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July 31, 2014
Exclusive: Congress May Never Be Satisfied by IRS Probes, Koskinen Says
by William Hoffman

Full Text Published by Tax Analysts®

[Editor's Note: The complete interview transcript is available here.]

Even if the exempt organizations controversy ends with the exoneration of the IRS on charges that it hid information from congressional investigators and conspired with the White House, some in Congress will simply shift the argument to a new accusation, IRS Commissioner John Koskinen told Tax Analysts during an exclusive interview July 29.

"When we get done with it all, my concern is the reference point won't be back to, 'Well, see, the IRS people were right and they produced all the documents and nothing was wrong,'" Koskinen said. Instead, congressional investigators will point to details in the investigation where they couldn't get a "straight story, to some extent because there are some people who don't want a straight story," he said.

"The core issue is an important issue. People ought to be treated fairly," Koskinen said of the controversy that arose in May 2013 over charges that the IRS had unfairly scrutinized conservative groups' applications for tax-exempt status. But the "chase down a lot of rabbit holes is going to turn out to be nonproductive," he said.

During the hour-long interview at IRS headquarters in Washington, Koskinen defended his agency's record of disclosure in the investigations into the EO controversy; criticized congressional budget cutting that he said exacerbates the IRS's service and enforcement challenges; and promoted the new Form 1023-EZ not only as a way to speed up small groups' applications for tax-exempt status, but also as a means to better weed out illegitimate EOs.

'No Indication' of More Lerner E-Mails

The search for the missing e-mails of Lois Lerner, former EO director in the IRS Tax-Exempt and Government Entities Division, continues at the Treasury Inspector General for Tax Administration, where investigators are reviewing IRS tape drives to see if any information backed up from Lerner's crashed hard drive can be recovered.

"Thus far, there's been no indication there are e-mails on" the tapes, Koskinen said. It's unlikely anything from the tape drive backups will be more revelatory than the 24,000 Lerner e-mails already recovered, he said, adding, "If they could find every Lois Lerner e-mail, it would be spectacular, because I think they'd look just like the 24,000" already discovered and delivered to investigators.

"It's not going to surprise me to find out, when you get done with it all, [that] there's not going to be any evidence that anybody tried three years ago to destroy anything," Koskinen said. Some members of Congress have questioned whether Lerner's 2011 hard drive crash was intentional, with House Ways and Means Committee Chair Dave Camp, R-Mich., pointing out that it occurred 10 days after he inquired into the IRS's alleged targeting of conservative groups.

Koskinen said it makes no sense that Lerner would destroy her hard drive and then continue writing incriminating messages that could be recovered later. "If she were really good at it, she would've not written all 43,000 of them, and they wouldn't contain the information in them that the committees have been using to say, 'See, Lois was involved in all this,'" the commissioner said.

Koskinen said his agency has been delivering all information the committees demanded. The effort has been hampered by an IRS information technology infrastructure that he said averages 15 years old, and an e-mail system that must be scoured computer by computer, with little or no central management in place. "We ought to be able to push a button or two and be able to say, 'You tell me the e-mails you want, and within a reasonable period of time, I can get them to you,'" he said. "We're captured by that archaic system, which means it comes out in pieces like this."

But even if the lost e-mails are recovered, congressional investigators will "go on to something else," Koskinen said. "They won't concede error. They'll say it was worth pursuing, which it is. Whether it was worth making a federal case out of it or not is another issue," he said.

Taxpayer Services 'Abysmal' Without Funds

Koskinen blamed many of the Service's problems on Congress's continuing squeeze on the IRS budget. He cited a familiar litany of complaints -- that the IRS's fiscal 2014 budget is about $1 billion less than that for fiscal 2010 and that agency employment is down almost 10,000 in the same period -- while adding that the IRS is currently hiring only one new employee for every five it loses.

"We're not going to be able to hire a lot more people," Koskinen said. "So what we're going to do is be, for the first time, much more rigorous about what we can do and what we can't do."

"And I've told people, we're no longer going to pretend that we can be all things to all people, no matter how limited the resources," the commissioner said.

"There's nothing we can do about taxpayer services -- it's going to be abysmal again" in the next filing season given the budget constraints, Koskinen said. If Congress abides by the Senate markup for the fiscal 2015 budget, the IRS will be funded at $11.5 billion, just 2 percent more than the 2014 enacted budget. Meanwhile, the House on July 14 approved more than $1 billion in additional cuts to its already reduced budget for the IRS.

"It all goes back to, part of the problem with this agency is it's never said, 'We can't do it,'" Koskinen said. "The reason I keep pushing Congress, I tell people, we'll play the hand we're dealt. But I want you to know what you're going to get for what you pay, and I want you to know what you're not going to get if you're not paying for it."

Form 1023-EZ

Resource constraints also helped dictate the IRS's response to a backlog of 60,000 section 501(c)(3) applications when the commissioner took office in December 2013. Form 1023-EZ, "Streamlined Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code," is part of the Service's answer, Koskinen said.

Under the old system, large and small aspiring tax-exempt organizations alike had to wait a year or more to be processed, Koskinen noted. That's not fair, especially to smaller groups, which don't have the wherewithal to wait, he said. Further, making smaller groups fill out the same 26-page application as a foundation formed by Microsoft founder Bill Gates "doesn't make any sense," the commissioner said.

The new three-page expedited form will allow the IRS to collect the information it needs to qualify small groups for tax-exempt status, Koskinen said. Because it will be digital, the information can be more easily screened and analyzed to ensure the credential goes only to those qualified, he said.

The Service will also take a statistical sample of applications and subject them to a more rigorous process to ensure that the form's questions have been answered correctly, the commissioner said. After a year, the IRS will audit some to ensure that the organizations are doing what they said they would do to qualify for tax exemption under the law, he added.

"We'll be much more efficient at the front end with the 80 percent of applications that are small, and be able to screen them out more effectively than we have, and we're actually going to look at them at the front and look at them a year later, and adjust accordingly," Koskinen said.

Revolving Doors and Other Matters

Koskinen touched on numerous other subjects, including how a "revolving door" between private and public sector employment can actually benefit the IRS, and why he intends to reinstitute training programs that congressional appropriators criticized last year, even if, he said, "I'm going to get yelled at" for it.

The commissioner advocated continuation of the critical pay program for senior executives, saying, "If it expired and it hasn't been renewed . . . we're going to lose [senior executives and IT people], and I think it's going to be hard to replace them."

Koskinen also discussed the oft-overlooked issue of long-term recruitment and retention. "If we're not careful, if I just sit around and solve all the other problems and three and a half years from now leave and we haven't dealt with this problem, then it will be a serious issue," he said.

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