? And and what can we do to kind of merge together to make sure that, you know,
00:57:01
Speaker
Compliance is done and issues are resolved in an efficient way. Right. And finding the right processes and procedures to do so are are common in that arena.
00:57:11
Speaker
Now, Terry, as we wrap up, um you know, and you got all this incredible amount, wealth of his knowledge and experience and, you know, getting to know you, you you you are like an encyclopedia when it comes to how do the IRS works, how practice works. But really, you take a very, you know, positive um approach to things to say, hey, you know what? Yes, things can be tough at times, but, you know, we just got to keep looking. How do we fix it? How do we move forward? How do we make, provide solutions to things?
00:57:42
Speaker
You know, if someone's listening to this and everyone always has their own view on the IRS and, like I said earlier, the big bad wolf or whatever they want to call it, um what what would be some final closing thoughts you would say to kind of say, hey, tax preparer out there, you know, the IRS, they're there to kind of work and help you. They're not there to make your life miserable, as you may think that's the case.
00:58:05
Speaker
One of the key things I think people should realize is that people inside the IRS realize the agency needs to be doing better. And even during the dramatic developments over the last year,
00:58:18
Speaker
I think tax professionals should keep in mind that the people inside the IRS do want to help generally. And i think they should just keep in mind, you know, when they're calling into the agency, when they're talking to somebody, the the employees are under a lot of stress as well. And, you know, they could be having a bad day.
00:58:39
Speaker
So that's something to just keep in mind, know, the human side of the IRS. But the other thing that I think tax professionals should understand, and it's something the agency has not said enough, is that people inside the IRS deeply respect the work of the tax professional community.
00:59:01
Speaker
he You are making a difference for the nation just as much as if you were a government employee. you know You're helping support the nation and that's a really important thing and for me i never felt like the irs said thank you enough to the tax professionals as well as taxpayers but that that sentiment is very much inside the agency and the next time you call in and you're having a really rough call with somebody who may be new who may be under a little pressure just kind of keep in mind
00:59:33
Speaker
You know, there's a human on the other side of the phone and, you know, at the end of the day, it may it may be a tough call, but the people inside the agency are wanting to help and they are wanting to make a difference.
Conclusion and Key Insights
00:59:46
Speaker
Oh, that's great. So, Terry, thank you so much. This has been an an outstanding conversation. Really appreciate you taking the time and sharing your perspective. Thank you so much.
00:59:57
Speaker
Thanks, Mark. I appreciate you having me on and certainly appreciate all the perspective you give out there to the tax community as well. Yeah, thank you. And I would just say, i think one of the biggest takeaways from today is the IRS isn't just an agency, right? It's a system. And that system depends on leadership, collaboration, coordination, institutional knowledge, and that strong partnership with the tax professional community.
01:00:21
Speaker
And as we look ahead with staffing changes, evolving legislation, and even the increasing complexity that comes with it, the role of the tax advisor becomes even more critical in this process.
01:00:32
Speaker
So for those listening, this is the moment to stay proactive, stay informed, and continue evaluating the value you bring to your clients. Because what's happening inside the IRS isn't theoretical. It's going to show up in your practice and you're going to have to deal with it.
01:00:45
Speaker
Thanks for joining us on Tax News Now. We found this episode valuable. Be sure to subscribe and share with your colleagues and we'll see you next time. Thanks for joining us.