Tax Notes Talk

$80 Billion in New Funding: What’s Next for the IRS?

September 09, 2022 Tax Notes
Tax Notes Talk
$80 Billion in New Funding: What’s Next for the IRS?
Show Notes Transcript

Robert Kerr of Kerr Consulting LLC discusses how the $80 billion of additional funding for the IRS in the Inflation Reduction Act could be best used by the agency. 

For additional coverage, read these articles in Tax Notes:

In our “Editors’ Corner” segment, Sarah-Jane Morin, a partner with Morgan, Lewis & Bockius LLP, chats about her coauthored Tax Notes piece, “How the Definition of Digital Asset Brokers Was Brokered.”

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Host: David D. Stewart
Executive Producers: Jasper B. Smith, Paige Jones
Showrunner and Audio Engineer: Jordan Parrish
Guest Relations: Alexis Hart

David D. Stewart: Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: more money, more problems?

With the passage of the Inflation Reduction Act, the IRS is about to see a significant increase in its budget. Despite some alarmist fears, the complete picture of how the money will be spent is not yet clear.

So after years of declining funding, what can we expect from this new windfall? In a minute, we'll hear more about that from Tax Notes senior reporter Jonathan Curry.

Later in the episode we'll hear from Tax Notes Federal author Sarah-Jane Morin about tax issues involving digital asset brokers.

But first, Jonathan, welcome back to the podcast.

Jonathan Curry: Hi, Dave.

David D. Stewart: So I understand you recently talked to somebody about the IRS budget. Who did you talk to?

Jonathan Curry: Yeah, so our guest this week was Robert Kerr. He has his own tax consulting shop now, but he's had a long career in tax that's really covered a lot of bases. He's worked at the IRS for a decade in the '90s, and then he went on to work on Capitol Hill as an aid to Senator Grassley. And then he also had a long stint working with the National Association of Enrolled Agents, advocating for the tax professional community.

So he's really well versed in just about everything tax. He knows tax policy, he knows tax administration, tax practice, you name it.

David D. Stewart: All right. And what all did you talk about?

Jonathan Curry: Well, naturally we brought him on to talk about that $80 billion pot of funding the IRS was just granted last month as part of that Inflation Reduction Act.

Now, we talked about how all this new money coincides with the changing of the guard at the top. Commissioner Rettig's term is set to expire in November, and the IRS is just about to have— well, they now have all this new money to spend. And we also talked about just how long-term this funding really is guaranteed for. It's supposed to be for 10 years, but will it actually last that long?

And yes, we you will find out once and for all if there is indeed an army of 87,000 gun-toting IRS agents coming after your grandmother.

David D. Stewart: Well, I can't wait to hear, so let's go to that interview.

Jonathan Curry: All right. Well, Bob, it's great to have you here in the studio at 400 South Maple Avenue for this podcast. How are you doing today?

Robert Kerr: I'm great. I'm happy to be here. Thanks for the invite.

Jonathan Curry: Yeah, and we're real excited to have you here. So we're going to jump into it.

So last month President Biden signed into law the Inflation Reduction Act. And there was a lot in there, but we're going to spotlight just one wee-little provision in there: $80 billion in additional funding for the IRS that they get to spend over the next decade.

So tell me, Bob, does the IRS regularly get $80 billion infusions of cash from Congress or is this kind of a special event happening here?

Robert Kerr: Yes, this is a special. I love the frame there. It's happened approximately never, as far as my memory goes. IRS has never been presented with a bump. Any increase to the agency's budget is surprising, but something of this magnitude, I've never seen it. Not even close.

Jonathan Curry: So first we need to get this out of the way. Will there, in fact, be an army of 87,000 armed IRS agents coming to pillage your grandmother's village because of this bill?

Robert Kerr: Well, they're not coming to my grandmother's village. I don't know about your grandmother's village.

No, in fact, what's absolutely remarkable is how much airplay this assertion has gotten. It is completely unmoored from reality, which doesn't make it any less tenacious. You will see it everywhere. You'll see it on Instagram, for Pete's sake. No, and the short answer is no, it's not 87,000 "agents," with air quote, whatever an "agent" is.

Jonathan Curry: No, I know the IRS gets politicized, becomes a punching bag for both sides as it befits them. Have you ever seen anything like these kinds of claims coming out of the far corners of the internet, and really now in this case fairly mainstream sources as well, or is this sort of a peculiar moment that we're experiencing here?

Robert Kerr: I think it's a question more of magnitude than it is of direction. I don't think it's at all uncommon to hear scurrilous things related to IRS. If you're going to rank, in order, the favorite federal agencies, I don't think it makes the top of anyone's list outside of this room. So there's that baseline that I think is important to keep in mind.

But what we're seeing recently, and Jonathan, it may be sort of part and parcel, the overall deterioration of political discourse in this city, particularly, and written more largely in this country.

That said, to the extent that we're seeing this type of persistent untruths, I think that that is new and unfortunate.

Jonathan Curry: So this is long-term funding and it comes out to about $8 billion a year, and it's for an agency whose annual budget is really about $13 billion. That's more than half of what they're getting now.

This is a huge amount of cash, right? But is it really long-term funding in the way that it's been signed into law?

Robert Kerr: On two fronts here. First, yes, it really is. It's not only a supplement to the IRS's base budget, it is a significant — it's a massive — supplement to the base.

To the larger question, which I think is one that's of many things that get lost in the shuffle here. It's, at least, on paper, it's theoretically 10 years worth of funding for $80 billion. That's how the provision is written within the Inflation Reduction Act, which I'm thankful that you don't shorthand to IRA, which makes me just crazy because there's nothing in it about IRAs.

So over 10 years, and if you assume even spending, it's about $8 billion a year, I'd suggest to you it's not going to be even spending. And I would also sort of clarify for the audience here that current Congress can't tie the hands of future Congress.

So what we have here is as long as we have a Democratic president and one of the chambers is Democratic— well, in fact, as long as you have a Democratic president for the next two years, IRS is good to go. And then what happens in another two years? Well, that will remain to be seen.

Jonathan Curry: So this is only about two years that this is guaranteed. What does the IRS need to do in these two years to give themselves the best chance of holding onto this cash for a longer period of time?

Robert Kerr: IRS is in a position, and I think that the Treasury secretary, per recent statements on, "All right, IRS, I've give you a big homework assignment. You've got six months to produce a spend plan." I would call it a spend plan, but really a spend plan has to be backing up, "What are you going to do with it?"

The agency— Well, let me back up. The fact that Treasury's asking for it, I think, is significant and meaningful, and I think that that's gotten lost also in the shuffle here, that it's not, "Here's eight billion dollars a year, just have at it." Treasury is going to be keeping a pretty close eye on it, because the agency, it has to succeed here.

And to your question then, what do we expect from the plan? Well, I believe we need to see something that instills confidence that the agency in fact has a plan That the plan is a reasonable one and that it's achievable, it's accomplishable, if that's even a word.

So set down the marker, "Here's where we're going, here's how we're getting there, and here's some intermediate milestones." Because otherwise, how are people who have a legitimate oversight responsibilities, how do they provide oversight?

Jonathan Curry: Yeah. Right. And this six month report, there was a provision actually in the Inflation Reduction Act itself, at one point, that required the IRS to issue this report within six months saying, "Here's what we're going to do."

Robert Kerr: And then milestones or interim reports. Then they got peeled out. It was a bird dropping.

Jonathan Curry: Yeah, yeah. The Senate parliamentarian ruled that you can't include that provision for their various procedural reasons—

Robert Kerr: The reconciliation.

Jonathan Curry: The reconciliation. Yeah, it was a lot of fun. I love the Byrd rule jargon that comes with that. A lot of creativity there.

But then I guess we got the next best thing. Treasury Secretary Yellen wrote a letter to Commissioner Rettig, essentially pledging, or really ordering the IRS to do this. "We're watching you, work with us on this." Because this is a pretty high profile thing for them, right?

Robert Kerr: It's enormously high profile. This is precisely wrong, but roughly right. IRS is probably some 90 percent of Treasury in staff years, in budget. And historically the expectation from Treasury to IRS is, "Go do whatever you're going to do. I don't want to see you above the fold. I don't want to see you in the Post, I don't want to see you in the Times, I don't want to see you above the fold."

In this case, the infusion is so significant, and I think that the stakes are so high that Treasury just simply has to be involved.

Jonathan Curry: So at this point, there's been a lot of criticism that the IRS isn't prepared to spend $80 billion and that sort of thing. Do you think a lot is hinging on this six month report that's going to be coming out to sort of tamp down that criticism? And is it a major opportunity for the IRS to say, "Hey, we got this, we can handle this," and if they screw it up, that might start the voices chattering in Congress saying, "Well, maybe we should make it 60 billion," or something like that.

Robert Kerr: Wait, you've just lobbed it out there. I think there were two pieces to it. The one that I found more interesting was this notion of, "Well, you can't spend that." Somehow that there's a throughput problem.

And I think that there's some truth to it, in the sense that if the agency is built right now as a $12 billion agency, how do you actually turn that into a $20 billion agency?

And in my estimation, there are some challenges in that proposition. How do you hire? Going back to 87,000, which is not 87,000 armed people coming into your grandmother's village, but it is roughly 87,000 people in.

And just the hiring process, how do you do that? And IRS is suggesting 5,000 in the early years and then ramping up to 12,000 a year.

And without turning this into a monologue on the challenges of federal hiring, I would just suggest that it's hard. It's harder than it looks.

Jonathan Curry: For as long as I've been on this beat, Commissioner Rettig, they've had money now to hire for taxpayer services, phone assisters and things like that, and processing, and what they're running into is, it's hard to keep those people in a period of low unemployment when you're competing against Amazon for similar jobs.

Robert Kerr: To me it's a tremendous headwind, which is— This isn't IRS's fault, to be clear.

The federal hiring process: you post, it goes to or whatever that is, and you log in and you have to create, not a resume, but something that looks like an SF-171, because, of course, it's the federal government and we have a form for that. And then it goes off to IRS, and into the void, and takes however long to hear, if you ever hear, and then background checks even add another layer of complexity and time. And next thing you know, it could be, I don't know, eight months before that person is onboarded.

Who wants to wait eight months to figure out that, "I get to go answer questions for IRS?"

Jonathan Curry: When you could be getting paid basically the same or more at a private competitor and be hired next week. It's a challenge for them, and it's a hard one to figure out the answer to.

I know the IRS has been granted direct hire authority for certain positions this year for that, and that's helped them with the hiring effort. But even still, the competition is challenging.

Robert Kerr: Well, and the direct hiring, I thought this was really important. It was in the original Build Back Better, and then again, through the reconciliation process, it's stripped out. There was a provision for some 500 direct hire, which, that loss I believe is significant.

I believe that that provision helped the agency hire at higher levels because of the pay flexibility. But it wasn't only the pay flexibility, it was also the ease of which they could hire. All of that fell out through reconciliation. And the agency, I think, would be much better situated today if it hadn't fallen out.

Jonathan Curry: So this $80 billion is coming at an interesting time. It's right as Commissioner Rettig's term is set to expire. I believe on November 12 is his last day holding that position. So this next person taking the role is going to be really overseeing this effort.

Who should be next for this? Any thoughts on what the candidate should look like?

Robert Kerr: I agree with you, Jonathan, that the timing appears to be fortuitous. That the funding supplement appears on the horizon at the same time that a new commissioner coming in for a five year term. That is, to my sense, is good. And I think to most people's who follow tax administration, they think that that's good.

Begging the question of, "Well, then who's the perfect candidate?" Different folks are going to have different biases, I suppose. I would see someone who once again goes back to more of a Charles Rossotti model, someone who brings in some significant large organization, private sector, customer service modernization, IT chops.

Jonathan Curry: Yeah, absolutely. And that'd be sort of a contrast to what we currently have now.

I think Commissioner Rettig has been something of an anomaly in the past two decades or so, since the IRS Reform Restructuring Act, where Rettig is a tax practitioner, professional. He served as a tax controversy attorney partner at a firm out in California for a long time, a couple decades.

And most of the commissioners, appointed ones at least, were, as you described, more of a Charles Rossotti type, with private sector management type experience. And you think that's probably better for the moment now?

Robert Kerr: Sort of a bit of inserting history here. Prior to RA '98, commissioners were tax attorneys. That was the model back in the day. So I think that tax is one of those funny industries that we hang out here forever. And so people who go, "Oh, they're in Radioland and Pod-land," are going to be saying, "But wait, no, no, it's not that way." And so you have this long history of—

Jonathan Curry: Fair enough.

Robert Kerr: —tax attorneys. That said, you don't have a long history of IRS getting, I don't know, a 70 percent supplement for the next 10 years and asked to do the things it's going to be asked to do.

So my preference would be to see somebody who has that level of expertise, again, in customer service, IT, accounts management experience, who should be bringing in or consulting with people who have real tax experience, because when the rubber hits the road, the agency is a tax authority. Bringing in somebody who has those technical skills without having the ability to marry them to what it is the agency actually does, I think will present its own challenges.

Jonathan Curry: So how important is this role really? Do IRS commissioners, do they really leave their mark on the agency or are they more just like a figurehead at the top, stewarding the sprawling bureaucracy?

Robert Kerr: Oh, I absolutely think that they can and do make a difference.

So the question then here, how important? I'd say it's very important, and maybe we're going to go in this direction anyways. It sort of begs the question of, when are we going to see another commissioner coming around the mountain? Given that we don't have a nominee yet.

Jonathan Curry: Yeah, right. And it's a presidential appointed, Senate confirmed position. And that process, in your experience, takes a while. Correct?

Robert Kerr: So the process or the length of time between a president making the nomination and the full Senate approving that nomination can be lengthy.

For the nominee it can be both tedious and intrusive. This is one of Bob's pet peeves, is that we subject people who are highly qualified to a process that is so distasteful and we ask them to put their lives on hold during it. So I wouldn't want to undersell that the process itself is a challenge, to put it kindly.

So here we are without a nominee and it's September. If we had one tomorrow, I'd suggest we'd be lucky to see him or her on the job in six months. So it's going to be a while. Sooner is better than later.

Jonathan Curry: Is there a possibility that since this is now become sort of a high-profile initiative of the Biden administration, that they might try to accelerate things a bit?

Robert Kerr: Sure, Jonathan. Anything's possible, so I wouldn't say no.

Recent history has shown us that it takes a long time to get a commissioner nominee. For instance, Chuck Rettig was about a year late onto the job, given what the five year term is.

So the other issue, and this is, I suppose, tilting at windmills, the administration knows that the commissioner will term out in November of '22. It has known this for four years. The prior administration was just a matter, but this one has known for a while and we don't have a nominee. And I don't know whether that's simply a question of priority or a question of how do you find someone willing to take that job.

Jonathan Curry: Yeah, it's a big ask. I did do an article recently where I spoke with former Commissioner John Koskinen, who had held that job a couple years ago. He said that that might be an exciting opportunity.

Now it wouldn't have been before the IRS got this funding, when they were just trying to keep things afloat while being constantly short on cash, and being yelled at by Congress every other week. But with this, with $80 billion to spend, for the right person it could be an incredibly attractive opportunity.

But, like you mentioned, Congress nomination vetting process can be brutal.

Robert Kerr: And Jonathan, I completely agree with Commissioner Koskinen — or former Commissioner Koskinen — on that assessment because without that it's just beatings will be administered until morale improves, and you get to trot over to the Hill and have somebody yell at you.

In this new environment, you might have the ability to make real change. And that, I think, for a certain set of people, is profoundly exciting.

Jonathan Curry: So Bob, one thing that's been included in this bill that's sort of a quirk, is that President Biden has — really since he's taken office and before that even — he's pledged he's not going to raise taxes on those earning more than $400,000 a year. And of course to tax nerds, that gets a little bit messy when you try to say, well, how do you define $400,000 in income and things like that?

But in the context of this $80 billion of funding, the Biden administration and its officials and all that, they've gone through extreme lengths to emphasize that they're not going to increase audits on those earning less than $400,000 relative to recent historical norms, which is somewhat of a fluid number.

But I want to hear your thoughts on that. How does this actually play out? Is this going to hamstring the IRS? What's your gut reaction here?

Robert Kerr: Lots of questions, so let me try to unpack them. I found extremely interesting the flourish, and I think it was from the secretary, and I think it was in a second letter, not the first, if I remember this order of events.

So from a second letter that came out, in which she appeared to be sort of a throwaway line saying, "relative to historic levels of enforcement."

I thought that that was needful and wise, by the way, because, to me, it does two things. Number one: I believe that it adheres to the spirit of the pledge on $400,000. Now we could take a jolly romp here on whether $400,000 is really what middle class is in this country, but we'll stipulate for the moment that it is. So it gives IRS some room to navigate.

And it acknowledges, by the way, that IRS audit coverage rate performance or any sort of coverage rate that you would consider in collection as well, has been on a decided downward trend. In exam IRS has tried to pick up the slack to do the annual report that shows the data book.

Jonathan Curry: Yeah, sure.

Robert Kerr: They've, I think, has tried with some success to fill in the gap with correspondence audits. I think what we're going to see here is real audits throughout the strata, because there's room both below and above $400,000.

On the collection side you'll see the same. I think collection presents its own sort of challenge because how do I know? If you haven't filed a return, as IRS, I might have a sense whether you're over or under. The agency needs a little space to breathe and this provides it.

I think it's needful. I think it's necessary. And I think that most people would suggest that it's ordinary and necessary.

Jonathan Curry: I also had a conversation with Nina Olson, she's with the Center for Taxpayer Rights. She's also a Tax Analysts board member. She pointed out to me recently an audit is a specifically defined term. And so, that saying you're not going to raise audits doesn't necessarily preclude other sub-audit type of enforcement activities. A soft notice letter from the IRS saying, "Hey, we think you owe this." Is that an audit?

Robert Kerr: I'm on the same page with Nina. On this notion of what is or what isn't an audit, and she is known to be excited about this. I'm also excited about math error notices, which in fact are not audits, but they look and smell and taste like an audit. So I think perhaps she was going there and I certainly don't disagree with her.

Jonathan Curry: I wouldn't also recommend eating your math error notices.

Robert Kerr: I've never tried myself, but I also do not recommend.

Jonathan Curry: We've talked about how this $80 billion is really unprecedented, just in its scope, but are there any lessons from the past that the IRS can learn, or put to work as it spends this money, and comes up with its plans, and maybe some pitfalls to avoid things like that?

Robert Kerr: Of course there are. As you were asking in the question, my mind was flashing to the mall, to the archives building, where they have the statues outside that says on the one hand, "Past is prologue," and on the other hand, "Study the past." So I think that that admonition is true here as well.

This is not the first time IRS has tried to overhaul its operations. It has a long history of these efforts which have had mixed success. So I think that there is great value in it. There's great value in figuring out what did we do well? Where did we struggle?

As I've seen— I had cheap seats for these things. I think the agency struggles in determining what it is building. So determining requirements, contracting out to have them build, and then incessant change orders. So that you started by saying, "I want A," and then you're halfway through and you say, "I want A minus B plus C plus half of F." And it becomes a significant problem to get the work done when you can't nail down what the requirements are.

Jonathan Curry: I know Commissioner Rettig, at pretty much every congressional hearing I've heard him speak at, he's always emphasized, "We need long term consistent funding." He says that that'll help with the start-stop and make it so that projects can be seen through to completion, hopefully. So I know he envisions that as helping with that. Again, we'll see how long term this really truly is.

Robert Kerr: And Jonathan, if I may, I don't want to leave folks with the sense that this is two year money. It's built as 10 year money, and it may in fact be somewhere close to 10 years in the payout. We don't know though.

So because of that, I think we start talking about, "We know we can get things done in two years, so let's go."

Jonathan Curry: Any sort of potential pain points for the IRS in the next few years to watch out for? Things they should try to avoid, or that could end up derailing this funding or are these pain points somewhat inevitable?

Robert Kerr: When you ask are any potential pain points, I think, "Oh my gosh, yes, there's all kinds." There's all kinds of possible pain points.

I think one of the struggles, if you're within the agency doing — in your mind, God's work — is that there is no shortage of Monday morning quarterback and no shortage of people taking pot shots from the cheap seats. So to lead there is to have a thick skin.

So there is that, because there's going to be all kinds of critiquing going on. The success of the enterprise, I believe, is going to be predicated on having a solid workable plan. One that is understandable, and one in which IRS is talking about its progress.

I think that there's opportunities, as well, for the agency to recast itself here through the process. And I like an idea of recasting itself more as a service. We look at what we do through the prism of taxpayer service through any part of the cycle, of the taxpayer cycle, which would be pre-filing, filing and post-filing. So throughout that entire timeframe, the agency is there to provide service.

Now in some cases, post-filing service, people aren't all that wildly excited about because, well, it's enforcement. It is part of the whole, and it doesn't mean that it can't be done through a service prism.

Jonathan Curry: Yeah, I know one of the critiques I've heard from Republicans has been that it's for the IRS, but the $80 billion is broken up into four different accounts. One is about $40 some billion for enforcement, and then the rest is divided up amongst taxpayer services operations like keeping buildings running and IT modernization.

And so, do you think that these two objectives of really making the IRS more taxpayer service focused, thinking about things from their perspective, can jive, if you want to say, with the pretty clearly big allotment towards enforcement in particular? Do you think that that could be worked together?

Robert Kerr: Absolutely. And Jonathan, I'm so glad that you raised this issue. You're absolutely correct.

At the highest level, it's roughly $80 billion. It's a little less. And about a little more than half of that, $45.6 plus or minus billion for enforcement, you've got about $25 billion for operational support. You've got $4.75 billion for business systems modernization, and then $3.18 billion, which in most worlds is a lot of money for taxpayer service.

But it begs the question of, without being too cute about it, what is taxpayer service? I would argue, in this context, a taxpayer service, IRS looks at taxpayer services, toll free, 1-800 TAX 1040, walk-in. Maybe parts of the IRS website falls under the rubric of taxpayer service.

But let's walk around to look at enforcement. How much of that is revenue agents, revenue officers? And how much of that is responding to a CP2000 notice or a math error notice?

So you get the notice IRS, "We're adjusting your balance due by X thousand dollars." You pick up the phone and you talk to somebody. And is that customer service? I would argue, yes. And I would argue that, in that case, that's coming from the $45.6 billion enforcement bucket.

So as we think about this, I think that that's an important issue to drive home.

Jonathan Curry: So that does it for my questions. Any last parting thought just about the fact that the IRS, they have this big grant of money. Anything that our listeners should walk away with?

Robert Kerr: Jonathan, I know this is trite but I'm going to say it anyways.

Failure is not an option here. This is a once in a generation opportunity for the agency to modernize, to meet the expectations and needs of taxpayers and it simply has to succeed.

And frankly, it's in everyone's interest that the agency does. So it's in taxpayer's interest, it's in industry interest, it's in tax professional interest. We should all be rooting for and doing everything we can to help.

Jonathan Curry: Bob, thank you so much for being here with us today. It's been a pleasure talking with you.

Robert Kerr: The pleasure's all mine. Thank you for the invitation.

David D. Stewart: And now, coming attractions. Each week we highlight new and interesting commentary in our magazines. Joining me now is Acquisitions and Engagement Editor in Chief Paige Jones. Paige, what do you have for us?

Paige Jones: Thanks, Dave. In Tax Notes Federal, Jason DeBacker uses numerical simulations to demonstrate the effects of inflation on corporate investment incentives under the U.S. tax system. Stephanie Hunter McMahon advocates for Congress to enact when possible and to otherwise push for an expansion of the social safety net for prison labor. In Tax Notes State, this installment of board briefs features Tax Notes State advisory board members discussing the impact of South Dakota v. Wayfair, four years later. Tony Santiago examines factors that have contributed to the trend of title and salary inflation in the U.S. tax market. In Tax Notes International, Reuven Avi-Yonah looks at the Tax Court's recent Medtronic II decision, and considers how the new corporate alternative minimum tax may provide a solution to the profit shifting problem. Also in the wake of the recent Medtronic II decision, J. Harold McClure reconsiders the Medtronic litigation, focusing on the application of the unspecified method. In Featured Analysis, Joseph Thorndike examines how FDR relied on moralistic rhetoric on fairness and fiscal citizenship that reshaped American taxation for decades to come.

And now, for a closer look at what's new and noteworthy in our magazines here is Tax Notes Federal Editor in Chief Ariel Greenblum.

Ariel Greenblum: Thanks, Paige. I'm here with Sarah-Jane Morin, a partner with Morgan, Lewis and Bockius. Welcome to the podcast Sarah-Jane.

Sarah-Jane Morin: Thank you. Good to be here.

Ariel Greenblum: We're here to discuss your Tax Notes Federal article titled, "How the Definition of Digital Asset Brokers was Brokered," which you co-wrote with three practitioners from Morgan Lewis. Could you give us a brief overview of the article?

Sarah-Jane Morin: Happy to. Our article looks at the curious and the fascinating, in my view, history of the enactment of code section 6045(c)(1)(D), which also has, as we discuss in the article, an ongoing interplay with Treasury and senators.

The legislation that we review in the article was enacted into law as part of the Infrastructure Investment and Jobs Act. And it amended the definition of "broker" in section 6045(c)(1)(D) to broadly include any person who — for consideration — is responsible for regularly providing any service effectuating transfers of digital assets on behalf of another person.

So in other words, the amendment would require "brokers" of digital assets to report information to the IRS and to entities or individuals regarding digital asset transfers. Defining "broker" really caused a kerfuffle among stakeholders in the industry and among the tax practitioners that we've spoken to. And we go into detail into this in the article and why it was such a kerfuffle.

As you might suspect, the reason it is important is how you define "broker" in turn defines who is subject to the reporting requirement. And many stakeholders expressed concern at the time this legislation was enacted, that it was too broad and it would pick up people or entities or organizations that shouldn't be doing this reporting.

There were several attempts, as we describe in the article, to amend the legislation before it was enacted into law. Those attempts failed. But we do describe them in the article and what they would have done had they been successful. Pre-enactment of the law, several senators entered into, and this is where I think it really gets interesting, a so-called colloquy on the Senate floor to try to clarify the definition of broker in their view.

A colloquy is, in my words, essentially a chat, but it's entered into the congressional record. That is very fascinating to me in terms of whether or not that colloquy is precedential. Should we look back to it in terms of interpreting the law going forward, or is it too convenient, too cute in a way to look back to? So we talk about that in the article.

Lastly, in the article we talk about some letters. After that colloquy I mentioned, senators and Treasury engaged in writing letters to each other about 6045(c)(1)(D) and how they interpret it, and what they expect future regulations promulgated thereunder to say.

They referenced the colloquy in those letters, interestingly. So we talk about that in the article. Those letters were also made public, as we discussed in the article, on Twitter. So we talk about that aspect as well.

In short, the article's really a great overview of the legislative process that played out in 6045(c)(1)(D) becoming a law, and how it was played out in a very public manner and on Twitter. So it's a great insight into what might have been going on behind the scenes in this rule making process.

Ariel Greenblum: Thank you. What prompted you to write about it?

Sarah-Jane Morin: Well, my coauthors and I are all heavily involved in the digital asset tax space in some form or fashion. We consume lots of written material, as I'm sure you've seen also about digital assets, all the time. There's a lot of great information out there.

What we hadn't seen, and we do talk about these issues, was anything looking at 6045(c)(1)(D) from the perspective of how it became a law and those various push and pulls that I raised earlier, that colloquy, those letters. We really liked that angle and wanted to get into that a little more meaningfully.

I also personally received a number of inquiries from stakeholders in the industry and other tax practitioners about colloquies and whether they carry precedential weight. Should we be reviewing this colloquy and having it all printed out next to us has a way of interpreting law? And I couldn't find much discussion of that. So that seemed like a great angle for an article as well. And in fact, when we looked into it, there is case law on colloquies, which we describe in the article.

So we thought all of that, collectively, would make a great discussion for an article.

Ariel Greenblum: Thank you so much, Sarah. Yeah. Before we let you go, where can listeners find you online?

Sarah-Jane Morin: So I can be reached through email or phone. My biography is on the Morgan, Lewis, and Bockius website. Has all my information. I welcome any calls or emails about colloquies or otherwise.

Ariel Greenblum: Thanks for joining us on the podcast today, Sarah-Jane.

Sarah-Jane Morin: Thank you for having me.

Ariel Greenblum: You could find Sarah-Jane's coauthored article online at, and be sure to subscribe to our YouTube channel, Tax Notes, for more in depth discussions on what's new and noteworthy in tax. Again, that's Tax Notes with an S. Back to you, Dave.

David D. Stewart: That's it for this week. You can follow me online @TaxStew, that's S-T-E-W. And be sure to follow @TaxNotes for all things tax. If you have any comments, questions or suggestions for a future episode, you can email us at And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.