Nina Olson, who retired as the National Taxpayer Advocate six months ago, talks about her new nonprofit and the need for Treasury to soon name her permanent successor.
This is part 1 of her interview with Tax Notes senior reporter William Hoffman.
For additional coverage, read these articles in Tax Notes:
In Willis Weighs In, Tax Notes contributing editor Ben Willis discusses vote-to-value disparity related to his article.
Nina Olson, who retired as the National Taxpayer Advocate six months ago, talks about her new nonprofit and the need for Treasury to soon name her permanent successor.
This is part 1 of her interview with Tax Notes senior reporter William Hoffman.
For additional coverage, read these articles in Tax Notes:
In Willis Weighs In, Tax Notes contributing editor Ben Willis discusses vote-to-value disparity related to his article.
David Stewart: 0:00
Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week: checking in with the former national taxpayer advocate. Nina Olson retired from public service almost six months ago after 18 years as the chief watchdog at the IRS. We invited her to the Tax Notes Talk podcast studio to reflect on her time there and what she's been up to since. Joining me now in the studio is Tax Notes senior reporter William Hoffman.
David Stewart: 0:31
Bill, welcome back to the podcast.
William Hoffman: 0:32
Thank you, David.
David Stewart: 0:33
What did you talk about?
William Hoffman: 0:34
Well, we learned a little bit more about her new Center for Taxpayer Rights and their plans regarding the International Taxpayer Rights Conference in South Africa. Some educational work she's planning here in the United States. Then we found out her opinions about why it's taking so long for the Treasury secretary to name the next national taxpayer advocate on a permanent basis and why that's important.
David Stewart: 0:58
Since this interview ran a little long, we've decided to split this episode into two parts. We'll be posting part two next week. Let's go to that interview.
William Hoffman: 1:06
Welcome Nina Olson, former National Taxpayer Advocate at the IRS. Thank you for joining us.
Nina Olson: 1:13
Thank you for inviting me.
William Hoffman: 1:14
Just getting right to it. You are now the executive director, I understand, of the Center for Taxpayer Rights.
Nina Olson: 1:21
That's correct.
William Hoffman: 1:22
Tell us a little bit about that now.
Nina Olson: 1:24
Right. The Center for Taxpayer Rights is a nonprofit that I founded and started working on on August 1st, the day after I retired from the IRS. And it is a nonprofit that is set up to further taxpayer rights in the United States and around the world, and we have several initiatives going on. One of them is, obviously, the International Conference on Taxpayer Rights, which the Taxpayer Advocate Service formerly sponsored. But we have taken over and we are busy planning the fifth international conference, which is going to be in 2020 -- September 30th-October 1st -- at the University of Pretoria in Johannesburg. And that's taking up a lot of planning activity.
Nina Olson: 2:08
We have established a low-income tax payer clinic support center with an advisory board made of clinics around the United States to sort of try to identify the needs of the clinics and try to create maybe some additional sources of funding, not just the IRS. And maybe do some umbrella grants where multiple clinics can combine to work on issues of interest to them, particularly vulnerable populations, rural clinics, things like that.
Nina Olson: 2:38
And we're also working with some of the other countries. Australia now has about, I think it was 12 clinics now. And I had worked with Australia in the past, and I'm going over in the spring to work with them and meet with the Australia tax office on what they're doing and some of the other countries are interested in clinics, so that's sort of neat.
Nina Olson: 2:57
And then we're working with the ombudsman and taxpayer advocate offices, inspector generals around the world who do a similar function to the taxpayer advocate. And just this week I had a call with someone at the Federation of Tax Administrators to talk about maybe doing some web conferences with state or local taxpayer advocates in the state tax agencies to see what we can do in terms of strengthening those offices, share successes, share problems, educate people about those offices.
Nina Olson: 3:27
And then I guess the last thing is to really work on a project to educate taxpayers, particularly in the United States, about what the tax system does. And to that end, I've been talking both to Tax Analysts and others, building on top of some initiatives that others have done. We hope to adopt a school district in the country and create an advisory board of sort of educators and others. Those that have an interest in tax and those that have an interest in education, primary, middle school, senior, upper school and pick some parts of the curriculum where you could insert tax topics. And I really see it as sort of creative, you know, both creating video games. I really want to see a graphic novel, you know, a comic book about stories about tax and weave it into other ways of whether it's history or economics or just stories that you could see how tax touches your lives.
Nina Olson: 4:23
I think the thing that's underlying all this is something that I started on before I joined the Taxpayer Advocate Service. When I was at the clinic, you know, one of the things that I tried to do, getting funding for the Community Tax Law Project, was to reach out to foundations that didn't normally think about tax. Now, first of all, there were no foundations that thought about tax, so that was easy. But to get them to see how tax affects people's lives. And so reaching out to foundations that might be looking at public welfare or law and economics or civil rights, and try to explain to them how tax is such an important role in each of those and open up avenues of funding. So some of these projects are really to try to expand the scope of funding and interest in taxation as it deals with people who are poor, people who are middle class. What is the role of taxation in society? And why these foundations should care about how people understand it or get access to their rights. So we'll see. It could be tilting at windmills, but the conference is moving along wonderfully.
William Hoffman: 5:28
It sounds like a heck of a lot of work. You're not doing it all by yourself.
Nina Olson: 5:32
I have a great board of directors. A small board of directors.
William Hoffman: 5:35
Anyone you can point out who our community might recognize?
Nina Olson: 5:38
Yeah, no, everybody. Keith Fogg from Harvard is the president of the board. Les Book from Villanova, Alice Abreu from Temple University. And Liz Atkinson, who is in private practice but had been on the board of the Community Tax Law Project and is an active person in low-income taxpayer issues as well as an excellent controversy lawyer, and she's our secretary. And I'm the treasurer. And at this point, no one's being paid anything. This is all volunteer work.
William Hoffman: 6:08
Where do you plan the funding to come from?
Nina Olson: 6:10
The funding has come from contributions. The conference funding is coming from a number of sources, and some of them are international. The International Bureau of Fiscal Documentation, the host entity, the University of Pretoria African Tax Institute, is funding a lot of the expenses providing the venue, the reception area, buses, etc.
William Hoffman: 6:32
What about for the center itself?
Nina Olson: 6:34
The center is coming from-- We have a grant out right now that we're waiting on the response.
William Hoffman: 6:38
This is to a private organization?
Nina Olson: 6:40
No, it's actually-- we have a grant to the American Bar Association. It's an opportunity endowment grant to create a nationwide pro bono referral panel for the clinics. Because there are many small clinics or clinics in rural areas that just don't have tax lawyers, they aren't able to raise matching funds for the IRS grant program because that's a dollar for dollar match, even though in-kind contributions like donated time can count. But if you don't have attorneys to donate the time. So the idea is to get a nationwide panel where people will volunteer to take cases from them. So we have a grant out for that. We should hear February 1st about that.
Nina Olson: 7:21
And then I'm working on a series of grants of foundations to fund the education component. And then, you know, I'm comfortable volunteering for a while and investing my human capital into the entity. Every entity needs some kind of capital and human capital is one way to get it. And you know, I have the perspective of someone who created a nonprofit before: the Community Tax Law Project. And it had no funding for the first, you know, four years of its existence, except for me donating my time and the office space. And over time it got attention and it got grants, and now it is enormously successful. Of course I convinced, with Janet Spragens, Congress to create a grant program.
Nina Olson: 8:05
So you never know where this stuff leads and I'm willing to invest my time. I would love more contributions, but I'm also very serious about reaching out to foundations and just asking for meetings. Not an ask, but asking for meetings to educate them about why they should care about this issue and then make the ask.
William Hoffman: 8:24
And what's the website again?
Nina Olson: 8:25
Taxpayer-rights.org.
William Hoffman: 8:28
Well, moving along, we have now been how many months since we've had a permanent national taxpayer advocate?
Nina Olson: 8:35
Six months almost.
William Hoffman: 8:37
Why is the post still vacant?
Nina Olson: 8:38
I have no idea. You know, I have a year ban for communicating officially with the IRS. And I have been enjoying not having communications with the IRS out of 18 years of having communications every day. I don't know why. You know, I wrote about it in Procedurally Taxing a little bit ago why it matters, why we should have a national taxpayer advocate. And I felt that when I walked out the door that we had several good candidates that had already gone through a very rigorous process and interviews, and any one of them I would have been, you know, comfortable with. And that was why I announced my retirement on March 1st, you know, full five months before I was leaving, was to give the Treasury secretary time to make a selection.
Nina Olson: 9:27
And unlike other positions that are, for example, vacant right now that require Senate confirmation, the statute says very clearly that you can cut through all of the procedural requirements of the civil service or other appointments. The secretary can just appoint the national taxpayer advocate. That is the hiring authority in 7803(c). There is a legal opinion to that point from the Office of General Counsel from when I was hired back in 2001. And so the secretary just needs to appoint the person, sign a document that appoints the person. Obviously, the person would go through a background check, but that doesn't take very long at all. So I do not know why there is no one selected.
William Hoffman: 10:07
Does it surprise you?
Nina Olson: 10:08
Yes. It does surprise me that's going on that long.
William Hoffman: 10:11
One question that arises. I've talked with a number of people who've worked around the national taxpayer advocate and TAS as well. I understand the moral and ethical argument why you have to have a national taxpayer advocate. What is it that a permanent taxpayer advocate can do that an acting national taxpayer advocate cannot do?
Nina Olson: 10:33
By definition, the acting taxpayer advocate is an IRS employees that has a future in the IRS. No matter how stellar that person is, that person has to think about his or her career. That is precisely the thing that Congress did in 1998. They had a taxpayer advocate who was a career IRS employees. Over the last couple of weeks, I've gone back and read the 1997 hearings before the Ways and Means Committee. I was at one of them. I was at the one that in the morning the then taxpayer advocate was severely criticized by the Oversight Subcommittee of the Ways and Means Committee for not doing enough and being beholden to the IRS. And I've re-read the record yet again of the Senate Finance Committee hearings in which I also testified. And it's very clear what comes out from those hearings is that they wanted someone profoundly independent. And that was also the recommendation the Restructuring Commission that heard from a problem resolution officer who had been reprimanded because of her advocacy by the regional commissioner of the IRS.
Nina Olson: 11:38
And with that evidentiary record and the past performance of the advocates, they felt that bringing someone in who had the experience of, and this is what the statute requires, representing taxpayers and not just any taxpayer, individual taxpayers. That is what the statute says. And then also a customer service background dealing with people and then the two-year prohibition for not working for the IRS before and a five-year prohibition rule afterwards so that you have no career path in the IRS. It sets up an infrastructure that creates that independence. And the independence of the person at the top gives cover to everyone who reports to that person.
Nina Olson: 12:20
And that's the other major change that 1998 made, which was instead of the problem resolution officers and the employees who worked in problem resolution reporting to the district directors or the regional commissioners, they report, by law, to the national taxpayer advocate and the local taxpayer advocate offices. By law, the national taxpayer advocate makes all personnel decisions, including hiring and firing. Not the IRS, the national taxpayer advocate. And so the national taxpayer advocate, with his or her independence, gives the cover to those local offices to do the kind of advocacy that Congress was trying to get since 1986 when it created the Taxpayer Ombudsman office and finally got it 12 years later, in 1998.
William Hoffman: 13:05
Given the record of this administration when it comes to appointing officials who are independent, do you have concerns about the future of the national taxpayer advocate in the hands of these particular officials who will name that individual--
Nina Olson: 13:22
No.
William Hoffman: 13:23
That independent individual?
Nina Olson: 13:24
I actually don't. Well, first of all, I knew who were the people who were being considered when I walked out the door and I thought they would be very independent, and so that was a good sign. And I also think every single administration has had difficulty with the independence of the Office of the Taxpayer Advocate, whether it's been Democratic or Republican, it doesn't matter. You have someone in there that's actually raising concerns about the proposals or the direction that the IRS is going and often maybe some of the legislation that the administration is proposing. And I have criticized every single administration's legislative recommendations in one form or another at times. Other times I've supported them. And so I do think that the Treasury secretaries have understood that having an independent voice actually helps further compliance with the tax law.
Nina Olson: 14:16
And having an independent area of the IRS that advocates for taxpayers and takes their cases theoretically should keep it from blowing up again like it did leading up to RA 98. And I know a lot of people talk about RA 98 like, "Oh, you know, everything was exaggerated." Well, I'm here to tell you that I was there in 1995, 1996, and 1997 representing low-income and small business and moderate-income taxpayers. And I can tell you what it was like trying to work with people in the IRS. They were very good people, but there were other people that were making decisions that were outrageous. And my office, the Taxpayer Advocate Service, handled all of the Senate Finance cases and all the Ways and Means cases, the cases that came in as a result of those hearings, and they were not frivolous cases. They would raise your eyebrows of some of the things. Even when I came in in 2001 there were still 800 cases around when I walked in through the door to see what had happened and what it took to resolve those cases and make them right. And the Taxpayer Advocate Service keeps that from happening again.
Nina Olson: 15:21
What disturbed me the most about the 501(c)(4) debacle was that those taxpayers didn't feel like they could come to the Taxpayer Advocate Service. Maybe they didn't even know about the Taxpayer Advocate Service, because nonprofits may think "that doesn't apply to me. I'm a business entity. It's for low-income people or something." Over the two and half years that that issue was building and those cases were being frozen in the exempt organization division, TAS got 19 cases from EOs out of almost a million cases that we got over that same period of time. And that saddened me when, you know, as soon as it blew up, I was like, "What have we got?" Well, we had nothing. They went to like six different offices. It's impossible to see a pattern. You know you can't connect dots when there's only one case in an office. And in fact, there was one office that had several cases, and they did connect the dots and right when it was blowing up, they had elevated it to our systemic advocacy function, and they were beginning to delve into it. So that was sad to me that we couldn't have seen it earlier and intervened.
Nina Olson: 16:26
But that's really the role of the Taxpayer Advocate Service: to intervene before those things blow up. And if the IRS is ignoring it, then you have the tools of the annual report to Congress and your testimony to be able to write about it and draw public attention to it.
David Stewart: 16:43
Now, for another edition of Willis Weighs In, where Tax Notes contributing editor Ben Willis discusses tax planning issues.
Ben Willis: 16:51
Thanks, Dave. Today we'll be discussing vote-to-value disparity, specifically IRS concerns relating to a large vote-to-value disparities, which we discussed in my November 11th article last year.
Ben Willis: 17:01
So the first question we want to ask is what is a vote-to-value disparity? Well, it's simply just the disparity between the stock's value and its voting power. It can get a lot more complicated than that, specifically because we're focusing on multiple classes of stock. Typically, you're creating a high-vote class of stock that is going to give a taxpayer some sort of a tax advantage, generally allowing them to qualify under a control threshold. And so we are really asking ourselves when we look at vote-value disparities, whether or not that high vote should have substance and therefore be respected.
Ben Willis: 17:37
Now you're probably wondering, when does this arise? The answer to that question is it arises in a number of context. It's common in CFC planning. There's actually 957 regulations where they specifically focus on disparities and vote in relation to the value of the stock itself. But we hear about it and talk about it most frequently when we're looking at section 355 distributions, which we'll refer to as spinoffs, which is the most common variety.
Ben Willis: 18:05
In spinoff transactions, you need to have 368(c) control, which is 80 percent voting power and 80 percent of all other classes of stock. So there's no value component unlike most of the other control tests out there. You can have a very unique situation by creating a recapitalization of shares using high-vote stock and low-vote stock because this lacking value component. Effectively, you could give a minority shareholder 80 percent-- and this is theoretical -- but you could give them 80 percent of the value and still have a parent corporation or a so-called parent corporation owning 80 percent of the value of the voting power of that entity. And so the 80 percent voting power that that shareholder would hold, as long as the other stock is voting stock, they would all be treated as satisfying that first prong of the voting component. And therefore, if one shareholder has 100 votes per share and another shareholder has one vote per share, you can have this great disparity between the value and the vote inherent in each share of stock.
Ben Willis: 19:17
So because 355 transactions have been such a focal point, and that really has to do with the fact that they're the largest exception to the repeal of the General Utilities Doctrine, which really prevents double taxation. So you can spin off property to a shareholder, not pick up dividend income like you otherwise would have. And that's why 355 is such a valuable tool and something that people want to protect. We've had legislative proposals to change the control threshold for it. We've also had the IRS come in, and in 2013 with a null rule position. And then later pulled back that null rule with a rev proc that provided a safe harbor that basically said, "If you re-capped into high-vote stock, we would allow that as long as you maintained those rights for two years."
Ben Willis: 20:03
And so that brings us down to the ultimate question, which is why am I disagreeing with the IRS on their limitation? And their limitation is, which has been stated in commentary, publications, as well as just at panels, is that the vote-to-value disparity generally should not exceed 10 to 1 or 11 to 1. There's appeal law that has an 11-1 threshold. And we have to circle back to what we originally started with, which is what is a disparity? Is the voting power so great that it's meaningless? That it doesn't correspond to the value? That it doesn't actually have the value that should be attributed to a legal right given to an owner of equity?
Ben Willis: 20:47
And so my position, which was clearly stated in the article, is that if the voting power has value, then it should be respected, which is why I believe that responsible planners and taxpayers obtain appraisals when they go in for these types of transactions. And that's my recommendation to anybody listening to this. If you're going to go in and engage in a recapitalization before a spinoff and you want to make sure that your voting power is respected, then have somebody find out what that voting power is worth. It happens all the time, particularly in the estate planning context, where you have minority discounts and majority evaluation increases and all sorts off areas throughout the code where valuation is important. So if you're looking to defend that position, I think you'll find yourself well supported and better protected from IRS scrutiny if you have that.
Ben Willis: 21:42
With that, I would like to thank you for reaching out with your questions and comments and ask that you please keep them coming. You can reach me at @willisweighsin on Twitter or through email at ben.wills@taxanalysts.org. Thank you.
David Stewart: 22:00
And now, coming attractions. Each week, we preview commentary that'll be appearing in the Tax Notes magazines. I'm joined by Content and Acquisitions Manager Faye McCray. Faye, what will you have for us?
Faye McCray: 22:10
Thank you, Dave. In Tax Notes Federal, Lee Zimet discusses the ways in which the TCJA expanded the reach of the stock downward attribution rules. Jamison Shipman explores how private foundations can run into trouble with section 4941. In Tax Notes State, Pamela Capps reviews 2019 legislation that changed New York transfer taxes. Alysse McLoughlin and Kathleen Quinn discuss state issues surrounding the federal interest expense deduction limitation. In Tax Notes International, Brian Cody, Sean Foley, and Paul Glunt discuss recent developments in transfer pricing. Kieran Holmes discusses his role in the establishment of the Burundian Revenue Authority. And on the Opinions page, Ben Willis looks at how not enforcing the Johnson Amendment will impact political campaigns. Marie Sapirie notes that despite fears, review of tax regulations hasn't resulted in undue guidance delays.
David Stewart: 23:05
You can read all that and a lot more in the January 27th editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W. If you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts.org. 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.