New IRS Commisioner Grapples With Tumult And Tax Code
AUDIE CORNISH, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Audie Cornish.
The last year has been rough for the IRS. Here are some numbers that helped tell the story. Three high-profile resignations of IRS officials, six ongoing investigations into the agency, and 150,000 public comments on a proposed IRS rule. That's a record. And all this goes back to a particular section of the tax code.
Last year, it came to light that the IRS gave extra scrutiny to conservative groups applying for tax exempt status and it sparked a political firestorm. IRS Commissioner John Koskinen was appointed in December to help turn things around and he joins us now on the eve of tax day. Welcome to the program.
COMMISSIONER JOHN KOSKINEN: Thank you. Happy to be here.
CORNISH: So let's start with that piece of the tax code that's in question, 501(c)(4). Now, it allows for tax-exempt status of civic groups as long as they don't take part in a certain level of political activity. What actually happened, in your estimation - now that you've been in office for a while - of the IRS' handling of these applicants?
KOSKINEN: These are social welfare organizations. The statute says they have to be exclusively involved in social welfare. But in 1959, the IRS issued a regulation saying as long as your primary purpose was social welfare, you would be able to be tax-exempt. So there was an influx in 2010 and '11 of organizations that were advocacy organizations, which is allowed as a social welfare activity, who also wanted to engage in political activity. So the inspector general did a review and found that, as his findings put it, improper criteria were used to select organizations for further review.
CORNISH: Basically looking at the names (unintelligible)
KOSKINEN: The improper criteria were just on the names.
So if your name said Tea Party or some equivalent of that, your application was pulled out. Everyone has conceded that was a mistaken way to approach the problem. The inspector general had nine recommendations for how to make sure it doesn't happen again. We've accepted all of those nine recommendations and our hope is to be able to restore whatever trust and confidence has been lost as a result of all the visibility surrounding the mistakes that were made.
How do you fix these rules around 501(c)(4)s, given the political atmosphere now? I mean, it's been poisoned by the scandal and it's become even more aggressive as time goes on.
KOSKINEN: Well, it's an important challenge. I think once we get by the midterm elections, once the (c)(4) investigations are done, reports are out and that's behind us, then I think the public can address with us what's a fair, straightforward, clear set of rules for the road not only for the IRS in its determination process but for people organizing and running social welfare organizations.
CORNISH: So you see a light at the end of the tunnel? You see a day when these investigations will be done?
As I tell the employees as I wander around the country, you don't do this kind of work unless you're an optimist. I always try not to be unrealistically optimistic but I do think there is a light at the end of the tunnel. I tell them a year from now, it will be a less exciting agency. We'll be on the front page of the papers maybe a little less often. I won't get quite as many interviews but that'll be good.
KOSKINEN: That's in some way a measure of how we restore public trust is when people see us as what we are, and that is the tax administration arm of the government, not a political entity, not anyone treating anyone differently than anyone else.
CORNISH: The scandal has hurt the agency's chances essentially of getting money from Congress. The IRS has seen budget hits, upwards of 8 percent, I guess, in the funding and staffing. And that's created some challenges. Can you talk a little bit about some of those challenges, especially in the area of customer service?
KOSKINEN: We are - we have 10,000 fewer employees than we had four years ago. We have $900 million less, about an 8 percent cut, than we had four years ago. In the meantime, we have several million more taxpayers. We also have been mandated by Congress to implement the Affordable Care Act and the Foreign Account Tax Compliance Act. So as I've told people, we do statutory mandates. With the limited and declining funds, it has meant that what has suffered has been our development of information technology, our services to taxpayers and our enforcement activities.
Last year, 18 million calls to the IRS went unanswered. And the people who care most about that are the dedicated employees at the Internal Revenue Service who want to give better taxpayer service, think taxpayers deserve better service. And it's not that they're not trying. It is because we simply do not have enough funds.
CORNISH: So what are you doing to address that this year?
KOSKINEN: Well, I've met with as many congressmen individually as I can to try and let them understand this is not a the-sky-is-falling, Washington Monument discussion. This is a real issue where the numbers definitively show whatever you think we were doing four years ago, in terms of managing out funds when we have 10,000 fewer people and almost a billion less and increased responsibilities, it can't help but adversely affect the agency. And, at some point, we run the risk of crippling the agency.
CORNISH: Now, the other effects of this budget and these budget cuts comes to audits, right, and revenue collection. Now I understand that in 2013, the IRS was able to complete - just one percent of returns were actually audited. What does this mean, going down the road, when you have to implement something like the Affordable Care Act, right, where all of a sudden there's a large number of people who you're going to be checking their taxes for subsidies or the tax enforcement part of this is very important to the law itself?
KOSKINEN: Well, that's right. In the budget for this year we had a request for $440 million to implement the Affordable Care Act, including $300 million for information technology. We got zero dollars. That means we have to find that $440 million elsewhere. And that's one of the critical issues with regard to services but also enforcement. If we had the $500 million of pre-sequester money that we've never had restored, that by itself would have allowed us to return to the government an estimated two to $3 billion more.
So when we have to cut enforcement, we'll do 100,000 fewer audits this year. It means that we are going to collect significantly less revenue than we would have otherwise. So it's really pennywise and pound foolish to have the revenue arm of the government starve for funds to allow it to, in fact, collect the resources that people owe the government.
CORNISH: This isn't the first time that you've taken over an entity that is facing rough times. You worked at mortgage buyer Freddie Mac, city administrator for Washington, D.C. when the city was going through difficulties. Why do a job like this, which is considered the worst job in Washington when you took it over? For you personally, I mean, is that part of what gets you going in the morning, trying to help agencies that are struggling?
KOSKINEN: Well, I have spent my entire career dealing with organizations in the private sector and the public sector under stress, and it is something I enjoy. In this particular case, I was having a perfectly good time thinking I was retired when I got the call from White House personnel. As I've told the employees when I'm asked, well, how long did you think about this, it took me about 15 seconds because I've been around Washington long enough to know about the critical importance of the Internal Revenue Service.
We collect over 90 percent of the revenues that fund the entire government. We touch every American taxpayer, virtually every American. And so the opportunity to work with what turns out to be a terrific workforce, dealing with the challenges we have now and building on the good work that's been done in the past was just too good an opportunity to pass up, especially if you're a believer, as I am, in public service.
CORNISH: IRS Commissioner John Koskinen, thank you so much for coming in to speak with us.
KOSKINEN: It's been my pleasure. Thank you. Transcript provided by NPR, Copyright NPR.