The IRS is staffed with hardworking men and women who do a tough job, collecting $2.4 trillion in annual revenue and administering our complex and outdated tax code. But in recent years public confidence in the IRS has been shaken. In 2011, the Committee investigated rumors that the IRS was seeking to reinterpret the gift tax and apply it to donors to right-leaning social welfare organizations. These rumors were proven true. The Committee immediately took action to successfully halt this sudden, unexplained enforcement from the IRS.
The Committee then began investigating allegations that the IRS was delaying and harassing right-leaning applicants for tax-exempt status. These rumors were also proven true, despite two years of denials. And now, the IRS has recently published draft rules that that would essentially codify the continued targeting of these very same groups.
These insults to the public’s trust have occurred during a time when IRS is taking on vast new responsibilities under the President’s health care law and while the agency continues to struggle with its core mission of revenue collection and taxpayer service.
As I mentioned, over two years ago the Committee began investigating allegations that the IRS was harassing individuals and organizations on the basis of their personal and political beliefs. Early last year, the Treasury Inspector General for Tax Administration (TIGTA) released an audit finding the agency had in fact targeted groups based on their policy views – for instance, if they sought to “make America a better place,” – or based on their views had named themselves with the words “Tea Party” or “Patriot.”
Following the release of the TIGTA audit, the Committee sought and reviewed roughly 400,000 internal IRS documents and interviewed dozens of IRS personnel, ranging from front-line screeners in Cincinnati all the way up to the former Commissioner. However, the ongoing investigation has hit a roadblock because the IRS has yet to provide all emails of the former Director of Exempt Organizations, Lois Lerner.
Despite the fact that Committees investigating the matter have not—in six months—received all the documents requested, nor conducted all of the interviews sought, the IRS released a report just weeks after the TIGTA report declaring that no wrongdoing had occurred. The IRS came to this conclusion without conducting an investigation or interviewing any of the managers involved. Commissioner Koskinen, if you have been told that the investigation is complete and no targeting occurred, you have been misled. Last weekend, the President claimed there was not “even a smidgeon of corruption” at the IRS, and he blamed the targeting on “bone-headed decisions” by “a local office.” Now, this Committee has actually investigated the matter, and found otherwise. The President’s staff is either ill informed or they are misleading him.
Despite the fact that the investigation is ongoing, in November 2013, the IRS also proposed new rules for 501(c)(4) organizations that would push many of these targeted groups out of the public square completely. The draft rules would upend regulations that have been in place since 1959. They would perversely incentivize political activity by 501(c)(3) charities. These rules were proposed because of – in the IRS’s words – “considerable confusion” by IRS employees over 501(c)(4) political activity.
But the Committee on Ways and Means – unlike the IRS – has actually investigated the matter and interviewed front-line employees in the Exempt Organizations Division. The Committee found NO confusion – IRS screeners were competent and well equipped to evaluate applications for tax-exempt status from groups with political activity. The new rules do not seek to clarify – they seek to silence.
We also spent time meeting with the victims – the organizations and individuals that had been targeted – something the IRS still has not done.
These problems come against the backdrop of an unprecedented backlog in applications for 501(c)(3) applications – which is up over 500 percent from a year ago. They come in the context of an estimated $140 billion in improper payments processed by the IRS in the past ten years, and a growing plague of identity theft. In some cases, identity theft has led to over $1 million in fraudulent refunds going to single addresses or bank accounts, and in one case $156,000 was sent to a single address in Shanghai, China. This gross waste of taxpayer dollars must end.
Finally, this occurs as IRS begins implementing the single biggest change to the tax code in a generation – the President’s health care law. The health care law has charged IRS with administering 47 new tax provisions and collecting over $1 trillion in tax increases.
So, Commissioner Koskinen, the task before you is daunting. Your charge is to restore public confidence in the IRS, rid the agency of mismanagement, end political bias, and stop the hemorrhaging of taxpayer dollars to crooks and fraudsters. In this charge, the Ways and Means Committee is your friend, not your adversary. But Commissioner Koskinen I cannot stress enough how important it is that we build a cooperative and productive relationship. You will serve as Commissioner for five years, so your relationship with the Committee on Ways and Means will be a long one. It can be a productive relationship, or it can be an adversarial relationship.
Just this week, you announced you would change its earlier decision and award over $43 million in bonuses to IRS employee union members. This occurred at a time when IRS is constantly complaining about scarce resources. Making matters worse, the IRS failed to inform the Committee of your decision in advance the announcement, despite knowing that this was a subject of concern for this Committee and this Subcommittee in particular. Adding insult to injury, and as we will get to later, the IRS continues to withhold documents requested by this Committee pursuant to an ongoing investigation. Commissioner Koskinen, turn over the documents you agency owes us and let’s start this relationship on the right foot.