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Forbes
22-04-2025
- Business
- Forbes
Behind The Story: Investigating The Faults In The IRS's FOIA System
In this episode of Tax Notes Talk, Tax Notes chief correspondent Amanda Athanasiou discusses her recent investigation into the IRS's handling of Freedom of Information Act requests and trends from two decades of agency data. Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity. David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: The waiting is the hardest part. The Freedom of Information Act grants individuals the right to request access to federal records, a transparency tool that has long been used by reporters and lawyers. But what happens when response times get longer and the appeals function works more like a rubber stamp on the initial responses? A recent Tax Notes investigation explored flaws practitioners have identified in the IRS's FOIA disclosure and appeals systems, which have led to taxpayer frustration and a growing backlog. Here to talk more about what was uncovered is Tax Notes chief correspondent Amanda Athanasiou. Amanda, welcome back to the podcast. Amanda Athanasiou: Thanks for having me, Dave. David D. Stewart: So why don't we start off with a background on what FOIA requests are and how they usually function, specifically at the IRS? Amanda Athanasiou: Sure. So as you said, the Freedom of Information Act is a federal law that enables individuals to obtain records from government agencies as long as those records don't fall into specific exemptions for things like individual privacy, national security, proprietary interest, things like that. In the tax context, taxpayers who are, say, engaged in disputes with the IRS will often use FOIA to gain access to what's in their file or records on their own investigations by the IRS or the DOJ. But it's also used often by journalists and members of the public to uncover agency records on a whole variety of things. In the IRS context, that can include requests that are targeting information on rulings or the agency's positions on certain matters. It could be training materials, historical data. The sky is really the limit, as long as the requester is asking for records that do actually exist and that are not exempt from disclosure. Reporters at Tax Notes have used FOIA to inform some of our investigations into litigation that we're following or to gather information for topics that we're looking into for stories. We generally do receive requests for extensions after we've filed those FOIAs, so we can relate to some of what our sources said and what the data shows about response times. David D. Stewart: So how did you uncover the information you've reported about in this series, and what did you find in your investigation? Amanda Athanasiou: So I got a tip from one of our sources for this story that initial FOIA disclosures from the IRS are upheld on appeal at a rate that is kind of surprisingly high historically. So to back up, when a taxpayer receives a response to their initial FOIA request that doesn't seem quite right — maybe they feel that the agency is claiming they don't have records that they should, or maybe they're improperly withholding them by citing various exemptions that don't seem to fit — taxpayers can generally appeal that response through what's called an administrative appeal. But this high sustension rate means that the appeals function is affirming the vast majority of responses at the disclosure level. So taxpayers are now really unlikely to get anywhere by filing that appeal, which basically leaves them with the options of litigating, filing more requests and trying to get at the information other ways, or basically giving up. Lauren Loricchio, our investigations editor, and I did some digging into 20 years of FOIA data that the IRS and other federal agencies are required to keep. And we found that, yes, this tip was accurate. An average of 93 percent of those initial FOIA responses that were appealed since 2008 were fully affirmed higher up. That's a much higher rate than other agencies. And basically what it means is that either the IRS disclosure office is giving perfect answers over 90 percent of the time — in some years, the rate was 98 percent or even 100 [percent] — or the administrative appeals process has turned into a rubber stamp, which is what several practitioners told us that they have experienced. We also found some other interesting trends while we were working through all of this data, namely that FOIA requests coming into the IRS have consistently fallen over the last 15 to 20 years. But the time it's taking the IRS to respond to those requests has gotten longer. David D. Stewart: So what did you find in the data, and did you see any reasons behind the trends? Amanda Athanasiou: Well, we found that on average FOIA response times for the IRS have doubled since 2008, from 24 days to about 48 days. Before 2024, they were actually on track to triple, but they came down quite a bit last year, giving us that 48-day average. So this trend is a little concerning on its own, but when it's considered in light of this two decade decline in the number of FOIA requests coming into the IRS, it's even more surprising. The data basically raises two questions: One, why are FOIA requests falling so consistently? And two, why hasn't that led to a quicker response time, or at least not a worse one? We did find some conclusions on the first question. The reasons offered by practitioners and the IRS itself for the drop in FOIA requests are generally that alternative ways of obtaining the needed records have been rolled out over the years. So the IRS pointed out that there are increased online and digital offerings. There's a FOIA library. There are upgraded routine access procedures. After passage of the Taxpayer First Act, there's a requirement to release administrative files for cases going to appeals that are under a certain dollar threshold. There's also a direct release mechanism, and all of this should theoretically help reduce the FOIA burden. It was also pointed out that with less enforcement activity, fewer audits over the years, there will be fewer taxpayers pursuing FOIAs within their own dealings with the IRS. Practitioners did counter that some of these fixes are not always successful or enforceable. So some feel that they're not necessarily a good substitute for FOIA. And it's also not clear that these mechanisms explain all of the declines in FOIAs, which has been quite dramatic if you include Privacy Act and FOIA requests dating back to the early 2000s. But generally, these theories seem to make sense. David D. Stewart: Is there any sense of why response times are going up and what sort of effect is that having? Amanda Athanasiou: Well, on the response time side of things, the explanation isn't totally clear. But there are certainly theories that constraints with staffing and funding, training, and an increase in complexity of cases, the involvement of more subject matter experts, that kind of thing — are probably all contributors to the increased response time. More than one practitioner commented that their experience with any given FOIA request really depends on who at the IRS is handling it. So some personnel are more responsive than others, better informed, that kind of thing. The issues that this presents is that attorneys are saying that they're not getting files they need to represent their clients in time to prepare for, say, hearings or other deadlines. So it is having real world consequences. David D. Stewart: Now, all this data sort of dates back. Everything is looking back. But we now have a new administration in town. What are we expecting to see happen with the FOIA backlog? Amanda Athanasiou: That's a great question. So as of 2024, staffing levels in the IRS FOIA office were about the same as they were in 2008. But as you'd expect, there are concerns going forward about funding cuts and staffing issues and freezes during the Trump administration having the effect of exacerbating an already somewhat worsening backlog. Another logical extension of reduced funding, though, is that enforcement could decrease, which as we talked about, that could itself lead to a decline in FOIA requests as fewer taxpayers are being audited, say. So that's a factor that could actually neutralize the effect on the backlog. It was pointed out in one of the stories in the series that was an increase in FOIA requests during Trump's first term. At the IRS, the requests still gradually declined a bit during that timeframe, but both of those points are probably worth considering if we're trying to read the tea leaves on FOIA. Between the already increasing wait times and reduced agency resources, one trend to watch out for is increased FOIA litigation. We already see a lot of examples of taxpayers going straight to court when they don't get a timely response to their FOIA requests. So these are cases in which there is no response from disclosure in the first place by the required statutory deadlines to administratively appeal. Reduced resources tend to increase wait times, so the current environment seems to be one in which we're likely to see that possibility of litigation increase. David D. Stewart: So what's likely to happen in an environment where there are fewer resources for handling these FOIA requests and these are going to litigation? How's that going to play out in court? Amanda Athanasiou: So the concern is, how sympathetic are the courts going to be to arguments that an agency doesn't have the personnel or the person power to get through the FOIA backlog? And there's some evidence that the answer is not very sympathetic. We actually saw a Florida district court handle that kind of argument from the Department of Justice's tax division recently. The tax division was accused of improperly holding documents that had been FOIA'd, and it argued it had only one attorney on FOIA requests. It was under court order to respond to unrelated requests. It had asked for various extensions throughout the process of this request, and it was going on three years to complete the requested issue. And the court said, "No dice." The agency isn't getting out of FOIA compliance based on what the court itself described as staffing challenges that amounted to a self-inflicted handicap. So the upshot is that agencies are statutorily required to comply with FOIA, and courts will likely uphold those requirements even in the face of staffing and funding objections. But as we've seen, the real world effects means that those FOIA response timelines and the lawsuits that result could creep upwards anyways, which could be costly to taxpayers. David D. Stewart: Well, Amanda, thank you so much for being here. This series has been fantastic, and we'll have a link in the show notes so that our listeners can take a look at it for themselves. And I think that there's probably going to be a lot of issues that we need to track and see the trends in the years ahead. Amanda Athanasiou: Certainly. I look forward to seeing what happens. And thank you again for having me.
Forbes
08-04-2025
- Politics
- Forbes
Tax Or Theft? Examining The History Of The Property Tax
Property tax sign on a house model. In this episode of Tax Notes Talk, Professor Andrew Kahrl, author of The Black Tax: 150 Years of Theft, Exploitation, and Dispossession in America, discusses his argument that local property taxes have contributed to the disenfranchisement of Black homeowners. Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity. David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: disparate tax impacts. Roughly three-fourths of local government funding comes from the property tax, but its revenue-raising potential may have a negative side. Recent scholarship suggests that it has disproportionately affected Black homeowners. In his book, The Black Tax: 150 Years of Theft, Exploitation and Dispossession in America, Andrew Kahrl examines the history of the property tax and its role in perpetuating wealth inequality. This week's episode is part of a series we've been doing on how tax rules affect marginalized groups. We'll include links in the show notes to our previous episodes on the intersection of tax and racial inequality, as well as last week's episode on tax and disability. But now joining me to talk more about this is Tax Notes historian, Joe Thorndike. Joe, welcome back to the podcast. Joseph J. Thorndike: Well, thank you very much for having me. David D. Stewart: Now, I understand you recently spoke with Andrew Kahrl. Could you tell us a bit about him? Joseph J. Thorndike: Sure. Andrew is a professor of history in African American studies at the University of Virginia. He's written several books and many articles. And his expertise, besides being about tax, it extends to the history of race and inequality and housing and real estate, as well, believe it or not, as the social and environmental history of beaches and outdoor recreation. David D. Stewart: And what all did you discuss? Joseph J. Thorndike: All right, so we talked about an old tax, the local property tax, specifically how it was created and used in the years after the Civil War, and how it's sustained inequalities and racial hierarchies in America in the last 150 years, especially in the way that it's been enforced. David D. Stewart: All right, let's go to that interview. Joseph J. Thorndike: Welcome to the podcast. So Andrew, as I read it, your book takes a hard and maybe uncomfortable, even, look at the property tax in America. Uncomfortable at least for the people who rely on it to pay most of the bills of local government. But I want to start, before I put any questions to you about that, by saying I love this book. Most of the historiography around U.S. taxation, whether it's federal, state or local, it takes a top down approach. With scholars, typically they focus on policy formulation. They look at the people who make the taxes, the lawmakers, the experts, the tax administrators. And that's in fact what most of my work has been about, too. But not many scholars have really tried to look at the tax from the bottom up. Plus your book is deeply rooted in a broader social and cultural context that I think we're going to talk about here and the realities of American society. In fact, this isn't exactly a comprehensive history of the property tax in America. There have been other books that tried to do that, including one that's famously called The Worst Tax, which I thought was also a great name. But you've given us something else. Can you give us a glimpse of that? Andrew Kahrl: Yeah, well, thank you for having me on and thank you for that really generous introduction. I think you really captured a lot of what I was trying to do with this book, which was to offer a human-centered history of taxes in society — one that really asked the question: What does the history of taxation look like when it's seen through the lens of African Americans and their experiences as taxpayers, as recipients of tax dollars? And I'll also say that I did not come into this as a tax scholar or a historian. My background was in the history of housing and real estate, looking at urban inequality and race and class within U.S. cities. And particularly the kind of intersections between issues like housing and real estate and education, the sources of funding for public education or other public goods and services. In that sense, all roads led back to property taxes, which are the lifeblood of local governments in America and the source of the bulk of public dollars toward public education among others. And they're derived from housing markets, based on those markets, which has been a subject that has gotten a lot of attention from historians who look at the history of race and inequality in America. There's been a profusion of scholarship on the history of redlining, the history of housing segregation, and federal policies that were shaping and influencing that, as well as the growth of the private real estate industry in the 20th century. For Sale Real Estate Sign in Front of New House. And I've been immersed in that scholarship for years. I teach classes on it. I wrote books about real estate and coastal development. But I was really struck at a certain point by how little discussion there was or how little taxes were ever at the center of that analysis. They would maybe be mentioned in passing or maybe just in a brief gesture toward it but never actually put under the microscope. And that was something that I really wanted to do with this book. Joseph J. Thorndike: All right, I want to tee you up to give us your elevator pitch here on the book, right? But I'm going to frame it in this gimmicky way, which is that we all know that old saw about taxes — that an old tax is a good tax, which seems to me like something a tax administrator wrote one time, which I think it is. Because old taxes are good taxes if you're just interested in having a tax that collects money and plenty of it. But let me ask you, judging more broadly. Rooting the tax in everything that you root the tax in, is the property tax, this old tax, actually a good one? Andrew Kahrl: Well, in theory I would say that the property tax is really the only wealth tax we have in America, in the sense that property encompasses all forms of assets and not just homes and land but also stocks, bonds. But that's not what it is in practice. The property tax today is essentially a tax on real estate, and more specifically, a tax on housing. So in a sense, we need to be clear as to what actually we talk about when we're referring to the property tax. And even still, that can be a progressive tax that, in theory, would take a larger chunk of revenue from those who have more property and have more wealth than those who lack it. But in practice, that's not the case. In practice, the property tax is regressive. Studies have consistently shown that lower-valued properties are taxed at an effectively higher rate. And that when you get very high up the scale, then you're seeing real reductions in — the incidence of taxation is one that skews much more towards lower value properties and effectively has a higher burden on poorer Americans. I think a lot of that, and as I show in my book, I mean one of the things I say at the outset is the most important thing to understand about the local property tax is that it's a local tax. And so much of where my book proceeds from, and where I really try to get the reader in the frame of mind of thinking about what this meant for African Americans, is thinking about what does it mean when you have this tax that is administered locally. And one in which there's great discretionary powers vested within these local administrators and very few checks on those local powers. You have virtually no recourse to the federal courts if you are a victim of unfair taxation at the local level. There are very few regulations historically, and still to this day, governing how local tax administrators do their jobs. And as a result, that has made it very susceptible to manipulation and prone to these inequitable results. We know that there is a long history of racism within real estate and housing in America — that African American neighborhoods, Black property owners, that property is devalued because of race. And that remains the case today. And yet at the same time, we have plenty of work that's been done that shows that lower-value properties are assessed higher, meaning that the less valuable your home is on the open market, the higher effective tax rate it's going to be taxed at. And so you put those two together — the fact that Black neighborhoods are worth less because of race and the properties in those areas are devalued, yet they're also taxed higher. That alone turns this regressive tax into a functionally racist tax in application. And then you combine it with, again, all these other political factors that shape what ultimately determines who pays what. Where I try to place the focus here is looking at what does this mean, practically speaking, for individuals, for communities, and more broadly for the landscape of inequality in America today? Joseph J. Thorndike: So what I take from that is that Black Americans have been paying too much consistently, systemically over time. Your book spans 150 years or so. You break it into five periods, which we can talk about, but they've been paying too much. That's not the only problem with the tax, right, as I read it? What else is wrong? Andrew Kahrl: Where do we begin? I want to make it clear to your listeners here. I'm not coming at this as someone who is anti-tax in the slightest, and I don't want my arguments here to be in some way misinterpreted as some kind of libertarian call that taxes are theft and all that and the like. In fact, no, I mean I believe strongly that we need to have sources of revenue to fund the vast needs that we have as a society. The way I look at it is, are those burdens and are those obligations being fairly distributed? And ultimately are they actually addressing or actually worsening the very problems that public spending is aimed to tackle? There's the two things that really got me into this project that I think are ones that are two big takeaways for readers who maybe aren't familiar with some of these issues with local tax administration. One which we just discussed was the fact that, historically and still to this day, African American property owners and neighborhoods — so including again folks who don't pay property taxes directly but pay that through their rents — are overassessed relative to value. That was the case in the Jim Crow era where my story begins. It remains the case to this day. So I look at the causes of this. Why do we continue to see these assessments being unfairly administered or structurally unequal in the case of much today? But also the enforcement side, which I really shine a light on the ways in which property tax delinquency — the laws, statutes, and procedures that govern property tax delinquency have opened up this entire set of inequitable practices and downright predatory practices that have been unleashed by these procedures that states follow. So just to be specific here, in the majority of U.S. states, if you don't pay your property taxes on time, wherever you live, a lien will be placed on your property. But in the majority of states, and the ones that I really look at in my book, those liens, that unpaid tax bill, are then sold to private investors at what are known as tax lien sales. And those private investors then buy your debt, and from that can then charge you very high interest rates, attach numerous fees onto those, and really again, turn what would maybe start as one, sometimes even a relatively minor tax bill that went unpaid, and can quickly mushroom into a much larger debt that is enriching these investors while invariably really driving down this homeowners and neighborhoods in which this practice takes place. Joseph J. Thorndike: Those sections of your book that address this tax lien industry as it's developed over the decades or even centuries, those are, I was going to say engaging, but maybe depressing is the better word. But certainly the more vivid parts of your story I think are the tragedies of that dispossession that occurs over and over again. I mean, can you give us a sense of what the long-term effects of that have been on say, African American property ownership? Andrew Kahrl: Yeah, you can only begin to grasp just how significant this has played in undermining African American struggles to acquire and accumulate property, whether it be in the rural South of the turn of the 20th century or in northern cities and the postwar era. That falling into tax delinquency be one of these situations, again, that it particularly affected African Americans, for one because of their own financial precarity. But also as well through the financing arrangements that were available to African Americans, which often did not come with many of the protections that, say, came with a conventional mortgage. All of these factors combined to make African American homeowners and landowners more prone to falling into tax delinquency. And, as I show in the book, because of the way these laws are structured, it made it more profitable for those who are investing in tax liens to buy them off of African American delinquent taxpayers than whites because it oftentimes took longer for them to pay off these debts. And so the longer it took, the more profits could be generated from those debts. So all these, again, just these arrangements then in turn put a bullseye in the backs of African American homeowners. And not just exclusively them. I mean, I think, my book focuses and looks at this through the lens of African Americans, but it is not to say that many of these practices were not also affecting white Americans, affecting many different folks. In fact, I hope that one thing my book does is inspires others to look at this in other contexts and within other groups. But to give you a sense here, one thing we know is that there was a sharp decline in Black land ownership over the 20th century. Really, one of the more remarkable stories of the post-Civil War and post-Reconstruction era was the fact that in spite of not getting any assistance from the federal government and doing so in the face of hostility, and opposition, and treachery at every stage, African Americans accumulated upwards of 16 million acres of land in the 50 years after the Civil War. Joseph J. Thorndike: That's a fascinating number. I got to say that if there's one statistic that jumps out from your book, it's that one. Andrew Kahrl: Yeah. I mean, again, this is a remarkable achievement. The lands that African Americans were acquiring were not the rich farmlands of the Black Belt, but they were often small family-owned farms, small acres. In many instances they were not able to support their families with this land, but that land base was an animating force in Black politics, and Black political thought, and struggles for liberation. Mr. and Mrs. F Posey; Baskets, Ky.; A prosperous farmer, 1907. Creator: Unknown. (Photo by Heritage ... More Art/Heritage Images via Getty Images) Property rights meant a lot to African Americans, especially at a time where their civil rights were being flagrantly denied. 1910 was really the high watermark of Black land ownership in America, which is crazy to think about because that's also considered the nadir of Black life in America — the low point of race relations and of African Americans' denial of full rights of citizenship. But yet over the course of the 20th century, that land base eroded and in some instances slowly, but then in other instances rapidly. And there were many causes of that. But one significant factor were taxes, in a couple of respects. One were the pressure of paying taxes, which were often, again, as mentioned earlier, the land that they own was often overassessed relative to value, so their tax bills were higher than others were paying. And so that would amp up pressure for families who were struggling to make payments to lose that land under duress or to sell it under duress. But also as well, it increased the odds of folks falling behind on their tax payments, falling and having their land sold at a tax sale. And this was, really by the 1960s and '70s, was reaching and was recognized as a crisis across the South. And I write about these organizations that stepped in and were sounding the alarm about just this dramatic loss of Black-owned land across the South and were targeting these tax sales as a causal force of land dispossession and really calling attention to this, and also really trying to take direct action to counteract what was a system that had long been abused. And I should also mention, again, during the Jim Crow era, tax sales were essentially — could be a marketplace in stolen goods as far as African Americans were concerned. I give several examples here of African Americans who had their land stolen out from right under them because their tax bill never arrived in the mail, or it was never recorded. Folks who again were doing everything that they were told to do and thought that they needed to do to hold onto their land and then had it snatched out from under them at tax sales through this ostensibly legal process. Joseph J. Thorndike: I want to read you a quote from your own book and then ask you a question about it. So you say in your introduction, "From the moment Black people began making claims on the state, whites in power have responded by peddling the canard that Blacks paid little in taxes and by implication were undeserving of the rights, benefits, and protections of citizenship." So I was immediately fascinated by this because I'm very interested in notions of fiscal citizenship, which I interpret to mean the collection of rights and responsibilities that tie an individual to the state and the state back to the individual. But it strikes me that your story is about an effort to exclude people from the notion of fiscal citizenship. Am I reading that right? Andrew Kahrl: Absolutely. And I should also say in that respect, my work really builds on the pioneering scholarship of Camille Walsh. Her book Racial Taxation I'd highly recommend to your listeners. But yeah, absolutely. Key to Jim Crow as a governing system was the erasure of Black people as full citizens, which meant erasing them as taxpayers. And I lay out here the ways in which the erasure of African Americans as taxpayers became the justification for all manner of exclusions and deprivations that we associate with the era of segregation in America. It wasn't just the segregation of white and Black schoolchildren. It was the paltry spending that was devoted toward African American public education. It wasn't just the fact that African Americans couldn't drink from white water fountains. It was the fact that cities and towns wouldn't put water mains in Black neighborhoods, wouldn't extend paved streets into Black neighborhoods. All these things that tax dollars were being spent on were not being spent on African Americans anywhere closely approximating a equitable manner. And consistently, that was being justified publicly. And whenever challenged on this notion that African Americans don't pay any taxes, so they should be happy with whatever crumbs fall from the white taxpayers' plates. I mean that was essentially the fallback whenever these unequal distribution streams were being challenged. Which again, then posed for African Americans, stressing their fiscal citizenship was key to their own Black politics during the Jim Crow era. So I really show how consistently African Americans are responding to this lie with the truth. They were quite literally producing their receipts to then make claims on the state. One example at the depths of white supremacist violence is the demagoguery that enveloped the South at the turn of the 20th century, you even had politicians — most rabid white supremacist politicians like James Vardaman, who was governor of Mississippi — who were out in the campaign stump saying, "Let's segregate tax revenues entirely so that Black folks only get the tax dollars that they contribute directly." And they use this as a way to appeal to white voters by saying, "You don't have to worry. We're not going to take any of your tax dollars and spend them on African Americans." And Black groups responded to this by saying, "Okay, well let's see what happens if we did do that." And actually there was a study that was actually done by a white educator in North Carolina who showed that if you actually did do that, African Americans would be owed money because they were actually subsidizing white education throughout the South significantly, directly. If you actually did look at the per capita tax contributions of African Americans, they were actually heavily subsidizing white schools because of the ways that these tax dollars were being redirected. And at the same time, having their land and property overassessed, which was something that was talked about and an accusation and something that many folks felt but often struggled to actually prove. But I went in and looked at — in Virginia, like many Southern states, they actually segregated their tax books by racial lines. And you can add up the numbers and see that yeah, an acre of Black-owned land was being systematically overassessed relative to white-owned acres of land. Joseph J. Thorndike: Yeah. Hey, we didn't actually talk about your periodization, so maybe we can just briefly touch on that. You cover 150 years, but how do you break that up? How's the story unfold over time? Andrew Kahrl: The story really begins in the aftermath of emancipation and during the period of Reconstruction, where ideas about taxpayer citizenship and public spending are very much at the front of the larger politics surrounding Reconstruction — this unfinished struggle to expand the state's capacities to provide for the general welfare, in particular formerly enslaved African Americans. So I begin at this point where, one, African Americans are paying taxes directly, many for the first time. And where the fiscal needs of the state are expanding dramatically and in a way that is fiercely contested, one that is also deeply threatening to the white power structure as it exists in the South. So I begin there, look at the overthrow of Reconstruction, and then later the rise of Jim Crow through the lens of tax policy and politics and administration. And then proceed, really, in some respects, maybe a simplistic way to describe it is it follows the journey of African Americans over the course of the 19th and into the 20th century. The first part of the book focuses on the Jim Crow South, the period from the late 19th into the early 20th century. The second part follows the journey into the urban north, the era of the Great Migration, then shifts focus to looking at northern cities like Chicago, Pittsburgh, Cleveland, New York in the early to mid-20th century. Then from there I kind of switched back in the third part to looking at the Civil Rights Era and looking at it in the South in particular, focusing on the way that struggles over equal access to public goods and services were an animating force in Black freedom movements, especially at the local level. Sixty Black students marched through the Kansas University campus today in a protest to a Big Eight ... More student's resolution against sit-in demonstrations at lunch counters. The students, led by Kansas basketball star Wayne Highover and two other spokesmen walked quietly throughout the campus and there was not incident. (Photo by) The title of that third part of the book is "A Local Struggle," and I make the point that you can't really understand the Civil Rights Movement as a whole unless you understand the way that people are experiencing racism, and oppression, and deprivation at the local level in the communities where they lived, in the neighborhoods that lacked sidewalks, clean water, paved streets, and the schools that only were open half of the year and closed during harvest season — all this lack of equal access to goods and services. And also, as well, you can't understand the ways that white segregationists sought to prop up and maintain white supremacy without looking at the ways that they were using taxes and their taxing powers as a tool of oppression and as a form of intimidation and retaliation. And I was struck as I was doing research on this. The fact that no one had ever really, despite the voluminous scholarship on the Civil Rights Movement, that the issue of the ways in which local governments and state governments across the South during the era of massive resistance were seeking to undermine and intimidate simple rights organizations, individuals, and entire communities through overtaxing their homes and properties, through putting their homes up at tax sales, through removing tax exemptions from churches. I mean, all these things, they were throwing everything at the wall they could, and the local tax administration was one of these arenas. So I again retell that history through the lens of local taxation and also tell the stories of that first generation of African Americans who were running for and winning local offices as tax assessors. I think one of the most fascinating chapters to write was when I told that story about the first African American who became a tax assessor in Mississippi state history, and what happened when he came into office, and the ways that him in that position, with a mandate from the Black electorate to make changes, was deeply threatening to the local white power structure and very revealing about the way that power operated in the rural South. Joseph J. Thorndike: Not to be too blunt about it, but you really discussed the way that tax is weaponized. A tax instrument, which might be in its theoretical state fine, can actually be turned to bad ends and destructive, oppressive ends. And I think that's something very important that you bring out in this book, is that as you said in the beginning, a property tax could be a great idea but not in the way that it has actually been practiced in this country. Andrew Kahrl: Yeah, because throughout much of the time period and much of the context that I'm writing in, there's such great discretionary powers that local tax administrators could wield that allowed it to become a instrument of political favoritism, of social engineering and control, as a way to reinforce existing hierarchies within society. It can be abused in so many ways because, again, of the lack of accountability. I look at this in the context of northern cities. In Chicago, for instance, the county tax assessor was at the nucleus of this broad system of political patronage and favoritism. There was a reason why people referred to the Cook County tax assessor as one of the most powerful officials in the entire state of Illinois. And it wasn't just because he was plugging numbers into a mainframe. It was because of the powers of manipulation that they could wield — the ways in which they could dramatically reduce taxes on certain communities or raise them on others or on certain classes of businesses. And this was a power that was frequently abused and consistently abused in a way that disadvantaged African Americans. And proceeding further on, so in part four of the book, I look at the era of the tax revolts in the '70s and the issues that were fueling it, retell that history of the tax revolts by, one, showing that much of the unrest that was fueling anger over the property tax was coming from the left — low-income and minority communities who were being overtaxed and underserved by local governments. And at the same time, we're seeing how the wealthiest property owners in their communities were paying next to nothing. And so a lot of the impetus behind what would later become the tax revolts of the '70s was an effort to get the wealthy to pay their fair share so that schools could be funded, neighborhoods could be well-maintained. And a lot of it was focused on — or at least the public attention was often drawn to — corruption and favoritism within these assessors' offices. And I look at the ironic story that unfolds as this political moment unfolds. Joseph J. Thorndike: One of the points that I think you make in the book that I found very interesting is you describe the local tax system as a trap for localities so that you end up with this apparent irony that even in cities with Black political leadership, they aren't really able to escape that. Can you tell us a little more about that? Andrew Kahrl: That's a great question. I think this is — one thing that I really look at in the context of U.S. cities and metropolitan areas is this fragmentation of local governance, the multiplication of all these local municipalities, school districts, tax jurisdictions, and how this is leading to this fragmented landscape where you have, say, places that have relatively large tax bases relative to population that can in turn provide great public services, have well-funded public schools. And the residents of those communities are actually paying lower relative taxes than those who are living in cities where the tax base is shrinking and the needs are great. And this is the story of cities in the postwar era going up from the 1950s through the 1970s, is you have white flight, the movement of not just middle-class whites families into suburbs, but they're taking their tax dollars with them. They're forming their own municipalities, their own school districts. They're pulling up the drawbridge once they get there through excluding African Americans and the poor from being able to live in these communities through various exclusionary tactics. So they're creating these tax havens, and businesses and industries are also migrating out of central cities, or they're using the threat of doing so to get dramatic reductions in their tax obligations. And the end result is you have — and I really shine a spotlight on some of these really fiscally distressed cities like Gary, Indiana, Chicago, even, and Detroit. These cities that we're seeing this erosion of their tax base at the same time as the needs are multiplying because their cities' populations are growing poor and their jobs are disappearing, their revenue is also eroding at the same time. And so this leads to these perverse outcomes where, yeah, African Americans are winning mayor's offices, they are gaining political power as they're becoming majorities in many of these large U.S. cities. But at the same time that they're winning political power, the city's fiscal power is being dramatically diminished. And their tools for reversing that are very limited. Michigan Avenue, Chicago, Illinois, USA That's the thing, again, that local governments are at the bottom of this. They are the lowest levels of government, and they are very vulnerable to these broader structural changes that are happening at the macroscale. And their ability to respond to that are limited to just oftentimes finding ways to try to rebuild the tax base through trying to attract business and industry or retain existing residents who are seen as helping to prop up housing markets, which, because of how race shapes property values, means that they are very attentive to white homeowners. And during this time period, I provide several examples of how cities are consciously underassessing white neighborhoods in order to slow the exodus, to try to in some way. And they're doing so in competition with suburbs, which are also underassessing white residential neighborhoods. So in a sense, they're kind of in this race to the bottom. But I'm always turning the lens back onto what this meant for African Americans. The thing to keep in mind here is that whereas white homeowners and businesses have a great degree of mobility during this era, and that means they have a great degree of negotiating power when it comes to their effective tax obligations, African Americans don't have that mobility. I title one of my chapters "Captives." They were captive within these urban housing markets. That was what ghettoization was. They were stuck behind the color line because of all these mechanisms of exclusion and housing markets. And as a result, local tax assessors were under no compulsion to underassess their neighborhoods, which they didn't. When I talk about the unequal outcomes that I document throughout the book, I want to make clear to readers is that I'm not implying that all assessors are maniacal, sitting around trying to scheme up ways to overtax Black and brown homeowners. Oftentimes it's just through inattention. It's through the accumulation of giving out favors and reductions to everyone else that, at the end of the day, results in these neighborhoods and these classes of taxpayers being then forced to pay more. And so that's, I think, one takeaway from this. And again, getting back to your original question, African American mayors and local public officials, you don't find folks challenging this logic. Or even if they are questioning it, they are very limited in their ability to do anything about it and becoming even more so again as federal funding is decreasing in the 1980s for cities. Really, they're finding their hands tied in so many different ways that prevents any sustained effort at structural change. Joseph J. Thorndike: I think that leads us to a good question that we might use to wrap up since you and I could probably go on talking about the book for another hour. What's the way out of this? I've seen other interviews with you in which you have confessed — it's not really a confession — that you're trying to write history that's useful to people trying to understand their world and trying to solve problems today. So do you have a solution, a way out of this, what really seems like a really artfully constructed trap that is hard to get out of? Is there a solution? And what levers are there that might bring that solution along? It's got to be dealing with the politics of it. Andrew Kahrl: It is a tricky situation in the sense that, because my book really shows how these are all building on each other and reinforcing, that there's no one simple, one single solution to this. But one way I think about it is you have these immediate actions that can be taken to protect — if you read my book and really zero in on the victims of this and those who are most victimized by the current state of affairs, there are things that can be done to protect those who are most vulnerable. One easy approach that, again, we see in some locales, although we need to see much more of it, are things like circuit breakers where essentially your taxes cannot go above a certain level of your income. And once they do, then they stop. And so that can protect a lot of the victims I write about of who are having their homes stolen from them through tax sales, who are forced to sell their homes under duress as neighborhoods are gentrifying and taxes are increasing beyond their capacity to pay because they're on fixed income. Circuit breakers that are set at a rate that would protect those who are most vulnerable can be an effective solution. And the one again, that are targeted toward those, again, who are most endangered as a result of this. Similarly, I think again, forcing local governments to take out of tax sales owner-occupied homes in which the individuals who are delinquent because of financial distress. The problem with these tax sales, and again, much of the property that are put up for tax sales are vacant and abandoned properties, properties that owners had walked away from or who are not paying their property taxes intentionally. Those folks need to be dealt with. Again, this is not an argument for getting rid of tax sales or any enforcement mechanisms because then a lot of folks who are bad actors would be able to really ride the coattails of what would be a cause of protecting those most vulnerable. But we do, the way it's often run now, the way it's administered is that these two groups of people are thrown into the same bucket and they're treated in the same way. And in fact, actually, owner-occupied homes are much more likely to be bought up at tax sales and the target of some of these predatory practices than vacant and abandoned properties. So the system actually, currently as practiced, works in the exact opposite manner of the way it should. So again, one thing you can do in an immediate way — and we've seen this in cities where they've mobilized around, say, forcing the city to no longer sell this type of property or maybe raising the bar as to what the amount has to be before it's put up for a tax sale. But more broadly speaking, again, I think where we need to go long term is, one, be guided by the principle that taxes should be structured and administered in a way that are amply funding the needs that we have as a society but are doing so in a way in which the burden is being placed on those most capable of paying and relief is being provided to those least capable and those who are most in need of relief. And so, one thing that I come back to at the end of the book is one way to make the property tax less inequitable and address some of the abuses that my history details is to make it less important. And what I mean by that is right now, again, you look at many cities. Their dependence on local property taxes is so great, and their fiscal fates are so tied to this source of revenue that it leads them into all these instances where they are putting their thumb on the scale for certain types of properties and certain types of property owners. They're again engaged in forms of real estate development that can often have really negative consequences for low-income neighborhoods and vulnerable populations. They are so squarely focused on ways to increase the local tax base through real estate development and driving up property values that these other downstream consequences are pushed to the side. And similarly, if we look at, say, the way that we fund public education in America, finding a way to diminish the local schools districts' dependence on local property taxes and instead funding them at the federal level is a way to also address not just these gross imbalances in the per-pupil spending in schools. There are just shocking disparities in the amount of funding that a child living in poorer communities will receive than wealthier ones. That's a problem that no individual locality alone can solve. It requires action at the national level. It requires tapping into the collective wealth we have as a nation as opposed to having it devolve down to these local units of government whose lines are drawn in ways to lock in wealth in certain places and to lock out others. But I say that in the context of where we're at right now, where we are seeing a federal government that is running in the exact opposite direction and abusing its own fiscal powers in very disturbing ways. I think this is an argument I make in terms of thinking about where we want to head as opposed to where we can actually realistically be today. And I think maybe as a historian, I'm playing the long game here. I'm not in any way thinking of calling for a set of policy actions today, but maybe just getting us to think about what this structure does, and where it leads us, and what ways we might want to think about building a new one. Joseph J. Thorndike: Well, that seems completely reasonable to me because as you say you may be thinking the long game. But politics is a really short game, too. There can be big swings very quickly. Andrew Kahrl: And I think also, another thing that I hope this book will do, is it will make us much more attentive to the powers that these local offices have. One thing that I talk about in one of the last chapters of the book is in Chicago in 2017 after it was revealed that the county assessor was still, after numerous scandals, was still overassessing Black and brown neighborhoods. And it just so happened to be an election year. And really for the first time in anyone's memory, folks poured out and voted in this assessor's election and kicked out the incumbent, a person who was well ensconced within the Democratic Party machine and elected a reformer. Many readers will pick up this book and not be aware of the fact that in most parts of the country, tax assessors are elected officials. We vote for these folks in many instances, or they're appointed by people who we vote for. In most places, these offices, they run unopposed. I think most people would struggle to name who their tax assessor is. We need to pay attention to local government because I think if there's anything that we take away from this book, it's there's a lot of power being wielded in these very obscure, lower level, the channels of government that we would be wise to pay closer attention to. Joseph J. Thorndike: And I think that's a great way for us to end. Politics matters, especially at the local level, and it matters for individual voters. And in very specific financial terms, it matters, as you demonstrate in the book. So hey, I just want to thank you. This has been an awesome conversation. As I said, I love this book. I can't recommend it highly enough. Thank you for being with us today. Andrew Kahrl: Well, this was really fun talking with you, and I really appreciate you having me on. So thanks so much.
Forbes
01-04-2025
- Business
- Forbes
Addressing Tax Policy Challenges For Workers With Disabilities
Disabled person sign and gavel. Accessibility law concept. In this episode of Tax Notes Talk, Kimie Eacobacci of the National Council on Disability details how a 60-year-old revenue ruling can exclude workers with disabilities from standard employment benefits and protections. Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity. David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: tax and disability. Federal law prohibits employers from discriminating against disabled workers, but some workplaces may be using a half-century-old IRS ruling to do just that. A recent study conducted by the National Council on Disability [NCD] This week's episode is part of a series we've been doing on how tax rules affect marginalized groups. We'll include links in the show notes to our previous episodes on the intersection of tax and racial inequality, LGBTQ rights, feminism, diversity, and the tax bar, tribal taxation, race-based tax weapons and wealth and inequality. But joining me now to talk more about the National Council on Disability's findings is their legislative affairs specialist, Kimie Eacobacci. Kimie, welcome to the podcast. Kimie Eacobacci: Well, thank you so much, David, for having me today, and we are excited that you're interested in — hopefully, your audience is interested in the National Council on Disability's report. David D. Stewart: Well, we love talking about anything tax. Could you just give me an overview of this study that you performed? Kimie Eacobacci: So for your audience today who's probably not familiar with NCD, I just want to give a little bit of a background about our agency because we are an independent federal agency. We were created in 1978. We were first housed under the Department of Health, Education, and Welfare. And then in 1984, Congress made NCD an independent federal agency. And so in 1986 we wrote the first draft of the Americans With Disabilities Act, which was introduced in the House and Senate in 1988 and then was ultimately signed into law by President Bush in 1990. And since then, our agency, we are charged statutorily to conduct evaluations over policies and programs and how they can impact people with disabilities. And we advise the president, Congress and federal agencies. My role as the legislative affairs specialist at NCD, I work more closely with Congress and congressional committees, but on this report — I was the lead on this report. I was able to work with the Internal Revenue Service as well with their taxpayer advocate office. David D. Stewart: And I should clarify for listeners that an independent agency is a government body that was established outside of an executive branch department, with limited presidential control. Kimie Eacobacci: So an overview of this report — during the pandemic, NCD was alerted by attorneys for a blind woman in Louisiana who was furloughed when a sheltered workshop that she worked at was closed due to the pandemic. Now she had applied for unemployment benefits, and the state of Louisiana's Workforce Commission determined that she was not an employee, she was a rehabilitation client. NCD was very interested in how this could happen because this woman had been working at the sheltered workshop as an employee for years. She was being paid regular wages. She had some benefits. So we were not understanding how the state would determine she was a rehabilitation client and not an employee. We were also concerned that when the sheltered workshop closed and everything else was closed, what sources of income would she have during the pandemic? Because she also lost the enhanced pandemic unemployment insurance. So that's why we underwent this study. David D. Stewart: So before we move on to get deeper into this, I think we might need to define some terms for the sake of our listeners. First of all, what does a rehabilitation client mean? Kimie Eacobacci: Currently, we have — there are federal programs that are intended to provide job training and skills to people with disabilities and transition them into what is currently known as competitive integrated employment. In our report, what we found is that disability policy and disability employment policy has evolved so much, but within the tax code, as we've seen, there's a lot of terms that were created in the 1960s that aren't consistent with current disability policy. And so we're finding that the tax code hasn't kept pace with the evolution of disability laws. And so that's another reason why NCD was really interested in undergoing this study. David D. Stewart: And what is a sheltered workshop that you've mentioned? Kimie Eacobacci: To understand how sheltered workshops operate, historically, what they were — in the 1960s, when this revenue ruling that we'll be discussing today, when it was created — at that time, socially, it was acceptable to institutionalize people with disabilities and put them in an institution, give them menial tasks to perform and pay them marginal wages. And that was intended to protect people with disabilities. And so we're seeing that a lot of these policies and laws and programs back in the '60s were intended to protect these individuals and keep them away from the burdens and the responsibilities of employment, like paying taxes. However, they still exist now. Today, what has happened is, starting in the 1970s, Congress wanted to start mainstreaming or socializing people with disabilities. And so they've passed several laws, like in 1973, the Rehabilitation Act, which prohibits discrimination of people with disabilities from recipients of federal funding. Capitol city. Travel Destination. Then Congress passed the Individuals With Disabilities Education Act, which guaranteed a right to public education for people with disabilities. And then you have the Americans With Disabilities Act, which continued to systematically bring people with disabilities into the community and give them an equal opportunity to have employment. Today, the term "sheltered workshop" is no longer used as much. It's transitioned to a "community rehabilitation program." So what we're seeing now is that people with disabilities, they can get training in a rehabilitation program, and some choose to stay there and work as an employee. However, we're finding that some of these sheltered workshops/community rehabilitation programs are keeping these people as rehabilitation client status even after the rehabilitation program has ended. And that's why we're having problems. David D. Stewart: So let's talk about the revenue ruling at issue here. I believe it's 65-165. Tell me, what does it do and what issues is it creating? Kimie Eacobacci: Sure. Revenue Ruling 65-165, it outlines three scenarios for people with disabilities in sheltered workshops. So they are a rehabilitation client status, an employee status, and then an independent contractor. And in our report, we didn't focus more on the independent contractor classification; we focused more on the rehabilitation client status because that's what we're seeing more of as we were doing more research. And so it's actually unique because when I was talking to people about this revenue ruling, they only thought of employee versus independent contractor. They didn't realize there's actually three for people with disabilities who are in these sheltered workshop programs. Under this revenue ruling, during the process of training, while the person is receiving rehabilitation services — which could be like job training or helping them write a resume or anything like that, job counseling — the revenue ruling states that the workshop supervises and directs the person as a trainee. And that was intended to rehabilitate and protect the person. And in this situation, the person with a disability is performing rehabilitation activities, not work, and there's no employment relationship in the circumstance. Now, under the employee status — and I think this is where a lot of these provider employers are having some confusion — is that when the person with a disability has completed the training and is capable of performing jobs offered by the workshop or the rehabilitation program employer, the person with a disability may continue to work in the workshop temporarily as an employee while waiting placement of jobs in the private industry. Or they can work in the workshop permanently as an employee if unable to compete in the regular industry. And in these two situations, the person with a disability is working, is an employee and is able to receive benefits. In addition, what we're seeing with this classification issue is that when the person with a disability is a rehabilitation client, the compensation they receive is classified as not wages for tax purposes, it's awards, incentives, and reimbursements. And so that's where NCD is also concerned too, is the misclassification of their compensation as well. David D. Stewart: So what sort of outcomes is this creating for these employees that are not quite employees under the rule? Kimie Eacobacci: What we've seen is — for example, with this situation, we found that the woman was denied unemployment benefits. We're also seeing that this misclassification keeps people with disabilities off the employer's payroll, which is really concerning to us as well too because it forces them to stay on Medicaid, whereas their nondisabled counterparts are receiving health insurance from the employer. A Plate with word Medicaid and a stethoscope. We're concerned that the misclassification of the compensation may leave them ineligible for the IRS's antipoverty programs like the earned income tax credit and other credits as well too. And then we are hoping that we would never find this, but there could be some people who have not been paying into Social Security and accumulating the required credits to be eligible for retirement benefits. I think as we hear more stories from people with disabilities, we will find additional concerns about this misclassification. David D. Stewart: So why is the misclassification happening? If these people are basically becoming employees of the organization, why not treat them as employees of the organization? Kimie Eacobacci: So what we're finding is that there are some bad providers — that's the problem too, is you have these employers that are providers of rehabilitation services and they're also employers and it gives them a lot of discretion. But also too, during our investigation, we found online bulletins with tax attorneys for these sheltered workshops who were claiming or informing each other that based on Revenue Ruling 65-165, that all people with disabilities in the sheltered workshop were rehabilitation clients. They're making these broad assertions, and they're also saying that the compensation paid to all the people with disabilities is not a wage for IRS purposes. NCD, we recommend revoking Revenue Ruling 65-165 and using the IRS's common-law test to determine employment status. David D. Stewart: Is this normal for NCD to engage with tax policy in this way? This seems like something I haven't seen before. Kimie Eacobacci: Correct. So NCD — I don't think the disability community, there's very few that have been brave enough to venture into tax. And even when I was doing this report and interviewing disability groups, I think a few got a little nervous about tax. A lot of them work more with the Department of Labor. NCD, we're excited to educate people with disabilities about tax. There's so many benefits to them now that we have able accounts and how to fund able accounts, we can use these anti-poverty programs to help fund able accounts. So I think the disability community is slowly getting excited about tax. David D. Stewart: So how does this ruling interact with the Federal Unemployment Tax Act? Kimie Eacobacci: The Federal Unemployment Tax Act codifies this revenue ruling, and even if Congress were to repeal [section] 3309(b)(4) — which is the exemption under the Federal Unemployment Tax Act that excludes people with disabilities in sheltered workshop from the term "employment" — the revenue ruling in itself can still be used, and the IRS has said this; they use the revenue ruling for both FICA taxes and unemployment tax purposes. So in our report, we recommend that policymakers revoke Revenue Ruling 65-165 and that Congress repeal the exemption under the Federal Unemployment Tax Act. David D. Stewart: Does this system of keeping these workers outside of the normal world of tax and employment, does it create other issues for them when dealing with the IRS and accessing benefits? Kimie Eacobacci: It would in that if someone at VITA [volunteer income tax assistance] were to assist someone with a disability who is working in a sheltered workshop and has their tax documents at the end of the year, I think tax preparers would also rely on the revenue ruling and then assume that these workers are not employees and then maybe make them pay the payroll tax and a self-employment tax instead. So I think that's another problem that we are also concerned about too, is that these sheltered workshops might be offsetting their tax burden onto these workers. David D. Stewart: So what other recommendations does your group have for the IRS? I know this came up out of an incident that happened during the pandemic. Are there other things out there that the IRS should be keeping an eye out for, for disabled workers? The US Internal Revenue Service (IRS) building is seen on the first work day for furloughed federal ... More workers following a 35-day partial government shutdown in Washington, DC, January 28, 2019. - The five-week government shutdown subtracted $11 billion from the US economy, about twice the amount President Donald Trump sought to fund a border wall, an independent congressional body said Monday. (Photo by SAUL LOEB / AFP) (Photo credit should read SAUL LOEB/AFP via Getty Images) Kimie Eacobacci: So this report was like our agency's first dipping our toes into tax. We do think that the IRS should convene an interagency work group to identify other provisions that might be outdated, but also too, a lot of people with disabilities rely on government safety net programs. And so we don't want people with disabilities who need these programs to get kicked off. So we do need the IRS and like the Social Security Administration, agencies within the Department of Health and Human Services to kind of come together and identify when these people become reclassified, especially if they're reclassified retroactively, how can those payments affect their safety net benefits. Another thing we — well, we strongly recommend that the IRS create like a disability advisory group within the IRS. We know that other federal agencies have done that too, to continue to identify new and emerging issues impacting people with disabilities. So for example, FEMA, the Federal Emergency Management Agency, they created one for people with disabilities for natural disasters. And we're seeing that that would be very helpful for the IRS to understand the needs of people with disabilities because they are so unique. David D. Stewart: Well, yeah, definitely sounds like an area that could use some attention. Kimie, thank you so much for being here. Kimie Eacobacci: Absolutely. And thank you again for having me.
Forbes
25-03-2025
- Business
- Forbes
The Latest At The IRS: Personnel Changes, More Staff Reductions
In this episode of Tax Notes Talk, Tax Notes IRS reporter Benjamin Valdez provides an update on the IRS's recent staffing developments and how they may affect filing season. Tax Notes Talk is a podcast produced by Tax Notes. This transcript has been edited for clarity. David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: On the chopping block? In the first few months of his administration, President Trump has followed through on his promise to cut the federal workforce, and the IRS is no exception. We've previously discussed how the initial hiring freeze and buyout offer may affect the IRS, and you can find that episode linked to in our show notes. But since then, orders to share sensitive taxpayer data and additional reductions in force have caused further concern for the IRS's future. Now, it's a lot to keep track of, so here to talk us through all of it is Tax Notes IRS reporter, Benjamin Valdez. Ben, welcome back to the podcast. Benjamin Valdez: Thanks for having me, Dave. David D. Stewart: So let's start off with this idea of the reduction in force at the IRS. What is happening here? Benjamin Valdez: So right now, Treasury and the IRS are still working on finalizing the reduction-in-force plan, and acting Commissioner Melanie Krause told employees March 18 that Treasury hasn't provided the agency with its RIF plan yet, and there are still discussions regarding the scope of the plan and how many employees are going to be cut next. Various news outlets, including The New York Times and Associated Press, have reported that the Trump administration wants to cut as many as 20 to 50 percent of the workforce, but there hasn't been an indication on what number they've landed on. The IRS also plans to educate employees on the stages of the RIF and what it entails in the coming days, according to the acting commissioner, and former officials have highlighted that the whole process can take months if it's done properly. David D. Stewart: Now, I should mention for listeners, since this is a moving target, we are recording this on March 19. Hopefully everything we say is still valid, but there's always that possibility. Benjamin Valdez: And another outstanding question relating to the RIF is whether or not the IRS is going to include the recently instated probationary employees who were terminated, which is approximately 7,000 of them. They're currently on paid administrative leave. It's unclear whether or not their future at the agency is going to be determined by this RIF. David D. Stewart: So what are we hearing from practitioners out there? What are people saying about how these cuts may affect the IRS? Benjamin Valdez: Tax professionals have expressed concern regarding the effect that the cuts will have on collections, especially given that the terminations so far have affected enforcement personnel like revenue agents and revenue officers. One source who works in tax resolution told me that he was essentially ghosted by the collections officer that he'd been working with because they were fired and he had to scramble to find out who to call about the taxpayer and the IRS hadn't notified him. Experiences like that seem to be the most immediate consequence, but former officials have also expressed concern that the cuts will have impacts further down the line, especially once the filing season ends and taxpayers are working to correct or amend their returns. Even though the filing season ends April 15, extensions can be taken until October, and work on returns happens throughout the year. So there's concerns that waiting until May 15 until doing further reductions might not necessarily have a lesser impact on the agency. Officials have also pointed out that identity theft case processing times could go up with further reductions and those times have ballooned in recent years and it's been a consistent struggle for the IRS. David D. Stewart: Now, we mentioned earlier the buyout offer. What do we know about the uptake on that? How many people have decided to leave under that? Benjamin Valdez: Earlier this month, National Treasury Employees Union President Doreen Greenwald, she briefed the media and said that the union, which represents IRS employees, estimates that as many as 5,000 employees have taken the offer. But the final number is still shifting. Greenwald pointed out that agencies are working to confirm with employees that they intended to take the offer initially. Some of them had replied to the email with questions, and that automatically signed them up for the program. So the number is still fluctuating, but it could be as many as 5,000. David D. Stewart: What impacts are we expecting to see on filing season itself? I know that there's ongoing effects that may happen, but what are we seeing immediately? Benjamin Valdez: So far, the IRS has been taking efforts to preserve staff that it deems are essential to the filing season, including by exempting some of them from this group of probationary employees that were cut and also by requiring employees who took the buyout to continue working if they're essential to the filing season. What I've heard is that the filing season has generally progressed as usual, aside from some of the concerns I mentioned earlier relating to collections and audits. Acting Commissioner Krause said that everything is on track in a recent message to employees, and the IRS has processed over 60 million returns and issued 43 million refunds as of March 8. However, one issue that has affected employees has been the return-to-office mandate. Employees have been directed to return to the office, and there's been reports from former officials that there isn't enough space in every building and some employees have been working in conference rooms and have difficult work environments. And that is happening now. David D. Stewart: With this unusual office situation happening, are there concerns about how the IRS is operating now? Benjamin Valdez: There are concerns. Former officials have said that working in a group setting raises some privacy concerns, especially for employees that deal with sensitive taxpayer information, and they might not be used to having other people around them when they have that information accessible on their work computer. And so I think that issue is going to be something that the IRS will have to figure out more as they go along with this return-to-office mandate. David D. Stewart: So another thing that's been going on at the IRS has been modernizing its technology, and I understand that we've heard that this process is being paused. At the same time, technology is expected to pick up the slack for the reduced force at the IRS. So what are we hearing about that? Benjamin Valdez: Last week, several unnamed Treasury and IRS officials told reporters that this pause was happening to essentially take a look at the modernization strategy and find ways to make it more cost-effective and to potentially incorporate newer technology, like generative artificial intelligence. However, the officials didn't indicate how long this pause would last or really how many initiatives it would affect at the IRS, because modernization is such a broad category and the IRS has been working on a lot of different things. But the officials pointed to this progress that the IRS had been making with its legacy code and updating this 60-year-old underlying technology. And they said that this pause is necessary to reflect on whether the strategy is still relevant, essentially. We're still awaiting further information on that. David D. Stewart: And something else I'd like to ask about is what's going on with the leadership at the IRS? We've seen a lot of change. So what positions have shifted, and who are we seeing in charge now? Benjamin Valdez: The leadership at the IRS has been rapidly changing following the exit of Commissioner Daniel Werfel on January 20. Initially, Deputy Commissioner Douglas O'Donnell took over as acting commissioner, and then he retired in February. And former Chief Operating Officer Melanie Krause is now the acting commissioner as well as the deputy commissioner. So there's a lot going on in the leadership structure. Additionally, the Trump administration replaced the acting Chief Counsel William Paul with Andrew De Mello, who was a chief counsel attorney and a former trial attorney at DOJ Tax. And he was picked by Trump during his first term to be a watchdog for the Department of Education. There's also been tension in the leadership of the IRS. Former Human Capital Officer Traci DiMartini was put on administrative leave pending termination. She filed an affidavit in a court case regarding the probationary employee's termination. She attested that she refused to sign the probationary termination letters that went out, along with former acting Commissioner Doug O'Donnell. And she also said that her resistance to onboarding staffers from the Department of Government Efficiency contributed to the reasoning that Krause put her on leave. David D. Stewart: Have we heard anything from the tax community about concerns over these changes in leadership? Benjamin Valdez: Former officials I've spoken to, specifically former IRS Commissioner John Koskinen, who was commissioner under President Obama, has expressed concern over the replacement of the acting chief counsel. Koskinen told me that he had never heard of an instance of the president replacing the acting chief counsel with another acting chief counsel prior to the confirmation of an official appointee to the position, which is one of the only two Senate-confirmed positions in the IRS. David D. Stewart: So speaking of Senate-confirmed positions, we have a new commissioner that's supposed to be coming in. Where does his nomination stand? Benjamin Valdez: Yes. Former Missouri Representative Billy Long was picked by President Trump to lead the IRS after Danny Werfel, who was President Biden's pick. And as far as we know, lawmakers on the Hill are still waiting for all of the final paperwork for Long, and they haven't scheduled a hearing date yet. Long has recently been seen on the Hill meeting with Senate Finance Committee members. Republicans on the committee have expressed their strong support for him. David D. Stewart: Well, all right. There's a lot to keep track of here, and I thank you so much for doing all that work in print and also coming on the podcast to tell us all about it. Benjamin Valdez: Absolutely. Thank you for having me.
