Paul L. Caron

Tuesday, June 11, 2013

Johnston: IRS Management Culture Must Be Fixed

Tax Analysts David Cay Johnston (Syracuse), IRS Management Culture Must Be Fixed, 139 Tax Notes 1323 (June 10, 2013):

Serious problems in IRS management culture will only worsen as Congress focuses on trivia and ignores the problems created by conflicts in mission, law, and a lack of funds to do the work, especially training.

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@ Holly Merrigan, I have written a number of times that we should have a serious inquiry into wether to get off the income tax. It works well as a wage/dividend/interest/pension tax, not so much for profits, rents, royalties, etc. But many of the 2,600 big corporations that own 80% of corporate assets now profit off the income tax system that they will fight to keep it.
In addition, consumption taxes favor the rich, who consume very little of their income so you are really arguing against the principle that gave birth to democracy and has been endorsed by every classic worldly philosopher for the last 2,500 years in emphasizing a consumption tax. Give some thought to whether the realization rule needs revisiting. On your state up-passing idea, I suggest studying the reasons we live in the second American Republic and the public finance reasons the first (and the renegade Confederacy in the 1860s) failed.

@teaparty doc, there is nothing remote unconstitutional about the IRS being a law enforcement agency. I suggest you sit down and read it. The IRS doe snot prosecute anyone -- tat is done (when it is done and it is rare) by Justice.

No-no-no, I provided a link to the document released by A, not the, Democrat, the ranking committee member. There is NOTHING intrusive or wrong about asking for donors, who MUST be disclosed to the IRS (just not to the public).

I wrote that the public misunderstands the issue because reporters did a lousy job of separating claims from facts and of showing how the law works. Journalists should never assume that a statement by some has a factual basis. If you start from the premise that a statement is factual it leads to all sorts of problems. The First Rile of Journalism (in my book) is check it out. The second is to cross-check until you know where the facts belong in the universe. The Third is that the order in which facts are learned has no meaning in terms of the truth or accuracy of matters, but journalists often assume that what they heard first is the base from which to work, an error that savvy manipulators have long exploited..

Posted by: David Cay Johnston | Jun 12, 2013 9:32:28 PM

@DCJ, again thank you for the thoughtful replies.

I'd heard the story you refer to: I think it was released by a group of House Democrats very recently? I didn't see anything there that explained the aspects of the case that are most alarming: the years-long delays (still ongoing), the intrusive questions (including those on unpermitted topics, such as donor lists, again ongoing), the differential treatment compared with liberal/progressive groups. If I understand you correctly, you're suggesting that these are all artifacts of poor reporting? Well, we'll see. That wasn't my impression at all.

Posted by: No-no-no | Jun 12, 2013 12:22:46 PM

I dont think there would be a violation in that most states already collect a consumption tax. They would just have to remit the federal portion to the feds. The beauty of this is that without the IRS and its taxes and tax exclusions we would have money flowing into the US from abroad. All this would be available to lend, start businesses, privatize some infrastructure (toll roads). Poor people would have more money since the social security and medicare taxes would also be eliminated. The problem with the IRS is that is is so vulnerable to abuse from lobbyists, large corporations and political parties. If we want to make nice with the rest of the world, a good start includes stopping the IRS from requiring foreign banks and countries to send financial date on expaas to the IRS.

Posted by: Holly Merrigan | Jun 12, 2013 10:27:05 AM

Great article, David.

Posted by: Victor Thuronyi | Jun 12, 2013 10:02:09 AM

Mr. Johnston, I agree the IRS needs more money. The IRS is the hand that feeds our government. It is surprising that Congress regularly bites it off.

Holly, prosecution and tax collection are both executive powers. Where would there be a violation?

Posted by: Allen | Jun 12, 2013 7:37:46 AM

The prosecutorial function that the IRS makes use of is a violation of the separation of powers. But this is a necessary function if it is to work. The logical thing to me would be to simply stop having an IRS.

Posted by: teapartydoc | Jun 12, 2013 4:22:02 AM

I think DCJ's comments are accurate but there is a bigger issue here and that is the size of the government bureaucracies. We certainly need tax revenue but the income tax makes savings difficult and is responsible for lobbyists, tax exemptions for rich corporations, tax complexity and expense for individuals. A consumption tax could be implemented with the attributes of simplicity, cost effectiveness and increased savings There are several consumption tax ideas; all are superior to the mess we now have.

Posted by: Holly Merrigan | Jun 12, 2013 1:02:57 AM

Thanks for the thoughtful replies, David.

Posted by: yo Gabbatpour Gabbatpour | Jun 11, 2013 10:47:24 PM

@ Eric Rasmussen – as my column says, the $17k was dumb, but it was 0.0000005% of the federal budget. If Congress wants to micromanage how about the $60billion officially found to be wasted in Afghanistan and Iraq, the $20billion spent on air conditioning there, the absolute failure to indict in the Wall Street meltdown...
As the IRS Oversight Board chairman told me, holding numerous training sessions would have cost a lot more than one big meeting.
I disagree with your jaundiced read of the Tigta report. If Issa will release the full transcripts we can see a much fuller picture of the facts. His reluctance to release the transcripts – I was among the first to urge interviews with transcripts of all involved and public disclosure – is at best curious.
@ CPA, small teams often work well, but that says nothing about the volume of work SB/SE is required by Congress to perform. Managers who are not informed cannot direct staff efficiently or effectively. Having a third of managers with less than two years of experience, which prompted the Anaheim meeting, is another indicator of the management failures I wrote about.
@ Publius Novus, splitting the IRS into two agencies is an idea that deserves serious scrutiny. That’s the kind of idea that gets us past kvetching to solutions (which, of course, always create new problems).
@ No-no-no, the long delays are little different from those experienced by people in other areas so the problem is delays overall, not Determination Unit delays.
Whether Lerner et al are partisans is a valid question if their political views were wielded as a sword. That is not what the record so far shows. Indeed, there is zero evidence so far that this was politically motivated, which may surprise you given the awful quality of the coverage by reporters who left their skepticism at the door and replaced legwork with stenography. But if new facts emerge that change this picture so will my views.
Little known fact: A self-described “conservative Republican” was the manager in the Cincinnati who concluded that the Tea Party, TP Patriots and the like needed more scrutiny, according to this document:

@ AMT Buff, as I show above, there is absolutely no evidence of political bias in enforcement. That you and others believe this stems from an amalgam of mendaciousness by Rep. Issa and weak reporting, as mentioned above. (I have been writing press criticism for 40 years and my work once resulted in the most profitable TV station in America and five other stations being forced off the air for news manipulations and blackouts.)
@ Yo Gabba Gabba, you misread what I wrote and the record overall.
First, there was no “targeting.” That inaccurate word pollutes the entire issue. Target is defined as “to attack.” The Determination Unit was charged with vetting C4 applications. If a building inspector looks over your plans, or how you wired a socket, is he targeting? Or if he making the required inquiry?
On the 17 -- there were almost 300 groups selected for additional scrutiny, of which a third were TP-type groups. That means two-thirds were not Tea Party and other such groups.
Of the minority that were Tea Party type groups, the IG concluded that they should have been given extra scrutiny because that is what the law requires – except for the 17.
Those 17 groups are reasonably upset – you or I would be if we ran one of them. But the world is not perfect. Those 17 are also about the same ratio of people who are audited only to be told they are due money back because they paid too much. Those folks are happier, but they also were improperly selected. And remember that ALL the TP groups were approved.
@ Rob Crawford, one aspect of this case that deserves more scrutiny is why IRS managers sat in on many of the TIGTA interviews, not one worker asked for a union rep.
Why did TIGTA allow this? Is it SOP? Or unique? And what is the rationale, either way?
That not one of those interviewed asked for his union rep (in addition to having chaired a business, I also am a former union local chairman, so I have some experience here) makes it clear that none of those TIGTA interviewed believed they had done anything wrong, risked any disciplinary action or were under investigation.
Had they thought any of these things they would have asked for a union rep as a witness. That they did not is powerful evidence that they considered this a routine inquiry into how decisions were made.
@Nom de Blog, on your belief that there were Civil Rights violations, there is exactly zero evidence so far supporting what you wrote. However, that you believe what you wrote is not surprising because print and broadcast reporters have done a terrible job of covering the facts. I have critiqued this coverage at and other websites frequented by journalists
@ DH, I think we should review the whole 501 section (and 527).
Beyond that, the facts are not as you (reasonably) believe. A flat tax would not address any of these issues, but it would shift the burden of government further down the income ladder. I call it the “Steve Forbes Never Pays Taxes Again Tax,” which you will see if you read the book by Alvin Rabushka (empty suit) and Robert Hall (serious and respected libertarian Democrat economist). It is really a tax on wages with all capital gains, dividends, rents and some royalties flowing tax-free.
Also, there are ways to simplify the tax system and I have written on them at great length.

@ Jeffrey, you diminish yourself with sophomoric arguments. Do you know who was the first nationally known journalist to severely criticize the Obama administration – presciently it turned out? That was nine days into the first term. I have exposed all sorts of dumbness, as well as wrongdoing, by politicians of all stripes. Ask the liberal Michigan Democrat who was a virtually shoo-in for a US Senate seat until I exposed his slush fund 40 years ago, ending his career. To understand why what you imagine is nonsense, read the reference below to Jigsaw John, the great homicide detective.
And this may surprise you -- the only group whose C4 status was revoked was a Democratic Party organization, as reported only in The New York Times. The GOP groups were all approved, though not timely (see cuts, budget).
And, of course, no one needs IRS approval to run a C4 (see Rove, Karl at Crossroads GPS). Groups can self-declare, as the IRS explains at its website.

@ Warren Bonesteel, all governments require a tax agency. Try thinking seriously, not like a callow junior high school student.

@ been there, your post is in line with the complaints I have heard again and again as well as the documents I have reviewed, from personnel cases to MSPB files.
I have certainly met far more liberals – and people with a social conscience, whether religious or not – at the IRS than the population generally. Many IRS employees also strike me as being very smart, but lacking in interpersonal and social skills, which may be why they found government rather than business a better fit.

@ James McKean, first, thank you for using what appears to be your own name instead of cowering behind a nom d’Internet.
Second, there is no evidence whatsoever of illegal activities, though the news media have surely created and reinforced that false impression.
Third, I write a column. A columnist must report out the facts, but he or she also gets to take a point of view, invoke their knowledge and draw connections. Emotion is not part of it.
As Jigsaw John, the famous LAPD detective, one said to me, after I had personally hunted down a killer the LASD had failed to catch and won freedom for an innocent man sentenced to life: “I don’t care who the killer is, all I care is that I get THE killer.”
This is business. Emotion has nothing to do with it.
On dehumanizing, my point (and Nina Olson’s in her annual reports to Congress) is that the IRS often treats taxpayers as pieces of paper and that tendency flows into internal operations, partly because of Section 6103 (which also needs thorough review).
You raise an interesting point about “a management that attempted to enforce a code of serving customers.” I cannot recall any IRS employee telling me a story that fit that line, but I have heard many tales of CYA actions by bosses (and, of course, of good bosses, too). Indeed, I recall a clerk who got several dozen nonfilers to resume filing – and was then disciplined because she later dated one of the men.)
As for the Affordable Care Act, I have written critically about it because a cheaper, better and more efficient solution is to do what the other 33 modern economies have done – get health care off the backs of small business owners (like I was until recently) through universal care.
America spent $2.64 per capita for each dollar the other countries spent on a Purchasing Power Equivalent basis, but covered only 75% of the population all year.
In 2010 we could have eliminated the federal individual income tax had we adopted the French universal system, regarded as best inn the world. (We rank 37th and by some measures rank behind Cuba.) The waste and in efficiency that damage our economy is detailed in a column I wrote when I worked for Reuters:

Having the IRS administer parts of the Affordable Care Act, and other benefits, confuses mission.

Finally, how bizarre that you then bring up the NYT, which readers here know I left more than five years ago. My column was for Tax Analysts.

@Walter Sobchak, I have no idea what point you are trying to make.
@ Edmund Dantes (which I suspect is a nom d’Internet), if you can provide a scintilla of evidence that the IRS is being politicized please produce it. We have not seen any empirical evidence of this in this manufactured scandal, only the impression of such through assertion.
The IG – a Republican political operative before GWBush appointed him – said he found exactly zero evidence of corruption, rot or involvement outside the IRS, though these facts were not well reported and so many people wrongly believe what you do.
I think what Issa is doing is much worse than what you call it, grandstanding.

@ wef, I hope you get appointed IRS commissioner and you can show how you would, with the existing and much shrunken IRS budget, do all of the work assigned by Congress.
In 1998 Congress created a panel of tax and business executives to advise on what the IRS does and needs. The IRS Oversight Board has consistently said the agency needs more resources, a lot more. But compared to you, what the heck do they know?

Posted by: David Cay Johnston | Jun 11, 2013 7:35:13 PM

Wow, actual thoughtful comments by people. Hallelujah!

Substantive responses shortly.

Posted by: David Cay Johnston | Jun 11, 2013 5:19:46 PM

First, he lost me at "lack of funds" - ha, ha, ha, ha, ha - what a sick joke.

Second, from the article: "There was one consistent theme, however: the observation that far too many managers and executives lack management and personal skills, look out for their careers to the detriment of their subordinates, and simply do not know how to manage." - This is an observation about all bureaucratic organizations, but is orders of magnitude worse in the case where everyone is using Other People's Money (aka, government). What makes the IRS especially bad are not deeply endemic principal-agent problems, but that the IRS is the coercive revenue and tax-enforcement arm of a politicized state. Johnston is minimizing, as a good, safe, reasonable believer in nytimes conventional, power-class wisdom.

Third, what magic talisman do employees and contractors of the NSA get to wear that makes them immune from all the same failures, breaches and mis- and malfeasances of employees of the IRS? We should go and make more of those magic objects and distribute them high and low. That's the secret! Let's just let the NSA take over the IRS and we can all feel as if we were still living under the Rule of Law!

Posted by: wef | Jun 11, 2013 3:26:19 PM

Jeffrey, hear! hear! Excellent points.

I read Johnston's piece, as well as a series of blog posts on the subject at Tax Analysts. They all overlook the ongoing politicization of the IRS, and how corrosive that will be for governance. They have all underestimated how shockingly, startlingly bad this corruption is.

AMT Buff makes the same good points here he does at the Tax Analysts blog.

I will agree with Professor Johnston that Issa grandstanding about conference expenses could be a distraction. But most Americans don't get to go to expensive conferences such as these, and most Americans don't get the high salaries IRS agents get. So the conference expenses do tend to resonate with ordinary voters who don't understand the tax code, but recognize financial abuse when they see it.

Posted by: Edmund Dantes | Jun 11, 2013 1:52:53 PM

In 1756, the British Admiralty sent Admiral John Byng to prevent the French from taking Minorca. Byng arrived when the island was already under siege, and, after an indecisive naval engagement, withdrew without relieving the siege. Byng was court-martialed and hanged for "failure to do his utmost."

French author Francois Marie Arouet (1694 - 1778, "Voltaire") had his fictional character Candide witness such a hanging in the eponymous novel and remark:

"Dans ce pay-ci, il est bon de tuer de temps en temps un amiral pour encourager les autres."
"In this country it is good to kill an admiral from time to time, to encourage the others."

Posted by: Walter Sobchak | Jun 11, 2013 1:47:56 PM

DCJ - thanks for responding to the previous commentors.

I would ask - when writing something such as this, shouldn't the writer remove emotions from the defense of illegal activities? What I see in your writing is a strong emotional response against the Iraq and Afghanistan wars that Pres Obama continued for many years - but not much emotion to hundreds of groups that were discriminated against by employees of their government. What does IRS oversight need to cost compared to keeping our troops' morale up in a war to suit you?

Next, you say that the agents at the heart of this were forced to dehumanize their case files while at the same time blaming a management that attempted to enforce a code of serving customers. Are customers not people in your world? Your points seem to be self-refuting here.

You lay further blame on the government by turning the IRS into a welfare agency. How many editorials did you write warning about this as Obamacare - the Welfare give-away above all other give-aways - was working its way through Pelosi's House and Reid's Senate?

Lerner is on paid administrative leave because of the protections for their allies. Her "few rouge" agents are also impossible to fire due to collective bargaining agreements. Scott Walker is against these; so was President Franklin D Roosevelt. Can we take it that a Presidential Candidate Walker will get your endorsement?

My guess is, no. My guess is you, and the others at the NY Times will continue to explain away the discrimination against conservatives. I hope I'm wrong - and will keep my mind open.

Finally - exactly what does 1 hearing in 2004 of the Oversight Board have to do with coordinated suppression of peoples' equal right to assemble? I ask the question in this way, because your article was too busy railing against the spending in the Iraq war to explain how Pres Obama's 'Organizing for Action' was able to quickly get approved for 501(c)4 status while ordinary Americans languished. Would you care to share some insight to this?

I am heartened we can find some common ground, however. Your description of the difficulties in managing an organization as "un-political" as you claim the IRS is clearly highlights the fact that government has gotten too large to be controlled. It is both 'Too Big To Fail' and 'Too Big To Control'. Perhaps we should work together to reduce its size and scope.

Posted by: James McKean | Jun 11, 2013 1:39:04 PM

Great article. Thank you, David Cay Johnston for all of your work - and the comments back! Impressive.

Full disclosure - I worked at the Service for a number of years. What I saw for the most part was hard work and dedication. I did see more "liberals" because the salaries are not competitive with private practice.

The management was (for the most part) top heavy and sometimes filled with those who could not hack it (or chose not to hack it) at the substantive jobs. That's O.K., provided they received training on how to manage and they themselves were actually managed. That I did not see. It was a "protect your own" mentality - even with obvious evidence that the manager was doing poorly.

Bravo on the article

Posted by: been there | Jun 11, 2013 1:36:49 PM

At the moment, all that has been accomplished -or proposed- ends by teaching the rest not to get caught.

Put the boots to them.

After the perps have been punished for the their crimes in a court of law, abolish the IRS and enact a flat tax or a national sales tax.

You knows! Such a move might even be good for the economy...

Posted by: Warren Bonesteel | Jun 11, 2013 1:30:44 PM

First it was two level employees in Cincinnati. Then it was 80 employees, still low level. Then it was indicated that Carter Hull, a Washington based Atty within the IRS was giving the direction to the Cinci and other employees. It also appears that several WH and IRS Washington based attorneys, including WH counsel were told of the matter and did nothing. You see, its still creeping up the food chain. It will go higher. But even if we say the problems were because of depersonalization, i think that's not all that correct either. I don't think we can say the treatment received by BHO's step brother by Lois Lerner was depersonalized, do you? I think that approving his 501(c)3 request in less than 30 days, plus backdating it 27 months was really quite personal service. Not to mention BHO's 501(c)4 OFA. I don't remember hearing about that getting anything less than personal service from the IRS. Come to think about it, I don't remember hearing about how any liberal organizations looking for 501(c)3 or 4 status received anything but personal service from the IRS. Do you remember hearing about the request for media matters to not prepare talking points for the O administration as their reason not to grant 501(c)4 status? No, me neither.

Also, I don't remember hearing about how the IRS had given away tax returns of liberal organizations to conservative groups in the past election cycle.

What the author is trying to do is say that all of this stuff is inconsequential because it FITS HIS OWN PERSONAL WORLDVIEW. That anything any a liberal does is naturally good and anything a conservative does is naturally bad. Sorry, but that dog doesn't hunt. What we have hear is the simple fact that the IRS has abused its authority, that it simply listed to a president who said that conservatives are enemies of the state, and decided to act to target groups and individuals that appose the current administration. I mean, the president said that they were his enemies, no?

Posted by: Jeffrey | Jun 11, 2013 1:11:05 PM

I agree with David Cay Johnston that there has been too much focus on relatively trivial issues and too little on the big picture. But by merely focusing on the IRS management culture and training, he makes the same mistake.

Few are asking truly big questions such as: Is there something inherent in the structure of our tax code that gives rise to the abuses we have seen? Would an alternative such as a flat tax or consumption tax be less susceptible to corruption? Would we then even need an IRS, or at least an IRS anywhere close to its current size and power? Would such a change be better for individual freedom or worse?

If the only result of this scandal is that a few IRS bureaucrats are disgraced, or that the President's agenda is stymied for the rest of his term, or even that the IRS gets a bigger training budget as Professor Johnston desires, then we will have lost an opportunity to turn this debacle into something truly positive for freedom and prosperity in America.

Posted by: DH | Jun 11, 2013 12:13:59 PM

What part of the training went to teaching the law to the IRS employees?

Because the scandal here is Civil Rights violations. And the people violating the Civil Rights of U.S. citizens were committing crimes. And IRS employees opened themselves up to criminal and civil sanction because the training the IRS gave its employees was not aimed at following the law.

Quit -everybody- from trying to distract from those underlying facts.

Posted by: Nom de Blog | Jun 11, 2013 11:44:57 AM

DCJ thinks the TIGTA report is the comprehensive report on this targeting?

Wasn't there a minder present during all testimony gathered by the IG?

Posted by: Rob Crawford | Jun 11, 2013 11:41:32 AM

So many Fascists, so few lamp-posts (guess we'll have to double-up).
Oh, the humanity!

Posted by: askeptic | Jun 11, 2013 11:39:39 AM

IRS Management Culture Must Be Fixed

I propose the Gosnell approach to the whole agency. Snip, snip.

Posted by: McGehee | Jun 11, 2013 11:18:51 AM

DCJ thinks the TIGTA report is the comprehensive report on this targeting? That the TIGTA report's focus on 17 groups means only 17 groups suffered undue targeting? That's a major mistake in understanding and makes me wonder why it'd be useful to read the report.

Posted by: Yo Gabba Gabba | Jun 11, 2013 10:36:52 AM

David, I agree that the training videos are no scandal. They show initiative and engagement, which are benefits.

The scandal is that not of the 88 people who knew of biased enforcement was willing to blow the whistle on it. When Republicans like Nixon try politicized enforcement, someone in the chain shuts it down immediately. When Democrats try it, everyone looks at their shoes and stays quiet. Figure out how to fix that first.

My suggestions are to repeal the 1993 relaxation of the Hatch Act and to eliminate collective bargaining for IRS employees if not for all of government. As things stand, every IRS employee has a financial interest directly opposed to Republican taxpayers. Getting the union out of that picture would help. Incentives matter.

The IRS could also consider affirmative action hiring of Tea Party members at all levels. For one thing, it would block the spread of partisan enforcement. more importantly, it would ensure that people of different ideologies get to know each other and respect each other. Then it would be much harder to countenance bias. That effect was the genius of the outreach form of affirmative action.

Posted by: AMTbuff | Jun 11, 2013 10:04:27 AM

I have to say I appreciate David Cay Johnston's willingness to respond directly here. Agree or disagree with him on any specific issue, this is an excellent thing. Certainly you can't just take potshots at him without expecting a response!

That said, the reply above seems to take a very casual approach to the current scandal. As far as I know, some of the same organizations are *still* awaiting approval all these years later, and I've seen claims that some of them continue to receive new requests for information they should not have to provide, such as donor information. There's a degree of brazenness here that's shocking in itself. If this is how they behave while the spotlight is on them, imagine what they're like the rest of the time!

As for the story-du-jour that it was a self-described Republican operative who started the whole thing, well, let's just say the jury is still out on that (perhaps literally!). The IRS's stories have had a way of falling apart on the smallest amount of investigation. Possibly it's limited to 88 (or, as the IRS calls it, "a couple") rogue agents, but count me skeptical. But by all means let's keep an open mind while a full, detailed, exhaustive and public investigation is conducted.

The point about IRS managerial incompetence is a fair one. But why does it have to be an either/or proposition? Maybe Lois Lerner and others are both partisan hacks *and* incompetent managers?

Posted by: No-no-no | Jun 11, 2013 10:02:21 AM

Bravo Prof. Johnston. Your article, short as it is, is very insightful. Three additional points, from one who worked at DOJ representing the Service for many years. When Charles Rossotti was appointed Commissioner, there was a sharp culture shift in the IRS. It became noticeable, even at DOJ, in the business-speak language adopted by IRS managers over the next few years. IRS managers from top to bottom began to talk about "business plans," customers, and dashboards. MBA language began to overtake government-speak, and the IRS still speaks "business" today.

And second, of course, we have the constant refrain that government should be run like a business. It looks to me like the IRS managers learned that part very well. Their Anaheim conference closely resembles a modern U.S. business convention, complete with swag for attendees, bonuses for organizers, and silly morale-lifting exercises.

What might help? I think we should start by splitting the agency into at least two (more) agencies within the Department of the Treasury. (Recall that the Office of Chief Counsel is a separate agency from the IRS proper, and that TIGTA was formerly the "Inspection Division" of the IRS. So today, we have the IRS itself, a separate counsel's office, and a separate inspector general, all within Treasury.) The returns processing, taxpayer assistance, rulings and guidance, and determination functions should be put in one sub-Treasury agency. The enforcement functions--audit, collection, and criminal investigation--which in most ways conflict with the taxpayer service functions, should be placed in a separate sub-Treasury agency. That leaves the administrative appeals function, which doesn't fit well in either place. And with a 65% modification rate, either audit and collections are making an awful lot of errors, or appeals as constituted is way too soft. What might work here is shifting administrative appeals to an APA or modified APA model, with formal ALJs or administrative judges independent of Treasury. If we want to get really radical, I suggest eliminating both the administrative appeals function and the USTC, and going to an APA model with formal ALJs. The result likely would cost no more for taxpayers or the federal budget, and would result in far better administrative outcomes in terms of uniformity, cost, and results.

Posted by: Publius Novus | Jun 11, 2013 9:03:32 AM

Professor Johnston,

I read your entire piece. I disagree with what you describe as the consistent theme of this scandal: that too many IRS managers and executives lack management and personal skills. (You also regret that IRS evolved into a bureaucratic donkey sired by a social agency and a tax agency.)

Any manager of a tax team, whether at an accounting firm or in-house, would state that one or two knowledgeable people can complete work better (more accurately, more efficiently, far more cheaply) than twenty under-prepared staffers. This is true with all tax specialties, such as nonprofit taxes. Someone who knows what he is doing can handle a very high volume of work quite consistently and effectively.

To conclude with an example: think of the last long memo/brief/paper you read from one of your students. The content could have been covered better in a single page if prepared by an expert.

All the talk about "training" misses the above point. Don't try to train a stable of horses to be cows; just buy two cows. The central theme of this scandal is not that managers and executives lack management skills. It's that over time the technical experts have been pulled away from the actual work of tax.

Posted by: CPA | Jun 11, 2013 8:45:05 AM

(1) The cost per person is not the issue. Training has to cost a lot if it is going to work. Rather, the issue is whether this is a good use of a small training budget. Spending $17,000 is unimportant in itself, but is worth discussing if it indicates that the manager is incompetent. It's as if a manager says he has to first phone up his astrologer before he makes a particular small decision--- his using an astrologer for one decision will cause no great harm, but it teaches us a lot about the manager.

(2) The IG didn't exonerate the Washington leadership--- he carefully kept his investigation as narrow as he could, e.g. not requesting any phone records and not complaining when Treasury unlawfully refrained from passing along his information to Congress in early 2012.

Posted by: Eric Rasmusen | Jun 11, 2013 8:20:17 AM

The comments by Dan and Todd indicate that they commented without reading my column, not to mention their serious misunderstandings of the known facts. Hence they come up with comments that add nothing ot our understanding because they are ill-informed.

@ Dan, the IRS training with the line dancing is explained in the video. It was cheap, as the IRS Oversight Board chairman notes at less than $1,600 per person all-in and was needed because almost a third of SB/SE managers were new or new to their jobs. There is more on the facts in my column.

@ Todd, this issue is about 17 organizations -- 17 out of tens of thousands, as the TIGTA report shows. And the IG is a former Republican operative whose report and testimony shows TIGTA found exactly zero influence from "the top." Rather than testimony shows that a supervisor in the Determination Unit -- a self described right-wing Republican -- decided that some of the groups applying as C4s needed scrutiny because their applications raised questions about whether they qualified. The IG found that all but 17 of the Tea Party et al groups (which themselves were a minority of all groups whose applications were set aside for extra scrutiny) should have been thoroughly vetted.

Recommendation for Dan and Todd (and others) read first, learn the facts, then comment.

Posted by: David Cay Johnston | Jun 11, 2013 5:46:59 AM

Culture flows from the top. When you have a President (and Democratic Senators) referring to opponents as enemies and threats to democracy, is it really a surprise that many in the IRS took the not so subtle hint and focused their efforts on those groups? Or when you have a rabidly left wing IRS union represented by a woman who publicly slams the tea party?

There's plenty of problems that need fixing, but more money or new laws won't do a thing to fix them - the rot starts much higher and is political in nature. The current administration has shown no interest in meaningful change, despite its past campaign slogan. It's the Chicago way.

Posted by: Todd | Jun 11, 2013 5:31:20 AM

Lack of funds for training! Oh, you mean learning about the Code and stuff rather than line dancing . . .

Posted by: Dan | Jun 11, 2013 4:59:45 AM