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Tax Analysts Exclusive: Maloy Addresses Speculation Over LB&I Course Change

Posted on July 10, 2014 by Amy S. Elliott

In an interview with Tax Analysts, Heather Maloy, IRS Large Business and International Division commissioner, dismissed rumors that she has decided to make changes that might compromise the division's international operations. She emphasized that while change is inevitable, she wants to preserve, though maybe not expand, the line authority granted to LB&I's deputy commissioner (international) over international examiners as a result of the 2010 realignment.

"We haven't made any decisions about anything with respect to our structure, but I think I've been pretty transparent with our employees that we're always looking at our structure," Maloy said. "We don't have any current working model of a decision of a structure that we're moving towards."

Speculation that change was brewing at LB&I started when several international executives abruptly stepped down or announced their departures. Michael Danilack, former LB&I assistant deputy commissioner (international), left the agency on July 2, and Samuel Maruca, transfer pricing director, and Diana Wollman, director of international strategy, submitted their resignations earlier that same week.

Some practitioners suspected the departures were in protest over a possible unforeseen change in LB&I's international strategy, but Maloy said "there are no plans to move LB&I international examiners back under the industries." She said that just as the shift away from the old structure of the Large and Midsize Business Division (LMSB) wasn't "the perfect, last change, going from LMSB to LB&I is not the perfect, last change." She added that the realignment was a step in the right direction and that LB&I will "absolutely not" go back to the way the organization was structured before.

"It's a big undertaking to administer the international tax system of the U.S. government. And giving somebody line authority -- whoever it is: domestic, international, or otherwise -- in my view, and again I've been perfectly transparent about this, is easy and we did that for a number of years. But to really evolve to a more effective and efficient tax administration, we have to take on the challenge of managing across a number of people, listening to a number of views, and driving a strategy that we all agree on," Maloy said.


Tiebreaker Authority

One theory that's been circulating among practitioners is that Danilack wanted and was denied tiebreaker authority. While Maloy said she wasn't aware that any of the three departures were in protest over a decision she made, she said she doesn't think either arm of her division -- domestic or international -- should have tiebreaker authority.

"Substituting a domestic manager's ability to say 'We're doing this' with an international manager's ability to say 'We're doing this' -- I don't define that as progress," Maloy said. "I would hope that our strategic priorities and the way we want to focus on issues are clear enough that those issues can be decided at the lowest possible level with consensus on what's in the best interest of tax administration."

Maloy acknowledged the potential inefficiencies in such a structure -- under which, in effect, the domestic and international operations are in separate stovepipes, requiring what she referred to as "matrix management" skills -- but said she doesn't think she's ever been called in to resolve a disagreement between the two.

"Everybody comes to the table with different views. . . . To say that one view wins out over another view, that's never an approach I've taken," Maloy said. "We're much richer as an organization when we hear all views and decide what the best approach is. Does it take more time? Yes. Is there a lot of noise in the system? Yes."


Succession Planning

When asked if she plans to stay on as LB&I commissioner in 2015, Maloy said, "I don't know. I serve at the pleasure of the commissioner, obviously. I don't have any current plans to leave, but I never planned on coming here for a career."

The current LB&I organization chart, as of July 7, shows 20 executives under Maloy, half of whom are in acting roles, two of whom have announced they're leaving, and two of whom are fulfilling two roles each. But Maloy seemed positive about her organization's ability to recruit people to fill vacancies in a permanent capacity.

"I'm always concerned that we have the best people to do the best jobs, but I also know that we have a great group of people who can step into these jobs and do great work," Maloy said. "You're not going to get people who stay at the IRS for 30 years. You've got to build a really strong organization with a strong strategy that effectively attracts really good talent. . . . I think we'll be successful in the future."

As for the recently announced departures of Danilack, Maruca, and Wollman, Maloy said, "I don't think we can build a structure based on three people staying or going. We have to build a structure based on being able to attract really good people. We were very lucky to be able to attract them, and I think we'll be very lucky in the future, as we'll be able to attract people of the same caliber because of the important work that we do.

"I certainly appreciate their service," Maloy said of the three. "I think they accomplished great things in their tenure, but I don't think it was ever anticipated that they would stay 20 years."