Koskinen Rescues IRS as Y2K Man & Freddie Mac CEO-CFO-COO

Deep into a career turning around companies and government agencies, John Koskinen found himself doing four jobs at once in 2009.

His title was non-executive chairman of Freddie Mac (FMCC), where he was supposed to rebuild the U.S.-owned mortgage financier after the credit crisis. Then the chief executive officer quit, the chief financial officer committed suicide and Koskinen became CEO, CFO and chief operating officer.

That experience may prove the best preparation for the job President Barack Obama nominated him for yesterday: manic multitasking in the political whirlwind atop the Internal Revenue Service.

“He never gets flustered,” said Ed Haldeman, who succeeded Koskinen as Freddie Mac CEO and worked with him every day for three years. “He’s dealt with crisis. He’s dealt with employees that have been beaten up and the morale is down.”

That sense of crisis and low employee morale await Koskinen, 74, if he is confirmed by the U.S. Senate to run the IRS, which has a pile of troubles from balky computers to congressional investigations. In nominating Koskinen to run the tax agency, Obama becomes the third consecutive president to tap the turnaround guru.

Risky Loans

President Bill Clinton chose Koskinen to lead the government’s efforts to address the Y2K issue, the threat that aging computers with space for two-digit years would assume that the year 1900 would follow 1999. George W. Bush’s administration asked him to go to McLean, Virginia-based Freddie Mac, which was seized by the U.S. in 2008 after investments in risky loans pushed it to the brink of insolvency.

At the IRS, Koskinen will encounter congressional frustration and anger at the controversies swirling around the agency’s scrutiny of Tea Party groups, its spending on conferences and its payment of bonuses.

Some of his toughest challenges will be with issues that have received little recent attention, such as tax-refund fraud and congressional requirements to administer spending programs through the tax code, said Lawrence Gibbs, a former IRS commissioner.

“They get more and more responsibility and less and less funding,” he said. “On top of that, they’re right in the middle of a partisan political firestorm between the Republicans and the Democrats, which makes everything else that much more difficult.”

Forced Out

Koskinen would replace Danny Werfel, the interim IRS leader Obama chose in May after he forced out acting commissioner Steven Miller. If confirmed, Koskinen’s term would last until November 2017.

The IRS hasn’t had a commissioner since Douglas Shulman left in November 2012. Obama had known since at least April 2012 that Shulman was leaving and didn’t pick anyone until yesterday.

Koskinen wasn’t interested in the job when first approached before May 2013, said a person close to the selection process who asked not to be identified to discuss a confidential matter. After the IRS controversy exploded in May, Treasury Secretary Jacob J. Lew asked him to reconsider, the person said.

Koskinen’s resume, which lacks experience in tax policy or tax law, includes 21 years at Palmieri Co., where he worked on corporate turnarounds. He was chairman of Duke University’s board of trustees and president of the U.S. Soccer Federation.

City Administrator

In government, Koskinen was a deputy director at the Office of Management and Budget under Clinton and then city administrator for Washington Mayor Anthony Williams.

“The fact that he keeps being willing to come out of retirement says an awful lot about the man,” said Louis Erste, who was chief operating officer of the D.C. Public Schools when Koskinen worked for the city.

Erste, now a school official in Georgia, said he remembers leaving meetings around dinnertime, when Koskinen would pull out a tablecloth and candles in his office and eat with his wife on speakerphone before diving back into work.

“He conveys a sense of calm,” said Erste, who has stayed in touch with Koskinen after both left the D.C. government.

At Freddie Mac, Koskinen was particularly helpful in keeping the company focused while they were reading about how “stupid” they were, said Nicolas Retsinas, who became a Freddie Mac director before Koskinen and still is on the board.

“You were in a period where everybody was looking over your shoulder,” he said. “John was just that voice of reason. Steady as she goes.”

Koskinen is a director of AES Corp. (AES), based in Arlington, Virginia, and American Capital Ltd. (ACAS), which has its headquarters in Bethesda, Maryland. He made $490,590 from his board work in 2012, including stock awards, according to securities filings.

No Conflicts

A second person close to the selection process, who also asked for anonymity, said Koskinen wouldn’t retain any affiliations that pose a conflict of interest.

According to securities filings, Koskinen held 30,322 shares of AES as of May 15, which would be worth $383,877 at yesterday’s closing price. He held 49,930 shares of American Capital as of March 1, which would be worth $671,308 as of yesterday’s closing price.

Democratic Donations

Since the beginning of 2007, Koskinen has donated $25,600 to Democratic candidates and causes, including $7,300 to Obama and $3,000 to the Democratic Congressional Campaign Committee, according to Federal Election Commission records.

At the IRS, Koskinen would enter a political storm that has been raging since May, when the agency apologized for applying tougher scrutiny to Tea Party groups applying for tax-exempt status.

At least four IRS officials have lost their jobs. Seven congressional committees have begun inquiries and the Justice Department started a criminal probe.

Investigations so far have revealed a more complex and muddled picture of what happened at the IRS, and no link to the White House has been found. Jay Carney, the White House press secretary, said July 31 that the IRS was one of the “phony scandals” Obama referred to in a speech.

“That doesn’t excuse the conduct, doesn’t say that it’s the right thing to do,” Carney said. “It means that we have to address poor performance as poor performance, and reject efforts to turn it into yet another partisan political football.”

The Republican-controlled House this week is considering a package of bills aimed mainly at curbing the IRS, as part of what leaders have dubbed Stop Government Abuse Week. Lawmakers have complained about the slow pace of the agency’s production of documents in response to congressional requests.

House Bills

One bill already passed would let the IRS fire employees for politically motivated targeting. Another, passed today, would prevent the agency from enforcing the 2010 health-care law, in which it has major responsibility. House Republicans have also proposed a 24 percent budget cut.

Questions about the scrutiny of Tea Party groups and the health-care law will come up at Koskinen’s confirmation hearing, which won’t occur until after Congress returns from a five-week recess on Sept. 9. Senator Max Baucus, a Montana Democrat and Finance Committee chairman, said he was “pleased” with the choice and would move the nomination quickly to the full Senate.

Several Senate Republicans said they didn’t know much about Koskinen, and the top Republican on the Finance panel, Orrin Hatch of Utah, said he was “more than a little mystified” that he wasn’t consulted or given advance notice of the nomination.

‘Huge Problems’

“We’ve seen there’s some huge problems,” said Senator Pat Toomey, a Pennsylvania Republican and a member of the Finance panel. “We haven’t gotten to the bottom of them yet and that’s very disturbing. It is not some kind of phony scandal, as the president seems to believe. It’s a real, real serious problem.”

Senator Charles Grassley, an Iowa Republican, said in a statement that the IRS needs a turnaround expert.

“A new nominee is not enough,” he said in a statement. “The nomination shouldn’t be the president’s basis for sweeping problems under the rug. The IRS hasn’t had a permanent commissioner since last fall, and it needs one but not just to put a good face on a troubled agency.”

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net

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