New IRS Chief Koskinen Says Restoring Trust Takes Time

Photographer: Jim Watson/AFP via Getty Images

Internal Revenue Service Commissioner John Koskinen testifies during his confirmation hearing before the Senate Finance Committee in Washington, D.C., December 10, 2013. Close

Internal Revenue Service Commissioner John Koskinen testifies during his confirmation... Read More

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Photographer: Jim Watson/AFP via Getty Images

Internal Revenue Service Commissioner John Koskinen testifies during his confirmation hearing before the Senate Finance Committee in Washington, D.C., December 10, 2013.

After what he jokingly called a “checkered employment career of interesting challenges,” John Koskinen has begun his next one: heading the Internal Revenue Service.

In his first public comments since winning Senate confirmation Dec. 20, the agency’s commissioner said restoring public trust, employee morale and congressional funding at the IRS will take time. Koskinen, a former chairman of Freddie Mac, said he wants the IRS to be a fair, transparent tax administrator -- and for the public’s perception to match that.

“We’re not going to turn employee morale around overnight, we’re not going to turn around public trust overnight,” he told reporters at the tax agency’s headquarters in Washington yesterday, hours after a ceremonial swearing-in. “It’s important to be on the hustings saying the right things, but the proof will be in the pudding.”

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

The IRS 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.

That practice turned the IRS into even more of a political punching bag. The choice of Koskinen, by itself, didn’t resolve the partisan fight over restricting the agency’s budget, said Jeff Trinca, a lobbyist at Van Scoyoc Associates in Washington.

‘Some Skepticism’

“There’s going to be some skepticism and then there’s going to be a sense of not wanting to move forward and heal this issue because it’s still a workable, viable political issue,” said Trinca, who was chief of staff to the IRS restructuring commission in the 1990s.

After the IRS disclosed its actions in May 2013, 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. Some Democratic-leaning groups also experienced 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 some tax-exempt groups.

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

Getting ‘Clarity’

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

Koskinen, a lawyer with no previous tax administration experience, developed a reputation for turning around troubled organizations. He is a former non-executive chairman of Freddie Mac (FMCC) 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, D.C., and as president of the U.S. Soccer Foundation.

Koskinen said he doesn’t think the IRS should be reorganized. Instead, he said management changes are needed to ensure that front-line employees are being asked their opinions and to make the agency more responsive.

Front-Line Employees

The IRS’s work on the health-care law is on schedule, he said, as is the 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 as commissioner 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 seems 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 the IRS budget further and placing restrictions on the agency. Funding probably will be set in the next few weeks as lawmakers negotiate details of the budget deal they passed in December.

Colleen Kelley, the president of the National Treasury Employees Union, which represents most IRS employees, said in a statement that she looks forward to working with Koskinen. They haven’t met since he took office, she said.

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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