May 9, 2008 Good morning and thank you for that kind introduction and that warm welcome. I have been on the job for just over a month, and as I look back on my relatively short tenure, my one regret is that I did not follow the advice of several former IRS Commissioners to whom I spoke. I sought their advice in part to understand a little better what I was getting myself into and to solicit any suggestions that might make my job easier. And, for the most part I have followed their advice and it has served me well. But, there was one piece of advice on which they were almost unanimous — “Do not take office until after April 15th.” As you may know, I was sworn in on March 24th. And I was quickly reminded that the end of the filing season is a prime time for Congressional hearings. Three hearings were scheduled within my first three weeks in office. While I must admit that preparing for these hearings so soon into my tenure was not my preference, in retrospect, preparation for the hearings forced me to focus on a wide range of issues in a very short time. It also allowed to me to very quickly get to know the talented and able corps of executives at the IRS. Also, it is nice that one of my first duties as Commissioner is to oversee the distribution of over 100 billion dollars in economic stimulus payments to appreciative taxpayers. So, maybe my timing wasn’t so bad after all. I am delighted to be here this morning and have the opportunity to address one of the IRS’ most important stakeholders. As I settle in to my new role, it becomes clearer to me each day what a privilege it is to be the Commissioner of the IRS. I am taking every opportunity to listen and learn — both internally with the IRS workforce, and externally with important constituencies: Congress, taxpayers, tax practitioners, foreign tax authorities, and other colleagues in the federal government. I’d like to share with you today some early observations and thoughts on priorities for the IRS in the coming years. I am happy to be here speaking to this group because I believe that our goals are very much aligned. We all want effective tax administration and a high degree of compliance with the tax laws. We want our nation’s economy to run well, and our system of tax administration to continue to set the global standard for fair, professional, non-partisan funding of government. You want to get it right in terms of having your clients comply with the tax laws. You want and need a level of certainty — so do we. So, we do have a lot in common and I sincerely hope that during my tenure that we will have a high level of dialog. Philosophically, I think of the legal community as an integral part of tax administration — not separate and apart from it. I am committed to working with the tax community — including the tax bar — in the spirit of partnership. The more we can work with you to help you and your clients get it right, the less time we need to spend dealing with problems after the fact. I look forward to engaging in focused and ongoing dialog with this group on areas where we can work together to reach our mutual objectives. As I engage with important stakeholders, one of the most common questions that I get is whether as Commissioner I will focus on services or enforcement. I believe this is a false choice —the IRS must do both, and do both very well. Stated another way, IRS should do everything possible to make it as seamless and easy as possible for those taxpayers who are trying to pay the right amount of taxes to navigate our organization, get their questions answered, pay their taxes and get on their way. But for those who understand their Federal tax obligation, but fail to comply, we must have an aggressive enforcement program. I have been particularly pleased with IRS efforts to shut down abusive tax shelters. Recently the IRS has prevailed in a number of important cases in this area. As these cases have shown, we are entering a new phase of dealing with tax shelter issues. In the first phase, the IRS aggressively rooted out abusive tax shelters and brought some significant cases. In the next phase, a number of taxpayers acknowledged that participating in these shelters was a mistake and settled. In this new phase, we have pursued those holdouts who chose not to settle and the cases are working their way through the courts. The government has won the overwhelming majority of these cases. One thing I want to make clear is that during my tenure at the IRS, I will continue to support a strong enforcement program. Now, let me share with you two philosophical inclinations that I bring with me to this job. First, I believe that in order for us to be effective, the IRS must understand the economic realities of the environment in which taxpayers operate. We will be much better at our work if we do not operate in a vacuum. We should not fear having a robust dialog with the taxpayer community. That doesn’t mean we will always agree, but constant communication is important. This is an area where the ABA has been very helpful. Through your comments on IRS guidance and our meetings — both regular and ad hoc — you offer your perspective of what is happening within the taxpayer community. I want to thank you for all that you do in this regard. The second philosophical point I want to highlight is my belief that we need to do everything we can to provide clear guidance to taxpayers. We should not be contributing to potential noncompliance by failing to issue guidance or issuing guidance that is subject to multiple and varied interpretations. Clarity is important to improving the level of compliance, and I will work toward a high level of clarity in the guidance that we issue. Achieving a high degree of clarity is incredibly difficult, and we’ll never get it exactly right, but we should always strive to do better. Let me now briefly touch on a few specific areas of focus. These are all issues that are quite familiar to me from my prior experience in the financial markets arena. First, we must continue on the path to modernizing the IRS. When I think of modernizing, I am not merely speaking about building new technology. We need to ensure that our systems, processes and people reflect the changing environment in which both individual taxpayers and businesses operate. This means that we will need to focus on providing IRS employees with better information and tools to serve taxpayers, as well as target and pursue compliance initiatives. It also means that we need to give taxpayers the right information at the right time, whether through the web or other media. We also must deal with the challenge of maintaining strong leadership and a dedicated workforce. This will form the foundation of our success in the future. I believe that the job of any leader is to support the team around him, hold them accountable and make sure they have the skills needed to do their job. We will be competing for talented people with the private sector — so we must focus on developing the workforce of tomorrow. Another challenge is the increasing globalization of tax administration. Businesses are no longer defined by national borders. The cross border migration of capital and people has made this a more integrated world and the IRS needs to ensure it has the tax administration capabilities to deal with the fast pace of change. I’ll talk a little more about this in a few minutes. Another critical issue is our need to target the root causes of noncompliance, and look for opportunities to improve voluntary compliance rates. I am looking closely at all of our compliance tools and resources, including taxpayer services and outreach, guidance, automated systems, examination, enforcement and collection efforts. We need to make sure we are using our resources in the most strategic way possible. I think it is appropriate that we have had a strong presence in the corporate arena. The public has a right to expect that large corporations be good corporate citizens and meet their compliance obligations. It is also appropriate that we have increased our coverage of higher income individuals, and are now looking at flow through entities. Over the next several years, we will need to continue to do more research so that we can target non-compliance and ensure that we are using our resources effectively and efficiently. Now that I’ve touched on some important focus areas, I wanted to turn to some more general observations about the direction of tax administration, and some of my thoughts about an important dialog over the coming years. The power to collect taxes comes with an awesome responsibility to operate with high levels of integrity and fairness. Too often the relationship between tax authorities and taxpayers becomes mired in mutual suspicion. This is not productive for taxpayers, and it’s not productive for the IRS. No one wins. In my view, a crucial part of the path forward is through increased transparency. When all parties are working from the same information, the opportunity for miscommunication and misunderstanding decreases dramatically. But transparency alone is not sufficient. With transparency comes the need for trust among the players in the tax system, and a responsibility of the tax authorities to use information appropriately. Let me explain what I mean in a few different contexts. Take the W-2, as an admittedly very basic example. Research shows that compliance rates of wage earners are incredibly high — about 99%. Why? In part, because taxpayers know that information is going to the IRS. But, at the same time, compliance rates are high because individuals and the IRS are accustomed to working from the same set of information, in the same format. There is an increased level of trust and comfort about what information is being reported to the IRS and how we are going to use it. Along similar lines, the Administration and Congress have been discussing legislation to require banks to report payments to merchants for credit and debit card transactions. There are also similar ongoing discussions about reporting of cost basis on sales of securities. Philosophically, I am inclined to support information reporting regimes that allow the taxpayer and tax administrator to start the process with transparent and consistent information. With this information, the IRS can focus its time and resources on thoughtful and considered analysis, rather than on the labor-intensive tasks of requesting, collecting and formatting one-off information from taxpayers. While I fully appreciate that implementing these proposals would be a significant undertaking for everyone involved, I would welcome the day that a taxpayer needing to report capital gains would get that information on a year-end form, in a consistent format, rather than doing it himself and worrying whether the data that he uses is correct. Another example of the power of transparency is the Form 990. Federal law affords non-profit organizations the economic benefit of being tax exempt. The IRS has the responsibility to ensure that this benefit is not improperly used by organizations or by individuals. Tax exempt organizations — hospitals, schools, and religious institutions to name a few — are an integral part of this country’s social fabric. In this area, it is absolutely essential that the IRS be seen for what we are: an impartial administrator of the tax laws. The Form 990 allows for an open and transparent dialog among non-profit organizations, state regulators, the IRS, and the public at large. Unlike other taxpayers — whose information is highly confidential — virtually all form 990 information is public by law in order to promote public trust. We have been focused on the continued evolution of Form 990 and its broad dissemination. When this information is available in a standard, easily accessible format, the non-profit sector can work more effectively, and the level of honest dialog about the use of tax benefits to support societal goals will increase. As the nation’s tax administrator, we welcome and encourage this kind of dialog. In the large corporate arena, transparency is certainly not new to the Service, and I’ve been encouraged by a number of recent initiatives. The Schedule M-3 form was revised to make it easier for the IRS to reconcile book-tax differences. This enables the IRS to identify and focus more quickly and precisely on those tax returns and issues that present the highest potential compliance risk. To improve both currency and transparency, the IRS created the Compliance Assurance Program (CAP). CAP is a real-time approach to compliance review that allows us, working in conjunction with the taxpayer, to determine tax return accuracy prior to filing. This is a win-win program that greatly reduces taxpayers’ compliance burden and their need for contingent book tax reserves. At the same time, the CAP program is a more efficient use of IRS resources by getting agreement upfront, rather than debating issues well after the fact. As I mentioned earlier, transparency can only create an environment of trust where all parties accept elevated responsibility to appropriately manage information. IRS personnel must not confuse greater transparency of information with greater authority over taxpayers. More than ever, the IRS will need consistent procedures, training, and an organizational commitment to using data in a way that is fair to taxpayers. Let me conclude with a few more words about the challenges of tax administration in a global economy. This is an area where there are a number of vexing issues without easy answers. For example, we are now focusing significant resources on very complex issues such as valuing intellectual property, services, and other intangibles, or identifying and dealing with foreign tax credit generators. These kinds of international tax issues are of great importance to the integrity of tax administration and of great interest to me. Let me share with you one observation and one expectation related to international tax administration. My observation from spending the better part of the last decade dealing with complex markets and financial instruments is that any time there are truly complex issues that require markets and government authorities to adapt, the majority of the community engages in honest dialog about how to do so in a responsible manner. But, there are a minority of people that use the complexity of issues to push the envelope beyond acceptable boundaries. Let me reiterate something I said a few minutes ago. I view the legal community as an integral part of the overall system of effective tax administration. My expectation is that those of you in this room who have made your careers in this profession, and care deeply about its reputation — as I know you do — will work with us to more quickly understand when the troublesome behavior of a few begins to emerge. As we confront complex issues, in the international arena and elsewhere, we will need your help as we navigate the waters. I want to thank you again for the invitation to be here this morning. I want to reiterate my desire to work closely with the ABA and its members. I hope the rest of your conference is successful, and I look forward to an ongoing dialog.