The IRS Is Building a Safe to Hold Trump’s Tax Returns
Before John Koskinen became the commissioner of the Internal Revenue Service in 2013, he was a successful corporate turnaround artist, a specialist in fixing large and distressed organizations. That’s why President Barack Obama asked him to cut short his second retirement to fix the embattled IRS, which was reeling from allegations that it inappropriately scrutinized conservative groups seeking tax-exempt status. That’s why he spent four tumultuous years trying to bolster the agency’s reputation, even as Republicans repeatedly shredded him at hearings and even threatened to impeach him.
This week, the 78-year-old Koskinen began his third retirement. And he says the IRS is still a distressed organization. “When Eisenhower left office, his message was: Beware the military-industrial complex,” Koskinen said. “My message is: Beware the collapse of the IRS.”
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But its problems, Koskinen said, have nothing to do with politics; a recent inspector general report found no evidence of political bias in the agency’s decisions. Koskinen believes its real problems stem from underfunding and understaffing, which have imperiled its ability to nail tax evaders and collect the tax revenues that fund the government.
In an hourlong conversation with POLITICO Magazine’s Michael Grunwald, Koskinen also discussed Democratic concerns that President Donald Trump and his appointees could breach the independence of the IRS, using the agency to harass or persecute his enemies. Koskinen doesn’t share those concerns—not because of his faith in Trump, but because of his faith in the IRS staff and the strict rules governing the integrity of its audits and investigations.
Koskinen basically believes the IRS and its professional culture are virtually impregnable to political agendas. He hasn’t spoken to Trump or anyone in the White House in 2017, even though he’s known the president since they negotiated the sale of the Commodore Hotel in New York City in 1975. He’s never looked up Trump’s tax returns—legally, he can’t, and neither can any other IRS employee who isn’t working on them—and says the agency not only keeps them in a locked cabinet in a locked room, but is replacing the cabinet with a safe.
Koskinen also detailed some of the pros and cons of the various Republican tax reform plans, as well as his disappointment that the IRS wasn’t invited to help craft them. The former president of the U.S. Soccer Foundation also waxed philosophical about the men’s team’s shocking failure to qualify for the World Cup. But his biggest disappointment is still the ongoing cuts to IRS funding and staff, which he warns could end up creating a massive explosion of the deficit and a crippling crisis of confidence.
The conversation has been lightly edited for length and clarity:
Michael Grunwald: Congratulations on finally getting to retire again. You certainly had an interesting run.
John Koskinen: Yeah, in the Chinese curse sense of “may you live in interesting times.” It was actually fun, although some say I have a masochistic sense of fun.
MG: You were brought in to clean up after the “IRS scandal” over excessive scrutiny of the Tea Party groups, and Republicans in Congress tortured you about it for four years. This latest inspector general report seems to suggest it wasn’t much of a scandal.
JK: Remember, it all started as a claim that this was a political program, dictated out of the White House or the Justice Department. But there were no emails or any evidence of that. Then the claim was political operatives inside the IRS. But nobody found any emails about that either. There’s been literally no evidence of any politics at all. But there was evidence of poor management. It was clear that some groups had their applications for tax-exempt status held up for a long time—not just conservative groups, a wide range of groups. Nobody should have to wait two years for an answer about anything from the IRS.
MG: The IRS scandal was groups having to wait too long to be tax-exempt?
JK: They didn’t even have to wait. Everyone’s finessed this, but you can become a 501(c)(4) social welfare organization without an IRS determination. They didn’t need our permission. Nobody was stopping them. They wanted a determination letter, so there would be less chance that we’d come in after the fact and say they’re doing too much political intervention. The rule is, you can’t spend more than 50 percent of your time on politics if you want to be tax-exempt, whether we’ve written a letter or not.
MG: Republicans are trying to do a big tax reform now, which would presumably change some of those rules. What do you think of their plans?
JK: Well, we don’t know what the final bill will look like. But anything that would simplify the tax code would be terrific for taxpayers and the IRS.
MG: Do the Republican plans simplify the tax code?
JK: Some of the proposals would make things more complicated. The biggest would be adjusting the tax rate for pass-through businesses. But increasing the standard deduction would make filing a lot simpler. The estimate is that only 10 percent of taxpayers would itemize. Right now, it’s closer to 40 percent. I always try to remind people that the IRS doesn’t have a dog in the fight over tax policy. We just want the leaders in Congress to take advantage of our expertise in drafting the legislation.
MG: Have they?
JK: Not much. We have a lot of career employees who were here for the 1986 tax reform, when the legislative leaders and the Reagan administration and the IRS were all at the table together. This time, we’ve been asked questions once in a while, but we haven’t been at the table.
MG: You were one of the last Obama holdovers leading a federal agency. There’s been some concern that Trump could use the IRS to harass his enemies, the kind of thing Republicans unfairly accused Obama of doing.
JK: I don’t think that’s a risk with Dave Kautter [Trump’s assistant secretary for tax policy, who is now serving as interim IRS commissioner as well]. He’s a widely respected tax lawyer, and I don’t think he’s been viewed as a political operative. He also has a day job at Treasury. I assume our two deputy commissioners will continue to be responsible for running the agency day-to-day, and they’re career employees. The only other political appointee is the chief counsel, and that’s empty right now.
MG: But they could bring in political people. The permanent commissioner could be political.
JK: It would be very difficult to push a political agenda. We’ve lost good people, which is a real problem, but we still have 80,000 career employees, and they’re dedicated to the mission of the agency. Anyone who knows anything about the IRS knows the staff wouldn’t put up with political interference. I’d be very surprised if anyone tried to muscle the IRS politically, and if they did it would end badly for them.
MG: You mentioned the IRS is down to 80,000 employees. Down from what?
JK: At the peak, 130,000. We still had 100,000 in 2010. Now look, we’ve moved more processing online, and we’ve gotten more efficient. But since 2010, we’ve lost $900 million in funding, even though we have 10 million more taxpayers, plus new responsibilities like the Affordable Care Act and the Foreign Account Tax Compliance Act. And it’s not like we can stop doing anything. We still have to worry about information security, battling crime syndicates that are trying to steal information. We still maintain a huge technology system that processes over 200 million returns a year. We have to do audits and examinations. And we have to answer the phone when people call. When the budget gets cut, everything suffers.
MG: What exactly suffers?
JK: Look, 60 percent of our hardware and 22 percent of our software is out of date. We’re still running applications from when JFK was president. Our audit rate has been cut in half; it’s 0.6 percent, and next year it will be 0.5 percent. It was 1.2 percent in 2010. We’re leaving $6 billion on the table every year from audits we know we should do that we don’t have the resources to do. We’re down 7,000 revenue agents, revenue officers and criminal investigators. Even our most aggressive critics agree that if you give us money, we’ll get you more money back. When I was dealing with distressed businesses, I never met anyone who thought it was a good idea to starve their revenue side. I keep trying to warn people that we just can’t keep losing employees and absorbing budget cuts. We’ll fail.
MG: What would failure look like?