Carolyn Schenck Speaks to Tax Notes on Joining Caplin & Drysdale

Carolyn Schenck, the IRS’s first national fraud counsel, has moved into private practice but says the recent upheaval at the agency hasn’t taken tax fraud off the enforcement menu.

Schenck’s departure from the IRS on September 30 is the latest in a slew of high-profile departures from the agency and throughout the tax enforcement ecosystem this year. Further, the IRS has lost approximately 25 percent of its workforce since January.

Despite the tumult, IRS employees remain passionate about the agency’s mission to fight tax fraud, Schenck recently told Tax Notes.

Schenck joined Caplin & Drysdale October 1 after nearly 20 years at the IRS. While she said she hasn’t heard who might replace her as national fraud counsel, the cadre of fraud specialists she assembled in the IRS Office of Chief Counsel remains in place.

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“OFE is still very much in place. There are fraud enforcement advisers who are working with revenue agents and revenue officers around the country, evaluating cases for badges of fraud and whether or not those rise to the level of criminal fraud to then be referred to IRS CI,” Schenck said.

Schenck also noted the Trump administration’s decision to restructure the Justice Department, splitting most of the soon-to-be-former Tax Division’s personnel between the civil and criminal divisions of the department. The effects of that change will hinge on its implementation, she said.

The Justice Department’s civil and criminal tax cases and CI’s investigations continue to proceed, Schenck said. “I believe tax enforcement is not dead,” she added.

The IRS has a strong playbook for investigating the various tax schemes that regularly pop up, like potentially questionable tribal tax credits and fraudulent employee retention credit claims, Schenck said. The IRS’s strong interest in scrutinizing tax scheme promoters and tax return preparers remains, and the agency can adapt to its staffing losses through careful case selection, she said.

This isn’t the time for noncompliant taxpayers to assume that they are in the clear, Schenck warned.

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Schenck said the IRS was seeing taxpayers entering the voluntary disclosure program to come into compliance and later declining to follow the process. That caused internal problems with the program, she said.

The checkbox had come from the notion that the voluntary disclosure program is for willfully noncompliant taxpayers potentially facing criminal penalties and that those with different facts should consider some of the other options for returning to compliance, according to Schenck. The IRS takes great care when drafting programs like voluntary disclosure, including responding to taxpayers’ and professionals’ comments, she said.

Schenck also addressed recent comments on the difficulties posed by the requirement to fully pay one’s outstanding tax liabilities as part of the voluntary disclosure process, saying that requirement has always been a part of the program.

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With the large number of personnel changes at the IRS this year, it felt like the right time to retire from the agency, Schenck said. Her two decades at the IRS were an honor and a humbling experience, she added.

One of her biggest accomplishments at the IRS was her work on over 60 John Doe summons requests, Schenck said. Some of those cases cracked open whole worldwide networks, she said.

Schenck is joining Caplin & Drysdale as a member, and her practice will include both civil and criminal tax controversy. She said she looks forward to the opportunity to work on difficult problems with smart people at her new firm and to continuing to help the American people by assisting taxpayers to come into compliance with the tax laws.

Schenck said she hopes to help taxpayers through avenues like the voluntary disclosure and streamlined filing processes.

To read the article in full, please visit Tax Notes’ website.