The Washington PostDemocracy Dies in Darkness

Trump’s pick for IRS chief is now faced with implementing Biden’s economic agenda.

Some Democrats are uneasy about GOP-picked tax commissioner but fear replacing him would create a firestorm

Charles P. Rettig, commissioner of the Internal Revenue Service, testifies before the House Committee on Oversight and Reform on Oct. 7 in Washington. (Toni L. Sandys/The Washington Post)
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As a Beverly Hills tax attorney, Charles P. Rettig defended a venture capitalist whom the Internal Revenue Service accused of using sham methods to escape taxes on overseas operations. He represented the heirs of a millionaire defense contractor when the IRS came for part of their inheritance, and was hired by a billionaire who admitted to hiding profits in offshore accounts. When President Barack Obama tried stepping up IRS enforcement of wealthy tax cheats, Rettig warned of “audits from hell.”

Rettig now finds himself poised to be a crucial player on the opposite side of these fights. Appointed IRS commissioner by former president Donald Trump in 2018, Rettig has held the top job in the tax agency even as a new Democratic administration has dramatically shifted its direction.

The Biden administration is slated to depend on Rettig to lead a major escalation of tax hikes and enforcement on the rich. Democrats are also relying on Rettig to implement much of their economic program through the creation of new tax credits, for example.

The awkward arrangement has led senior Biden administration officials and key congressional Democrats to wonder if Rettig is the right person for the job, according to interviews with a half-dozen lawmakers and aides, as well as three people aware of internal administration discussions.

The situation is viewed as delicate in part because the administration does not want to antagonize the agency given its crucial role in executing Democrats’ domestic policy agenda, said the people, who spoke on the condition of anonymity to reveal internal conversations.

White House seeks to make massive boost to IRS enforcement centerpiece of new spending plan

Despite the unease, Rettig appears likely to keep his job for now and may even serve out the remainder of his term, which is scheduled to end November 2022. He has acted the part of enthusiastic bureaucrat, making statements that reflect what Democrats in Congress want to hear and not sending any signals that he will flinch at the directives. Some Democrats fear removing Rettig would embroil the tax agency in a political controversy, which proved a major headache for the Obama administration. Keeping a Trump-appointee at the helm insulates them from charges of weaponizing the IRS for partisan reasons and from assuming responsibility for its dysfunction, the people said.

Rettig has demonstrated his determination to keep the post in ways that have impressed Democratic officials. He surprised lawmakers in April when he pegged the “tax gap” — the difference between what the IRS is owed and what it collects — as possibly greater than $1 trillion annually. The estimate appeared to some to represent a departure from the prior work of IRS career staff, but played into Democratic messaging about the potential gains of stepping up aggressive tax enforcement. Rettig has also talked positively of stepping up enforcement of taxes on the rich and mobilizing the tax agency to disburse their new child benefit and other stimulus programs.

President Biden on May 17 announced that millions of families would soon begin receiving direct cash benefits stemming from the 2021 coronavirus relief bill. (Video: The Washington Post)

The IRS declined to make Rettig available for an interview for this story. The White House also declined to comment, as did the Department of Treasury, which oversees the IRS.

“He represents some real risks, and it’s a little unclear how much you can rely on the guy, but there’s a strong reluctance to try and change things right now,” said one senior House Democratic aide, who spoke on the condition of anonymity to frankly discuss internal dynamics.

In a statement, Rettig said: “My history in the private sector was the same as at the IRS, bringing people into compliance with their filing and reporting obligations. That hasn’t changed in almost 40 years. … We have placed a significant focus on enhancing both taxpayer services and tax enforcement since I joined the IRS.”

From ‘fishing in a small pond’ to head of the world’s biggest tax organization

Before joining the IRS, Rettig, 64, spent the bulk of his professional career — close to four decades — at the Beverly Hills law practice of Hochman, Salkin, Rettig, Toscher & Perez. The tax litigation firm represents high-income Americans facing scrutiny from the IRS over a range of practices. It specializes in defending the rich from audits conducted by the IRS’s “wealth squad,” which looks into undeclared offshore bank accounts and different kinds of white collar crime, such as bank fraud and money laundering.

Biden has attacked these forms of tax maneuvers as fueling income inequality in the United States. The firm’s website boasts of the effort helping the “king of pop” Michael Jackson beat the IRS in court, praising attorneys to Jackson’s estate for recently reducing its taxable liability by hundreds of millions of dollars.

Rettig’s elevation from partner at this small, boutique tax firm to leader of the U.S.'s tax collection agency surprised much of the tax world when it was announced by the Trump administration in 2018. Hochman and Salkin has roughly two dozen attorneys. The IRS Office of Chief Counsel employs more than 1,500 attorneys.

Child cash benefit will begin hitting millions of parents’ bank accounts July 15

How Trump landed on Rettig remains unclear. Trump’s treasury secretary, Steven Mnuchin, had a hard time finding someone to fill the role, according to John Koskinen, who was appointed IRS commissioner by Obama but stayed on for the beginning of the Trump administration. Mnuchin grumbled, “There’s no third grader who says, ‘When I grow up, I want to be the IRS commissioner,’” Koskinen recalled in an interview. Rettig was also a member of the IRS advisory council before taking the commissioner position, as well as president of the American College of Tax Counsel, among leadership roles in other professional tax organizations

Rettig may have proven an attractive candidate to the Trump administration for other reasons. While he donated primarily to Democratic lawmakers, Rettig also gave money to Trump’s 2016 presidential campaign. In 2016, he wrote a piece in Forbes asserting Trump’s attorneys were correct in telling him not to publicly divulge his tax returns. Rettig also co-owns two units at the Trump International Waikiki resort in Hawaii. He reported earning between $100,000 and $200,000 in income from the units. Jordan Libowitz, spokesman for the watchdog group Citizens for Responsibility and Ethics in Washington, said: “Loyalty to Trump and closeness to Trump tended to be a major factor under the last administration, but Rettig stood out because he has financial closeness to Trump as well.”

Rettig has emphasized his impartiality, and some nonpartisan experts dismissed the idea the units represented a serious conflict of interest. The IRS said in a statement that Rettig is following all the standards of his position and that career IRS ethics officers have briefed him on conflicts of interests and relevant recusal requirements.

“He was fishing in a small pond before Trump elevated him to head of the IRS,” said Steve Rosenthal, former counsel for the Joint Committee on Taxation now at the Tax Policy Center, a nonpartisan think tank. “His experience is that of a criminal defense lawyer for a small firm in California, and he’s now been dropped into managing these huge political and managerial changes.”

Rettig throws Democrats ‘red meat’ on tax policy. Will it save his job?

Rettig’s ties to Trump have fueled Democratic suspicions about his fitness to lead the IRS. But they may also be what helps him keep his job.

Democrats have been encouraged by his comments about taxing the rich. In his 2016 Forbes article, Rettig emphasized the “intensive, time-consuming processes” of auditing very rich taxpayers and said they “are audited by the IRS at a significantly higher rate than taxpayers at lower income levels.” As commissioner in 2019, Rettig estimated the tax gap at about $440 billion annually for 2011, 2012, and 2013 and said it appeared to be unchanged. “Voluntary compliance is the bedrock of our tax system, and it’s important it is holding steady,” Rettig said about the tax gap in 2019.

By contrast, Rettig said last month the IRS was getting “outgunned” and needed more funding to close the tax gap, which he said has grown to possibly exceed $1 trillion annually. “The IRS absolutely needs more resources across all lanes of the Internal Revenue Service,” he said.

Some Democrats cheered the apparent shift in emphasis.

“Having a Trump appointee making classically Democratic arguments that there needs to be greater IRS enforcement of the wealthy to pay their taxes is very helpful to us,” said Rep. Brendan Boyle (D-Pa.), a member of the House Ways and Means Committee.

Rettig’s support for some of Democrats’ priorities has exposed him to attacks elsewhere. Sen. Mike Crapo (R-Idaho), the top Republican on the Senate Finance Committee, wrote a letter asking Rettig for an explanation of his tax gap estimate. Barry Johnson, a career IRS research official, pointed to the “incredible rise” in cryptocurrencies since the last estimates when asked by congressional officials.

Mark Everson, a former IRS commissioner who praised Rettig’s work disbursing stimulus payments, questioned Rettig’s public tax gap estimate. “You either have good numbers, or you don’t. It serves to undermine the thorough, albeit slow, estimates by the IRS career professionals to speculate about something of this importance,” Everson said.

Some skeptics see Rettig’s recent rhetoric as too little, too late. The number of IRS audits on millionaires and corporations has fallen dramatically under Rettig’s tenure, which only intensifies some Democrats’ doubts about his ability to execute Biden’s tax agenda. Michael Desmond, former chief counsel of the IRS under Trump, said comparisons of audits of the rich done shortly after filing deadline were “very misleading” and said Rettig had long been focused on reversing the decline in IRS staff.

“It’s enormously important for Biden to have someone leading the IRS that he has confidence in, and if I were Biden I would not have confidence in Rettig,” said Dean Baker, a liberal economist. “Rettig is saying better things, but I am sure he is political enough that if he wants to stay there he has to at least provide lip-service to Biden’s agenda. If I were Biden, would I trust that? The answer would be no.”

Some nonpartisan tax experts and academics defended Rettig. They in particular pointed to the implementation of the stimulus package despite severe budget cuts to the agency, as well as his work in recruiting staff for the agency. Koskinen, appointed commissioner under Obama, said Rettig had done a “very good job” managing an intensely challenging filing season amid the pandemic.

“The IRS essentially created the safety net in a matter of weeks last spring — kudos for Commissioner Rettig and the IRS career staff for accomplishing that,” said Daniel Hemel, a tax expert at the University of Chicago.

In addition to a new child tax benefit, Biden’s plans are slated to rely on Rettig for a wide array of social programs. Biden’s jobs and infrastructure plan includes billions of dollars in tax credits for clean energy production, research and development, and housing, among other obligations that would fall to the IRS. Biden’s “families” plan calls for paid parental leave, tax subsidies for child care, and health care credits, which would probably be up to the IRS to implement. That is in addition to the White House’s historic tax proposals that would double taxes on investors earning more than $1 million annually, create a new international tax regime for multinational corporations, and dramatically beef up enforcement, among other significant changes.

Rep. Bill Pascrell Jr. (D-N.J.), a member of the House Ways and Means Committee that oversees the IRS, said in an interview that while Rettig “seems like a decent guy” the administration should consider replacing him with “someone in the boat rowing in the same direction.” Pascrell is among Rettig’s chief critics in the House.

“If [Rettig] chooses to continue what I think are some real backwards ideas of conducting his office and how he conducts his business, I think we may need to look at finding someone else to run it,” Pascrell said. “I haven’t gotten that far with him. Not yet.”

Tyler Pager contributed reporting to this story.