‘Revolving Door’: Watchdog Finds That IRS Agents Often Work For Big Accounting Firms

The IRS building in Washington on June 28, 2023. (Madalina Vasiliu/The Epoch Times)

Hundreds of IRS agents have received money from big accounting firms and corporations, posing a potential conflict of interest, according to a recent audit.

At the IRS, 496 employees received incomes from a large accounting firm or a large corporation before joining the agency, while they were employed at the agency, or after leaving it, according to the Aug. 24 audit (pdf) conducted by the Treasury inspector general for tax administration (TIGTA).

The auditor’s objective was to assess the IRS to identify “potential conflicts of interest regarding tax administration matters involving large corporations.”

Out of the 496 employees, 241 received income from a large accounting firm, including 184 current employees. The remaining 255 employees received income from a large corporation, including 177 who are currently employed with the agency.

Some employees received retirement income from accounting firms while they were employed at the IRS. A few received income from partnerships, wages, and other compensation sources.

“There is nothing inherently wrong with or prohibitions on individuals moving in and out of the private sector to public service, as the movement between sectors can contribute to the career development of personnel and improved organizational competencies,” the report reads.

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“However, this practice increases the risk for conflicts of interest.”

For instance, as employees move in and out of the private sector to the public sector, there’s a risk that they come under the “undue influence” of their former or prospective employers. This can create “an unfair advantage” for some entities and individuals.

Investigation Request

The audit followed a letter (pdf) sent by Sen. Elizabeth Warren (D-Mass.) and Rep. Pramila Jayapal (D-Wash.) last year asking federal officials to investigate the “unethical revolving door” between the U.S. Treasury and the “Big Five” accounting firms.

The Big Five accounting firms mentioned in the lawmakers’ letter are Deloitte, Ernst & Young, KPMG, PricewaterhouseCoopers (PWC), and RSM.

The lawmakers asked for an investigation into the extent to which the revolving door between accounting firms and the Treasury and IRS is being taken advantage of by companies and the rewards reaped by officials involved in such practices.

A combination of file pictures shows logos of PricewaterhouseCoopers, Deloitte, KPMG, and Ernst & Young. (Reuters/File Photos)

The request was triggered by a Sept. 19, 2021, report by The New York Times that “exposed how large accounting firms send their lawyers into high-ranking positions in the federal government to create new tax loopholes for their clients, and then reward the same lawyers with bigger paychecks and promotions upon their return,” according to the letter.

The New York Times report revealed that dozens of lawyers left top accounting firms for tax-policy positions in the Treasury and the IRS during the past four presidential administrations, per the letter. In their governmental positions, these officials “have rewritten America’s tax laws for the benefit of their former clients,” the lawmakers wrote.

The letter cited an example of how Deloitte allegedly manipulated the system to its advantage.

When Deloitte and PWC’s tax shelter for multinational corporations was put at risk after the Treasury Department issued a warning to shut down the scheme, a former Deloitte attorney allegedly entered the department several years later, according to the letter.

During his tenure at the Treasury, the office of the former Deloitte attorney is alleged to have issued new regulations to ease the path of companies shifting their profits offshore to avoid U.S. taxes.

“The attorney soon returned to Deloitte and was immediately promoted to partner,” the letter reads.

The Epoch Times reached out to Deloitte for comment but received none by press time.

Recommendations, IRS Response

The TIGTA report suggested implementing restrictions to protect governmental processes from being abused. However, such measures “should not be so onerous that the Government can no longer attract the highly talented individuals it needs,” the report states.

Employees included in the review were from three IRS departments—the Large Business and International Division, the Office of Chief Counsel, and the Independent Office of Appeals.

The TIGTA made two recommendations to the IRS. One was to ensure that staff who work on “private sector rulings” know about the disclosure requirements related to conflicts of interest.

The second is to ensure that “the General Legal Services develops a process and procedure to track and aggregate data based on the types of advice given in response to concerns raised.”

“An ethical culture is essential to maintaining an environment in which the business of the IRS can be carried out with the utmost impartiality and integrity,” the TIGTA stated.

In its response to the TIGTA report, the IRS stated that it requires the expertise of private-sector tax professionals to do its job.

“Given the report’s focus on large corporate taxpayers, we note that effective tax administration for this segment of the population necessitates having a highly skilled and experienced workforce that can successfully conduct complex audits of large corporations,” Holly O. Paz, acting commissioner of the IRS’s Large Business and International Division, wrote in response to the report, The Hill reported.

“In addition to the knowledge and talent that these individuals bring to the IRS, they come to the IRS sensitized to potential conflicts of interest.”