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Paul L. Caron
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Thursday, April 3, 2014

The IRS Scandal, Day 329

IRS Logo 2IR-2014-42, Prepared Remarks of Commissioner of Internal Revenue Service John Koskinen Before the National Press Club:

In moving the IRS forward, one of the most important things we have to do is restore public trust in the agency, which was shaken by the management problems that came to light last year with regard to the determination process used for applicants to become tax exempt social welfare organizations under section 501(c)(4) of the IRS code. Organizations that have 501(c)(4) status can be everything from garden clubs to homeowners associations, but the focus for the last year has been on advocacy groups that spend part of their time and money on political campaigns.

As a result of the inappropriate use of an organization’s name alone as the criterion for setting its application aside for special treatment, doubt has been cast by some on the independence of the IRS. This is an important issue that deserves our attention.  But it is also important to put this issue into the proper perspective.  The IRS has about 800 employees in its Exempt Organizations Division, and only a small subset of those folks work on processing applications for tax-exempt status for social welfare organizations. Meanwhile, there about 89,000 other IRS employees in offices all across the country who are also doing critical work for our tax system and for the nation in other areas.

Nonetheless, taxpayers need to be confident that the IRS will treat them fairly. It doesn’t make any difference who they are, what organizations they belong to, or whom they voted for in the last election. None of that matters to us at the IRS. We will do about one million audits of individual taxpayers this year. Some who get audited may be Democrats, some may be Republicans, and others may be something else altogether. But they will all have one thing in common: They’re being contacted by us because there was something on their tax returns that needed follow up. Perhaps we just need a clarification. Maybe there was a mathematical error. Or there could be something seriously wrong with the return. But the return alone is the reason for our inquiry. And anyone else with the same issue would receive the same treatment from the IRS.

To make sure that this problem does not recur, we’ve done a number of things. We have accepted all nine of the recommendations from the Inspector General for Tax Administration. It was his report last May that found applications for 501(c)(4) status were being screened using inappropriate criteria in the determinations process. 

Since then, for the last several months the IRS has been cooperating with the investigations into this matter that were launched last summer. There are six ongoing investigations, four conducted by Congressional committees, one by the Department of Justice and one by the IG.

We were asked by members of Congress to quantify the work we’ve done and how much it has cost. The answer is that more than 250 IRS employees have spent over 100,000 hours working directly on complying with the investigations. This work has cost more than $14 million, which includes adding capacity for our computer systems to make sure we are protecting taxpayer information while processing and producing these materials.

In letters to Congressional Committees two weeks ago and in my testimony before the House Oversight and Government Reform Committee last week, I was pleased to report that we now have provided all the documents we have identified as being related to the determinations process – which was the focus of the IG’s report last May. We have provided the tax writing committees, our primary oversight committees, with almost 700,000 pages of documents.  We are still redacting taxpayer information from the last of those documents before they can be shared with the Committees that do not have authority to see taxpayer information.

As a result, my hope is that at least some of the six pending investigations will be concluded and reports issued in the near future. I have made it clear that we will respond appropriately to the facts and recommendations of those reports and move the agency forward.

Our production of materials has proceeded according to priorities set with all of the investigating committees and, as we have now completed our production of documents related to the determinations process, we are prepared to work with the committees on any new avenues they may want to pursue.

You may have noticed that, during my three-hour hearing last week before the House Oversight and Government Reform Committee, some members of the Committee expressed unhappiness with the rate at which we are producing redacted information for them. As I tried to make clear, we never indicated that we would not respond to the very broad subpoena for documents we received in mid-February. Indeed, we have produced documents responsive to each of the subpoena’s categories. In the private sector, a court would require these requests to be reduced to those relevant to the inquiry. Unfortunately, the subpoena contains no such limitations, so the volume of materials requested means we could be at this for a long time.

Another recommendation by the IG was that the Treasury Department and the IRS should provide clearer guidance on how to assess the permissibility of 501(c)(4) social welfare organizations’ activities. So last November, Treasury and the IRS issued proposed regulations that are designed to clarify the extent to which a 501(c)(4) organization can engage in political activity without endangering its tax-exempt status.

While I was not involved in the issuance of this draft proposal, because it happened before I was confirmed as Commissioner, I believe it is extremely important to make this area of regulation as clear as possible. Not only does that help the IRS properly enforce the law, but clearer regulations will also give a better roadmap to applicants, and will help those that already have 501(c)(4) status properly administer their organizations without unnecessary fears of losing their tax-exempt status.

During the comment period, which ended in February, we received more than 150,000 comments. That’s a record for an IRS rulemaking comment period. In fact, if you take all the comments on all Treasury and IRS draft proposals over the last seven years and double that number, you come close to the number of comments we are now beginning to review and analyze. It’s going to take us a while to sort through all those comments, hold a public hearing, possibly repropose a draft regulation and get more public comments. This means that it is unlikely we will be able to complete this process before the end of the year.

Before leaving this topic, I want to note one other thing. Last month, former IRS Commissioner Randolph Thrower passed away at the age of 100. Commissioner Thrower led the IRS from 1969 to 1971, during the early years of the Nixon Administration, which turned out to be a challenging time for the agency. Commissioner Thrower held firm against attempts being made at that time to politicize the agency. The White House eventually fired him for his principled stance.

I’m sure if Commissioner Thrower were here today, he would say he was only doing his job. But he was doing much more. His refusal to let politics compromise the IRS is an important reminder to all IRS Commissioners now and in the future of what our mission is. I intend to follow his example. I want to reassure everyone listening to me today that the IRS is an agency of career civil servants who are dedicated to serving the American taxpayer in a fair and impartial manner. That’s how it’s always been, and that’s how it will stay on my watch.

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Comments

Section 6103(a) of the IRC requires that all tax returns and “return information” be maintained in confidence. Subsec. (a) is then followed, in the CCH version of the Code, by 19 pages of fine-print exceptions. Several other sections of the Code provide for civil damages and criminal felony prison terms for violations of § 6103. It isn’t too difficult to figure out what a “return” is under the law. But the breadth of “return information,” coupled with the 19 pages of exceptions and several hundred judicial decisions from the SCOTUS on down to the bankruptcy courts, make it a rather tricky business to redact letters, memoranda, and emails. Much of the redaction process is judgmental, because what might “identify” a particular taxpayer may vary from situation to situation. It also is frequently difficult to redact a document in a factual vacuum, because private parties with inside knowledge of an industry, for example, often know information about competitors that is not known to the IRS employee trying to redact the document. Thus, it sometimes becomes necessary to conduct factual research about the taxpayer or to seek advice from in-house industry experts in order to ensure proper redaction.

All of which is a polite way of saying that Eric, you don’t know jack.

Posted by: Publius Novus | Apr 3, 2014 10:40:09 AM

I don't think it really helps Koskinen to emphasize that he's spent 14 million dollars and 100,000 employee hours and he still hasn't been able to get Congress a flashdrive with all of Lois Lerner's emails on it.

Posted by: Eric Rasmusen | Apr 3, 2014 7:09:18 AM