Sleeping with the Enemy: Taxes and Former IRS Employees

Abstract

Using employment history data from LinkedIn, we report the number and characteristics of employees who joined public corporations after leaving the Internal Revenue Service (IRS) from 1980 to 2012. Public corporations hired more than 1,200 former IRS employees, a number similar to the number of hires made by accounting and law firms. Firms that hired former IRS employees with tax experience report a significant reduction in tax rate volatility but no reduction in effective tax rates. Holding constant the amount of uncertain tax positions, these firms report greater settlements with the IRS, pay fewer penalties, and purchase less tax-related services from their auditors.

Keywords: income tax, IRS, Revolving door, LinkedIn, tax compliance, tax penalties, tax rate volatility

JEL Classification: G18, H2, H25, H26, H32, J45