New IRS Chief Koskinen Says Restoring Trust Takes Time

Restoring public trust, employee morale and congressional funding at the Internal Revenue Service will take time, the tax agency’s new commissioner said.

In his first public comments since being confirmed by the Senate Dec. 20, John Koskinen said he hoped the IRS would be a fair, transparent tax administrator -- and that the public perception would match that.

“It took a little while to dig the hole, and it’s going to take us a little while to get out of it,” he told reporters during a 45-minute meeting at the tax agency’s headquarters in Washington today, hours after a ceremonial swearing-in.

Koskinen faces a daunting set of challenges at the IRS. The agency is getting broader responsibilities, particularly for administering President Barack Obama’s health-care law, at the same time that its budget is being cut.

The IRS also spent 2013 at the center of controversy over its scrutiny of Tea Party groups. Agency officials said they gave some Republican-leaning groups seeking tax-exempt status a closer look because of their names, not their activities.

Obama forced out acting IRS commissioner Steven Miller, and several other senior executives left their jobs, including Lois Lerner, who was the director of exempt organizations.

The full picture of what happened at the IRS tax-exempt office hasn’t emerged yet. Some Democratic-leaning groups also experience delays in their requests for tax-exempt status.

Criminal and congressional investigations are continuing, and the IRS is seeking comments on proposed regulations that would set clearer rules for what political activities are allowed for certain tax-exempt groups.

Clearer Rules

The clearer the rules, Koskinen said, the easier it will be for the IRS to administer them and for groups to comply.

“We need as much clarity as we can get,” he said. He said that among the questions opened for public comment are whether the definitions of political activity should apply to tax-exempt groups beyond social welfare organizations under section 501(c)(4) of the tax code.

Koskinen, 74, who has no prior tax administration experience, developed a reputation for turning around troubled organizations. He is a former non-executive chairman of Freddie Mac and was president of the Palmieri Co., which restructured businesses.

He also led the federal government’s efforts to prepare computers for the year 2000, when then-aging systems using two-digit years were going to recognize 2000 as 1900. After that, Koskinen served as city administrator for Washington, and president of the U.S. Soccer Foundation.

Front-Line Employees

Koskinen said he didn’t think the IRS needed a major reorganization, just management changes to make sure that front-line employees are being asked their opinions and to make the agency more responsive.

Koskinen said the IRS’s work on the health-care law is on schedule, as is its implementation of a foreign bank account reporting law that takes effect this year.

The agency will be under scrutiny this time next year, when taxpayers who received health insurance subsidies will have to reconcile those payments on their 2014 tax returns.

Koskinen also said the IRS would press ahead with efforts to regulate tax-return preparers even if it loses its appeal of a federal judge’s ruling that it doesn’t have the authority.

Many return preparers would voluntarily accept IRS certification and testing so they could use it as a marketing tool. Companies such as H&R Block Inc. (HRB) support such regulations.

“Win or lose in the court case, we ought to be able to move forward on that,” he said.

Longest Gap

Koskinen took over at the IRS after the longest gap between Senate-confirmed commissioners since Congress created the position in 1862. His predecessor, Douglas Shulman, left when his term ended in November 2012.

Koskinen’s term expires in November 2017. He won confirmation in a 59-36 vote with five Republicans joining Democrats in supporting him.

He said the agency’s budget seemed like the most “intractable” problem. The administration requested $12.9 billion for the fiscal year ending Sept. 30 and the agency has been operating under an $11.2 billion budget.

House Republicans have advocated cutting spending further. The funding level will likely be set in the next few weeks as lawmakers negotiate the details of the budget outline they agreed on in December.

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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