IRS chief counsel talks tax policy at annual Graduate Tax lecture
If the old adage that death and taxes are the only certain things in the world holds true, then perhaps Clarissa C. Potter, acting chief counsel for the Internal Revenue Service, can boast the ultimate job security. On March 20, Potter presented a lecture to the Levin College of Law titled “Globalization’s Current Challenges to U.S. Tax Policy Makers and Administrators.”
Potter, a graduate of Yale Law School and former professor of the Georgetown University Law Center, has held positions in both the Treasury Department’s Office of Tax Policy and the Joint Committee on Taxation of the United States Congress. Potter also practiced with the firm Sullivan & Cromwell in New York. Undoubtedly, her wealth of experience serves her well in her current position with the IRS.
Her lecture to the Levin College of Law focused on the challenges of creating tax policies that are enforceable and that encourage compliance, especially involving foreign accounts and income.
“If the IRS can’t administrate it, you encourage noncompliance,” she explained.
Potter said that the IRS currently employs 1,600 lawyers, with 600 or 700 of them experts in different areas of substantive tax law. These experts work closely with lawmakers in drafting tax legislation. Tax legislation may be proposed by the Treasury Department only once a year as part of the annual budget.
“The IRS provides the manpower for drafting and publishing regulations,” Potter explained. The Office of Tax Policy of the Treasury Department is responsible for additional development of revenue procedures and for general guidance.
Interestingly, Potter is not employed directly by the IRS but instead is employed by the general counsel of the Treasury Department. Potter stated that the chief counsel’s office is regarded as the lawyers to the IRS. By distancing her position from the IRS, she is able to serve as an advisor rather than an executive of the IRS, which allows her to report what she calls the “hard news” to the commissioner, who is the head of the IRS, and to sustain attorney-client privilege.
Potter often works with the IRS to help regulate offshore accounts and developing guidelines for penalizing taxpayers who hide income overseas. She explained that advances in technology that aid in easily moving money around make overseas accounts and income more difficult to track.
The IRS offers some redemption for those who have successfully evaded foreign income reporting requirements on past tax documents and wish to come clean without facing prosecution. They may voluntarily disclose past foreign income and then pay back taxes, interest, and some penalties. Potter differentiated this practice from granting amnesty, but added that it does provide protection against criminal prosecution.
In contrast, if a taxpayer willfully fails to disclose foreign income, he or she may face criminal prosecution in addition to penalties in excess of 100 percent of the hidden income.
Potter emphasized that overregulation is not the answer, as it causes honest taxpayers to worry unnecessarily about which credits they are entitled to and provides incentive for those who are dishonest to continue their noncompliance. Instead, she touts legislation and regulation that provides incentives for compliance without being too complicated.
The idea of “uncomplicated tax regulation” may seem like an oxymoron, but at least Potter intends to give it an earnest try.