An interview with Paul Cherecwich: former TEI President discusses his service on the IRS oversight board.

TEI: Congratulations on your appointment to the Internal Revenue Service Oversight Board. Can you give us a little background about the Board?

PC: The Oversight Board was created by the IRS Restructuring and Reform Act of 1998. It actually didn't commence operations until 2000. The Board's role is to strategically govern the IRS. Congress wanted accountability, continuity of tax administration, and the expertise of the private sector.

TEI: Who makes up the Board?

PC: The Board consists of nine members, including the Secretary of the Treasury and the Commissioner of Internal Revenue. The remaining seven members are known as "private life" members, and include a person who is either a full-time federal employee or a representative of IRS employees.

TEI: Is service on the Board a full- or part-time job?

PC: It was conceived as a part-time job, although given the amount of reading material and travel time, I am beginning to wonder. I am the only retired person among the private life members, so I imagine their nights and weekends are pretty full.

TEI: How did you get this job?

PC: Private life members are nominated by the President, and confirmed by the Senate. The President announced my nomination in May 2006. My confirmation hearing was conducted by the Senate Finance Committee in November 2006, and the full Senate voted to confirm my nomination in December 2006.

TEI: Let me ask the question again. How did you get this job?

PC: When I was TEI's International President in 1997 and 1998, I was involved on behalf of TEI in the discussions that led to the enactment of IRS Restructuring and Reform Act of 1998. At that time, I thought that one day it might be nice to be a Board member. I retired from Utah-based Cordant Technologies in late 2000, and began working part time for Miller & Chevalier. When I retired from Miller & Chevalier at the end of 2004, there were vacancies on the Board, so I asked Evan Liddiard of Sen. Orrin Hatch's office if he thought I would make an appropriate candidate. He encouraged me to apply for the position, as did former IRS Commissioner Larry Gibbs, one of my colleagues at Miller & Chevalier. Sen. Hatch wrote a letter of endorsement to the White House in my behalf, as did former Assistant Secretary of the Treasury for Tax Policy Pamela Olson.

TEI: There was a long time between your nomination and your confirmation hearing. Was the process arduous?

PC: On paper at least, I had to go through the same process as any other presidential nominee. I truly believe that the White House now knows more about me than Ruth, my wife of 43 years, does. There was one humorous incident that is noteworthy. I was informed by the White House of the President's intent to nominate me in May 2005, but asked not to tell anyone until a formal announcement was made. I honored that request, and didn't tell my children or their spouses. One day the FBI knocked on the door of a family member and asked to speak about me. The family member who answered the door knew of no reason why the FBI might be interested in me, so that family member decided the person at the door must be an impostor and told the investigator to leave before the police were called! When I found out about it, I informed the family member that it really was the FBI, and any questions they had should be answered.

TEI: Thanks for the background. Can you tell us a little bit about what the Board actually does?

PC: There are five key functions performed by the Board. We review and approve the budget request that the IRS submits to Treasury; we review and approve IRS strategic plans; we review and comment upon the selection and performance of IRS senior management; we recommend persons for appointment as IRS Commissioner; and we send an Annual Report to Congress on the performance of the IRS.

TEI: Tell us a bit more about your involvement in the IRS budget.

PC: Right now, the government is in the planning phases for its FY 2009 budget. No one in government does "zero-based" budgeting, so the process begins with the IRS documenting its base budget (that is, previously authorized expenditures), and increasing that amount by certain inflationary costs such as federal pay increases. To that the IRS adds a series of "initiatives," or program plans the agency would like to undertake. The Board reviews these initiatives for consistency with the IRS strategic plan and the IRS's perceived ability to successfully implement the initiatives. When approved, the Board submits the budget to Treasury, which in turn submits an overall budget request to the Office of Management and Budget. When approved by OMB, the Administration submits the entire package to Congress.

As you can well imagine, there is a lot of opportunity for change to the budget originally approved by the Board. Because of this, RRA 98 requires the Administration to also submit the budget request approved by the Board. The Board subsequently submits to Congress a detailed explanation of IRS budget request that it (the Board) originally approved.

TEI: How about the IRS Strategic Plan?

PC: A strategic plan covering 2005-2009 was approved by the Board in late 2004. It is a lengthy document covering three major goals: (1) improve taxpayer service; (2) enhance enforcement of the tax law; and (3) modernize the IRS through its people, processes, and technology. The plan lays out specific tasks to achieve each of these goals. The Board and its committees regularly review the progress the IRS is making toward achieving those goals, and reports to Congress annually on that progress.

TEI: I think we understand the modernizing part, because that has been a goal of the IRS for years. We are certainly seeing what you refer to as "enhanced enforcement," with the IRS increasing the number of audits and becoming more focused, even aggressive in its approach. What about taxpayer service?

PC: The IRS recently submitted to Congress its Taxpayer Assistance Blueprint, which outlines the steps the IRS plans to take over the next five years to improve customer service. The Board assisted with the development of the Blueprint. Quite candidly, the Blueprint does not directly address areas of interest to TEI members. We must remember that the income tax returns of the 3,000 corporations represented by TEI members are but a small fraction of the 177 million income tax returns filed in 2005.

TEI: Where does that leave TEI members when it comes to improvements in taxpayer services for LMSB taxpayers?

PC: Two answers. First, the Board Operations Committee (of which I am a member) meets with LMSB leadership on a regular basis to review performance. One of the measures of performance is the level of customer satisfaction as determined by LMSB's customer survey vendor, Pacific Consulting Group. When addressing reasons customer satisfaction survey results are not where we would like them to be, customer service issues arise and are addressed.

Second, TEI plays a valuable role in identifying issues and areas for improvements, which it then communicates to LMSB through its liaison meetings, etc. TEI's input has always been taken seriously by LMSB, even though TEI's recommendations may not always be adopted.

TEI: There has been a lot of discussion lately about the tax gap. What are your views on its causes?

PC: The bulk of the $345 billion annual tax gap arises due to underreporting by small business and self-employed individuals. The IRS will be focusing renewed efforts in this area. The gap attributed to corporations is $30 billion. Since the research data that resulted in this number dates to 2001, a big part of that number may relate to listed transactions and will, for a variety of reasons, likely decline over time.

The Oversight Board held a public hearing in March to discuss the tax gap. TEI was present, and suggested that more specificity was required regarding the sources of the tax gap. Other stakeholders agreed. Congress does, too, as evidenced by legislation that's passed the House to require the IRS to develop a five-year plan to improve its research. The Oversight Board in its budget reviews has also emphasized the need for both continuing and improved research on tax compliance issues.

TEI: Besides more research to better identify the causes of the tax gap, what else can be done to reduce it?

PC: TEI was a cosponsor of the invitational National Conference on the Tax Gap held in June. One of the recommendations of participants was to reinforce as a social norm the obligation to pay one's taxes. The Oversight Board in its testimony before the Senate in July 2006 suggested that there must be more emphasis on personal integrity in making tax decisions. The vast majority of, if not all, TEI members have a high degree of personal integrity, and I would hope that in their conversations with non-tax people they emphasize the positive role they play in ensuring that their employers meet their tax obligations.

TEI. You stated earlier that another role of the Oversight Board is to recommend candidates for the position of IRS Commissioner. Now that Mark Everson has resigned, has the Board done so?

PC: The Board has recommended a number of candidates to the White House, and is actively working to identify others.

TEI: Wrapping up, do you think the Oversight Board has--or can have--a positive effect on tax administration?

PC: Believe me, failure to have a positive effect won't be from lack of trying! The mere fact that critical reviews of performance regularly take place is a positive development. Also, the Board is committed to building strong relationships with stakeholder organizations such as TEI. For example, I have encouraged TEI's leadership to make its views known to the Board without waiting to be asked.

TEI: How can TEI members find out more about the Board and its operations?

PC: Visit the Board web site at www.treas.gov/irsob. In addition to a description of the Board's legal responsibilities, the site contains all the reports to Congress, press releases, etc. issued by the Board.

Editor's Note: Paul Cherecwich, Jr. served as 1997-1998 International President of Tax Executives Institute. In 2000, he retired from Cordant Technologies in Ogden, Utah, and subsequently began worked for the Washington, D.C., law firm of Miller & Chevalier. An Honorary Member of Tax Executives Institute, he was appointed to the IRS Oversight Board by President Bush earlier this year. Recently, TEI sat down with Mr. Cherecwich and talked with him about his tenure on the Board.