Obama IRS Choice Poised to Win Approval for Thankless Job

John Koskinen, a 74-year-old multimillionaire with a resume full of accomplishments, is about to get the thankless career-capping job of running the Internal Revenue Service.

After completing a two-day Senate confirmation hearing with no objections to his nomination, he told reporters yesterday that he has a yellow legal pad with two columns. One, he said, is a list of his friends.

“The other,” said Koskinen, “is people who think this is a good idea.”

Koskinen, a former chairman of U.S.-owned mortgage financier Freddie Mac with no experience in tax administration, is poised to take over leadership of the U.S. tax agency as soon as later this month.

As an executive who has built his reputation on turning around troubled enterprises, Koskinen will have plenty to do at the IRS as it tries to restore public trust damaged by its treatment of small-government nonprofit groups.

He’ll also encounter an agency strained by budget cuts and burdened with responsibilities to help implement the health-care law. That comes on top of its ordinary duties of enforcing tax laws, processing returns and operating call centers.

“Coming into the IRS under any circumstances at any time is a challenge, let alone layering on the other issues you’ve got at the current time,” said Floyd Williams, who retired in 2012 after 16 years as the tax agency’s top liaison to Congress. “It’s a large, large agency. It’s got a tremendous task. And it’s very difficult to get your arms around the organization.”

’Critical’ Post

Senate Finance Chairman Max Baucus, a Montana Democrat, said he scheduled a panel vote tomorrow on Koskinen’s nomination so the “critical” post could be filled by the full Senate before the lawmakers leave Washington for the year at the end of next week.

In addition to his position at Freddie Mac, Koskinen has been city administrator of Washington, D.C., president of a corporate turnaround firm and leader of the federal government’s preparations for the year 2000, when many computers were set to operate as if 1900 followed 1999.

According to disclosures he filed this year, Koskinen’s net worth ranges from $7.1 million to $27.4 million. In those disclosures, he said he would resign his position as a director of AES Corp. (AES) and American Capital Ltd. (ACAS) and sell stock holdings.

Longest Gap

Koskinen would become the first Senate-confirmed IRS commissioner since Douglas Shulman’s term ended in November 2012. That’s the longest gap between confirmed commissioners since Congress created the job in 1862, according to the IRS website.

Shulman’s successor, acting commissioner Steven Miller, was forced out by President Barack Obama in May. The president intervened after IRS officials said the agency had singled out Tea Party groups for scrutiny based solely on their names and apologized for subjecting them to delays and unnecessary questions as they sought tax-exempt status.

Other IRS officials, including Lois Lerner, director of exempt organizations, were pushed out of their jobs, retired or resigned. The Federal Bureau of Investigation and congressional committees began inquiries that haven’t concluded.

Danny Werfel, the controller of the Office of Management and Budget, has been running the IRS since May. He’s scheduled to leave by the end of the year, Baucus said.

The Tea Party controversy -- and the lack of trust it engendered in the IRS -- hung over Koskinen’s confirmation hearing. The investigations haven’t provided a clear picture of just what happened.

‘Streamline’ Law

The probes have shown some Democratic-leaning groups also experienced delays in seeking tax exemptions. Obama said on MSNBC Dec. 5 that IRS officials were trying to “streamline what is a difficult law,” and offered the IRS controversy as an example of an issue that gets attention to the exclusion of agencies that are working well.

Republicans, who describe what happened as targeting of Obama’s political opponents, used Koskinen’s confirmation hearing to criticize proposed IRS rules that would change the definition of political spending for social welfare groups organized under section 501(c)(4) of the tax code.

Groups using that status such as Crossroads Grassroots Policy Strategies, which backs Republicans, and the League of Conservation Voters, which supported many Democrats, spent millions of dollars on the 2012 elections without disclosing their donors.

The IRS hasn’t said how much political involvement would jeopardize the tax-exempt status of the groups. The law requires them to be organized “exclusively” for social welfare purposes; the IRS has previously said politics couldn’t be their primary purpose.

‘Four-Letter Word’

“I hope we could get the IRS out of politics,” said Senator Pat Roberts, a Kansas Republican. “The IRS has become a four-letter word with too many people.”

Koskinen, who wasn’t involved in writing the regulations, said a lack of clear rules contributed to the controversy and he looks forward to the results of the inquiries.

“It’s an important matter to run to ground,” he said.

The treatment of political groups was a challenge for the IRS “even before the issue blew up,” said Williams, now senior tax counsel at Public Strategies Washington Inc., a government relations firm. That’s because the parties were urging the agency to act in opposite directions, guaranteeing that one or both would be unhappy with the IRS’ enforcement.

Narrower Issues

Lawmakers also pressed Koskinen to address a set of narrower issues, some caused by the 2010 Patient Protection and Affordable Care Act.

Senator Robert Menendez, a New Jersey Democrat, asked Koskinen to examine fees assessed on pharmaceutical companies that produce drugs to treat rare diseases.

Senator Robert Casey, a Pennsylvania Democrat, wants him to look at tax-related rules affecting volunteer firefighters and adjunct professors at community colleges.

The IRS must manage the health law and the rest of its responsibilities without the prospect of additional funding.

House Republicans proposed a spending plan earlier this year that would cut the agency’s budget by 24 percent from the $11.9 billion it received in fiscal 2013. The Obama administration has proposed a $1 billion increase.

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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