Originally published on Forbes.com June 9th, 2013
The current uproar about the IRS line dancing conference in Anaheim has a certain irony to it. It is being used as Exhibit A to make the case for government wastefulness. When you look at the TIGTA report that criticizes the conference, there ends up being a bit of a flaw in that narrative.
Because Private Industry Does Things So Much Better?
TIGTA determined that the IRS did not use available internal personnel to assist in searching for the most cost-effective location as required. Instead, SB/SE Division management approached two non-governmental event planners to identify a suitable off-site location for the conference. These two planners were not under contract with the IRS; hence they had no incentive to negotiate a favorable room rate for the IRS. Instead, the three hotels paid the event planners an estimated $133,000 commission based on the cost of rooms paid for by the IRS. The IRS may have been able to negotiate a lower lodging rate to reduce conference if it had not used non-governmental event planners and eliminated some of the negotiated concessions provided by the hotels , daily continental breakfast, a welcome reception with two drink coupons for all attendees, a significant number of suite upgrades.
What the TIGTA report is saying is that, this once, the IRS put on a conference for its tax professionals in pretty much the same way that many tax professionals put on conferences. It ended up being pretty expensive – 4.1 million. On a per attendee, basis it was not that expensive. Something on the order of $1,500 per head. In the final phase of my 33 odd years of continuous employment in public accounting as a not quite partner in a not quite Big 4 firm, I was required to attend two conferences a year. I don’t know exactly what they cost but I’m pretty sure the firm blew at least $1,500 flying, feeding and housing me. Just recently I got to go to another national firm conference as a guest of my covivant. It was kind of cool. They shut down part of Disneyworld just for CV and her 800 or so fellow tax professionals. CV went on Spiderman.
The gold standard for tax conferences in my neck of the woods is the NYU Federal Tax Institute. All in, that will set you back over five grand unless you sleep in Central Park or something. The AICPA reals estate tax conference is $1,200 for just the registration. Add some airfare and a couple of nights in a DC hotel, and the Anaheim affair starts looking like a bargain. And none of them seemed to require line dancing.
How Do We Know The IRS Does Not Do This A Lot ?
We know this because of the other number that is causing so much outrage. $50,000,000. That’s how much the IRS spent on conferences in the course of 3 years. That’s a lot of money until you consider that the IRS has almost 100,000 employees. So that works out to less than $200 per employee per year. Of course, maybe they don’t all go to conferences, but even if it is only 25% of them that would work out to less than $800 per year.
Do We Need 100,000 People To Enforce The Federal Tax Law ?
We have a tax system that just about everybody says is way too complicated. On the other hand, that complication is the result of a collective choice. If you study the comments submitted to the Ways and Means Committee Tax Reform Working Groups, you will find that many have the same form – “Tax simplification is a fantastic idea. We are delighted you are working on it. Just want to let you know that the XYZ credit/deduction is crucial to the American way of life, so do not even think about messing with that.” So the choice to have a complicated tax system is one in which we are all complicit.
Even an uncomplicated tax system would require people to enforce it. Our federal tax system is managed by almost 100,000 people who work for the IRS. It is big complicated organization and much of it is relatively faceless. Much as the IRS tries to present a friendly, customer focused face to the public, there are two functions, that while necessary, cannot be made pleasant. One is examining returns and the other is collecting from people who do not remit as instructed. If your return is examined or you don’t remit, you will end up dealing with a revenue agent. If you want to have less stress in your life, you can hire somebody like me to deal with the revenue agent for you.
So You Want To Be A Revenue Agent
Not just anybody can be a revenue agent:
For entry at the GS-5 level, you must have a bachelor’s degree or higher in accounting from an accredited college or university that included at least 30 semester hours in accounting. These 30 hours may include up to 6 semester hours in any combination of courses in business law, economics, statistical/quantitative methods, computerized accounting or financial systems, financial management or finance.
Some combination of further education or experience will get you in at GS-7 or GS-9. Federal pay is pretty complicated, but based on this handy calculator that would have you starting at somewhere between $34,000 and $52,000.
What is the upside ? I was not able to figure that out exactly. Here is a list of the 1,000 highest paid federal employees. None of them work for the IRS. Number 1,000 was Elizabeth Salini, who works in accounting for the Security and Exchange Commission. She made $216,345.
Or Not
As I noted, you can hire somebody like me to deal with the revenue agent for you. The complexity of the tax system has created a rather large industry that is probably even more complicated than the IRS, itself. CPAs are a big part of that industry, but to make it further complicated not all CPAs do tax work.
There are over 600,000 CPAs in the United States. A typical way that a CPA firm will break down its revenue is audit, tax, advisory. I’m actually having a bit of trouble coming up with how many of us are focused on tax. Generally, for full service firms the percentage declines with size, but there are many specialized small firms that do no tax work at all. I think 30% would probably be on the low side overall. Clearly we substantially outnumber revenue agents particularly if you add to our ranks the 48,000 enrolled agents who can qualify for that designation by taking an exam.
The interesting thing is that the entry level education is pretty much the same. The entry level pay in public accounting is a bit higher. The upside in public accounting is much greater. Of course it is also much less transparent. To give you a sense you can see something like this
There is huge upside in the Big 4 accounting firms at the top. While not widely publicized, annual payouts to top partners at PWC, E&Y, Deloitte and KPMG often run north of $1,000,000.
The absolute top is probably not in the Big 4, since they are venerable institutions not capable of being run as quasi-benevolent dictatorships, which you will find scattered in the next tier. A good friend of mine who came out of retirement to work in that environment at a high level in a rather large city about 200 miles from our old stomping ground in Central Massachusetts told me that the most you could conceivably make as a CPA, still considered to be working in public accounting, is four million a year.
What Is The Point Of This Comparison ?
One way to look at CPAs and revenue agents is as adversaries. That is certainly the way it was with the section of the Big 4 that engineered what Jack Townsend calls the “raid on the fisc” with Son-of-Boss and other offenses against double entry. If those deals really worked, there was, in effect, an alternative tax on large capital gains. You could pay the government 20% or one of the Big 4 something like 3%. There were a lot more bells and whistles to it. The Son-of-Boss deals worked, in part, by layering complexity so it was hard for the IRS to see what was going on.
So CPAs and Revenue Agents have the same basic education and, in the tax area, struggle with the same body of knowledge. To the extent CPAs are focusing on helping their clients be in compliance, often a non-trivial task, they support the mission of the IRS, but when you get to sophisticated planning and audit representation, the relationship is adversarial. What do CPAs get that the Revenue Agents do not get ? Significant economic upside. What do the Revenue Agents get ? Possibly a better work/life balance and a defined benefit pension, that is not one Enron style debacle away from being obliterated.
I think that probably accounts for my own observation that I am quite a bit more intense than most of the Revenue Agents I have encountered. When things are going well, I get them to view me as a colleague rather than an adversary. After all, we are both working toward the same goal, a nice ticked and tied report that will sail through the agent’s review process. I like having that edge. Fair fights are for suckers. Nonetheless, I am not sure that it is optimal for the tax system as a whole.
Is This All A Distraction ?
Many people think we should have a much smaller federal government that needs a lot less revenue. It is a legitimate viewpoint. If we get there by changing the tax laws and cutting spending through democratic process, we’ll get to see how much we like it. If the lower revenue is achieved by gutting enforcement and demoralizing the enforcers that is a less happy result. It pretty much takes the same education and same skill set to work on gaming the tax system as it does in keeping the gaming under control. If we choose to take out our frustration with tax complexity on the people tasked with enforcement, we will be in for another decade like the nineties, during which. for those who could afford it, taxes really were voluntary.
You can follow me on twitter @peterreillycpa.
If you are still boiling about IRS conference spending, you may want to check out this site.