THE IRS IS PERFECTLY DESIGNED.


When I started as an employee with the Internal Revenue Service (IRS) in November of 2006 my intentions were:
  1. To secure gainful employment for the benefit of my family and myself.  I had been unemployed by some very reputable corporations.  Unemployment payments exhausted after 13 weeks in those days and I discovered that being a day trader was both hard on the nerves and inconsistent for the  wallet.
  2. To access retirement and medical benefits that were denied me by previous employers due to untimely downsizing programs that were all the rage starting in the mid 90’s.
  3. To help the federal government catch the “bad guys”, the tax dodgers who fail to pay their fair share and thereby increase the burden on compliant tax payers.
  4. To provide tax advice and counsel to honest employers and small businesses by guiding them through the complex maze of federal tax code.  I had benefited from excellent advice and counsel from an IRS Contact Representative when I started a small business in 2004.  I hoped to help others as I had been helped.
At the time it did not occur to me to investigate what the intentions of the IRS might have been.  I began to wonder about the bureaucracy's motives soon after our Contact Representative training class assembled.  The trainers were not professional trainers.  They were "volunteers" who usually performed the tasks we were expected to do after we were trained.  The materials they were given to teach from were incomprehensible.   The predominant training technique was lecture.  From the extensive training experience I had in corporate America as both trainer and trainee, I knew this would not be effective for the skill development necessary to meet my expectation of a competent, hands-on, customer service representative.  Where were the scripts and the role plays?

The approximately twenty students who comprised our class would have been challenging even if the instructors were trained professionals.  We were a diverse bunch.  We ranged from nineteen year old high school graduates to post-fifty five year old souls with graduate degrees.  One student had experience as an auditor for a Fortune 50 company.   Another had run his own business.  Several had experience in the airline industry.  One was going to school at night for his MBA and another was studying for his license as a Heating Ventilating Air Conditioning (HVAC) contractor.  The military was well represented.  A couple of students had prior IRS experience and were attempting to move up in the organization.

Our class was not hired as "seasonal" employees, which is the norm for IRS Contact Representatives.  This allows the IRS to lay off employees during slow periods and bring them back when the work picks up.  This is particularly advantageous for the budget planners at the IRS, not so much for the workers who don't always appreciate being out of work for weeks or even months every year.  Before we were hired we were advised to "increase our chances of being selected" by indicating that we would accept a seasonal position.  That choice was not acceptable to me.  Apparently, it was not acceptable to the other members of our class.  None of us was seasonal when we started.


We were an inquisitive bunch.  Initially, the instructors saw this as interest in the subject and willingness to learn.  Later they saw our class participation as interruptions that were knocking them off schedule.  It got to the point that the instructors' pat answer to our inquiries was, "Because this is the IRS."  This was later abbreviated to, "Where do you work?"  I heard these refrains hundreds of times during my five years with IRS. 


We were flabbergasted!  Even with our diverse educational and chronological differences, we were familiar with the idea as presented to us by a vast array of teachers, "There are no stupid questions."  But here we were, trying to learn our new jobs, bored to death by lectures and readings from the Internal Revenue Manual (IRM), being told that the answer to the question "Why...?" is "Because we said so."


We left the training class after a few weeks without having demonstrated the ability to do our first assignment.  Our first assignment was to issue Federal Tax Identification Numbers also know as Employer Identification Numbers (EIN) to businesses so that their tax records could be tracked.  Assigning EIN's is a relatively simple task.  Taxpayers who call for EIN's are usually business that are just starting out.  They are generally excited about the potential they see for their new venture and want to get started on the right foot with the IRS.   Our training was focused on avoiding the dreaded "disclosure error".  Disclosure errors are those errors committed by IRS employees by giving proprietary information, like an EIN, to an unauthorized person.  The penalties include termination of employment and/or jail time.  That's right, jail time!  Posters were placed throughout the work place so that every day IRS employees are reminded about the number of employees who have been terminated or jailed for committing the dreaded "disclosure error".  This was a great morale booster.  We will revisit "disclosure errors" in future posts.


It seemed to me and several of my classmates that the IRS culture had determined that the IRS way was the right way because it was the IRS way, a somewhat circular argument.


Our class got into the habit of answering questions posed by our fellow students, as a chorus.  Our chant was, "Because the IRS is perfectly designed."


In fact every institution or process is perfectly designed to deliver exactly the results that it delivers, no more, no less.  It does what it does and therefore is in perfect alignment to do so.  All of the parts, practices, assets, and behaviors must be in alignment to produce exactly what it produces or it wouldn't produce it.  It seems nonsensical in some ways and obvious in others.  It is a construct that is used by process improvement consultants to get people involved in the current ways of doing things to see that they must do things differently to get different results.


But what could possibly be the desired outcome of a process that puts inexperienced instructors before new employees, uses ineffective training techniques, fails to answer employee questions, puts inexperienced employees in front of customers, threatens employees with termination or jail time for failing to comply with disclosure rules that vary depending on the phone line that the employee is taking calls from.  


With the help of my classmates I formed a theory that might explain the IRS's behavior.  We threw out our original assumption that the IRS was populated with dolts who were the unwitting implementers of the dictates of Congress. Instead, we assumed that the IRS was not an unintentional web of incomprehensible tax codes managed by malevolent bureaucrats, but an intentional collaboration of federal agencies and law makers achieving what was to them a desirable end..  Our new theory has held up fairly well even in the face of recent political initiatives associated with the presidential campaign.


The Theory:  The Internal Revenue Service is perfectly designed to achieve the results that it achieves.


Assumption #1:  The Internal Revenue Service is not a haphazard amalgam of rules and regulations passed by Congress at a logarithmic rate since the 16th Amendment to the Constitution was ratified in 1913.  Everything about the IRS is intentional.


Assumption #2:  All of the resources of the IRS are intentionally aligned with its purpose i.e. the IRS is perfectly designed to get the results that it gets.  The Department of the Treasury has hired the very best tax minds and bureaucrats to run the IRS.  


Given these assumptions, what could possibly be the intended outcome that is consistent with the massive tax code, its attendant complexity, the endemic confusion of taxpayers and the increasing penalties and interest fees that are being assessed to citizens who are usually law abiding?


As a boy I was fond of reading the works of Sir Arthur Conan Doyle and his brilliantly logical hero, Sherlock Holmes.  I am reminded of one of the detective's sayings, When you have eliminated the impossible, whatever remains, however improbable, must be the truth.

How could complexity and confusion be intentional components of our tax system?

The truth is that complexity is not seen by all as an evil to be avoided.  Complexity is the friend of the bureaucrat.  It is a means to an end.  Here is how it works in the case of the IRS.  It may hold true for other bureaucracies as well.   


It is the mission of the IRS to gather revenues to be spent by the federal government.  The IRS has three streams of income.  They include:
  1. taxes
  2. penalties assessed to taxpayers for failing to comply with tax rules
  3. interest that is charged for failing to timely pay the taxes or penalties that have been assessed
The IRS does not set the tax rates, that's the job of Congress.  However, the IRS does have a direct impact on both penalties and interest.  The IRS interprets tax laws passed by Congress and writes the Tax Code.  If the IRS wants to maximize its collections for its sponsors in Congress, then it can manipulate the tax code to make it more complex, which increases confusion, which causes more mistakes, which results in greater penalties and interest flowing into the federal coffers.  Complexity drives more revenue.  The brilliance in this plan is that the federal government, through its agency the IRS, can increase revenues without the members of Congress risking re-election by raising the tax rates.  The tax rates can remain the same or even decrease, but the total revenues increase due to growing charges for penalties and interest that are driven by our friend, complexity in the tax code.


The tax code continues to grow.  Every new "reform" adds more complexity.  Taxpayers and the IRS employees who counsel them are confused and prone to make errors.  Political parties vocalize their commitment to tax reform.  But they continue to spend the increased revenue that flows to Washington due to tax system complexity.

The IRS is perfectly designed to get the results that it gets... less risk to political careers, more money for Washington to spend.  It has taken decades to create the massive tax code that we have today.  Complexity in our federal tax code is no mistake.  It is intentional.

LONG LIVE COMPLEXITY! 

Thank you for your attention,

Citizens for Tax Complexity






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