It’s my annual “Taxes from A to Z” series! Next up:

K Is For Koskinen

On December 23, 2013, John Koskinen was sworn in as the 48th Commissioner of Internal Revenue Service (IRS). As Commissioner, he’s in charge of our nation’s tax system.

It’s a big job and one that hasn’t gone terribly smoothly over the last few years. Former IRS Commissioner Douglas Shulman announced in April 2012 that he would not continue to serve past his five-year term which was slated to end in November 2012. After Shulman’s departure, Acting Commissioner Steven T. Miller was ushered into office on November 10, 2012.

Miller wasn’t expected to be named the next Commissioner since it’s rare that an Acting Commissioner gets moved up to Commissioner but his stay was even shorter than expected. Caught up in the IRS tax-exempt organization scandal, Miller was eventually forced to resign. Miller was replaced by Acting Commissioner Daniel Werfel who took office on May 22, 2013, just under two weeks after Lois Lerner’s fateful admission at an American Bar Association meeting that certain tax-exempt organizations were targeted because of their titles or beliefs. By the time that Werfel left office, the scandal was full-blown. Taxpayers had lost faith in the agency. Morale was low. The budget was on the chopping block. And some tax professionals (clears throat awkwardly) didn’t think it made sense to bring in someone without a tax background to run a tax agency. In short, the scene at IRS was set for a less than auspicious beginning for the new Commissioner.

All of that didn’t phase Commissioner Koskinen. He’s seen it before. In the midst of the housing crisis, the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, was crumbling. It was concerning since Freddie Mac, together with Fannie Mae, held or guaranteed nearly half of the country’s mortgages. Koskinen was brought in to help the struggling company right itself in 2008 after the company it was taken over by the U.S. government. Today, Freddie Mac is no longer considered in crisis.

Clearly, Koskinen was expected to bring some of that success to IRS. He was tasked with spearheading the agency which collects approximately $2.4 trillion in tax revenue each year during a tumultuous time. He was also expected to manage about 90,000 employees who are charged with “administering the world’s most complicated tax code and dealing with millions of taxpayers.”

With all of that in mind, what was at the top of Koskinen’s priority list in his first season? Restoring public trust in the agency.

He’s now in his second tax season as Commissioner and both tax seasons have gone relatively smoothly save some budget challenges and a cybercriminal or two (or three or four…). With that in mind, Commissioner Koskinen spent this week in appropriations committee meetings (asking for more money) and meeting with state tax authorities and heads of tax software companies to talk about solutions to combat tax refund-related fraud and identity theft.

So what do folks think of Commissioner Koskinen? Anecdotally, his employees seem to really like him, with one telling me just under a year ago, “We really support this guy.” Colleen Kelley, president of the National Treasury Employees Union, says about him, “He is doing an outstanding job in representing the agency.”

Support, however, is thinner on the Hill with at least one senior GOP Rep implying that he needs to go. Rep. Kevin Brady (R-TX) who serves on the House Ways and Means Committee says that “[t]he IRS has less credibility now than when he took over. And I think we will need a new commissioner before that credibility is regained.” Ouch.

Harsh words. But likely not much worse Koskinen didn’t hear in his nearly 21 years in the private sector helping to turn around large, troubled organizations.

Before Koskinen worked in the private sector, he was a lawyer because, well, isn’t everyone in government? He holds a law degree from Yale University School of Law and a Bachelor’s Degree from Duke University which means that he’s busy each March running IRS and cheering on the Blue Devils (the Bulldogs have ever only been to March Madness three times in their history).

Commissioner Koskinen and his wife Patricia have two grown children and live in Washington, DC.

Last month, the Obama administration announced that between three and six million households – about 2 to 4 % of taxpayers – would be faced with a penalty (or is it a tax?) at tax time for failing to secure “minimum essential coverage” to comply with the Affordable Care Act (ACA), sometimes referred to as Obamacare.
Under Obamacare, you’re considered covered if you have insurance through the government, including Medicare, Medicaid, CHIP, retiree coverage, TRICARE, or VA health coverage; private insurance that you purchased on your own including COBRA coverage and coverage obtained through the Health Insurance Marketplace; or provided by your employer (even if you didn’t pay anything for the coverage). You’ll report coverage on your tax return (find out how here). Most taxpayers – about 130 million or so – will report coverage.
Of those that don’t have coverage (estimates range from 20 million to 37.5 million), most will avoid being subject to the penalty based on a waiver or exemption. Exemptions exist based on income or filing status, immigration status and religious affiliation – as well as the much-talked about incarceration exemption. A number of hardship exemptions are also available. (For more on exemptions and waivers, click here.)
Those taxpayers who can’t demonstrate essential minimum coverage and aren’t otherwise exempt are subject to a penalty – the shared individual responsibility payment – equal to 1% of income above the “filing threshold” or $95 per adult and $47.50 per child (up to $285 for a family), whichever is higher. That amount is figured and reported on the taxpayer’s 2014 tax return, payable by April 15, 2015.
For the 2015 tax year, the amount of the penalty increases to 2% of income or $325 per adult; in 2016, it jumps up again to 2.5% of income or $695 per person.
In terms of dollars, the CBO had initially estimated that by 2016, nearly six million taxpayers would be subject to an average penalty of $1,200. The overwhelmingly majority (80%) of those estimated to be at risk to the penalty were those in the middle class with incomes between $55,850 and $115,250.
Since that time, the numbers have been adjusted downward, based largely on the perceived success of policies purchased through the Marketplace and the increased number of taxpayers exempt under the rules. Those estimates – between three and six million households – are still just guesses. But the dollars associated with those numbers are the real mystery. You see, buried in the language of the 2010 law creating the Affordable Health Care Act (you remember, the “big f*cking deal”) is a bit of an out: There are practically no real consequences for not paying the penalty.
I mentioned this to Maggie McGrath, personal finance reporter for Forbes, while shooting video about the Health Care Act earlier this month. “Shouldn’t that be the real story?” she asked.
She’s right, of course. It should but oddly enough, nobody is really talking about it.
Why so quiet? Here’s my guess: nobody has a clue what’s really going to happen. You see, when the Act became news in 2010, rumors were flying about what would happen if you didn’t pay the penalty. It was politically tricky. The consequences needed to be enough to make you want to conform with the Act but not so onerous that Congress would be loathe to vote for it.
The final language in the Act declared that the penalty “shall be paid upon notice and demand” which sounds really intimidating. The language went on to note that the penalty would be “collected in the same manner as an assessable penalty under subchapter B of chapter 68” which also sounds pretty serious – especially since subchapter B references some pretty nasty penalties for otherwise not complying with other sections of the Tax Code.
So what would the penalty for noncompliance be? Jail time? Nope. The language in the Act specifically rules out jail time, saying at Section 500A(g)(2)(A):

In the case of any failure by a taxpayer to timely pay any penalty imposed by this section, such taxpayer shall not be subject to any criminal prosecution or penalty with respect to such failure.

So, no jail time.
But that means that the IRS will chase you and lien your property if you don’t pay, right?
Nope. That’s not allowed under the Act. At 500A(g)(2)(B)(i), the Treasury cannot “file notice of lien with respect to any property of a taxpayer by reason of any failure to pay the penalty imposed by this section.”
So, no liens.
Then, clearly there will be levies or seizures on your wages and account, right?
Nope. Not that either. Under 500A(g)(2)(B)(ii), the Treasury cannot “levy on any such property with respect to such failure.”
To recap then, by law, you have to pay the penalty. But if you don’t, you won’t go to jail, you won’t be liened and you won’t be levied for collection.
Is there anything that could happen to you if you choose not to pay? With no jail, no liens and no levies, it doesn’t leave the IRS a lot of room to work when it comes to collections. Congress actually managed to create, as I wrote in 2012 and in in 2013, an incredibly complex and burdensome law without any teeth.
Well, maybe some teeth. Baby teeth. The IRS might seize any part or all of your refund in order to satisfy your obligation. Might. IRS hasn’t come right out and said that it absolutely will offset your refund if you owe a penalty for failure to pay. However, in the Final Regulations issued on this matter, IRS noted that “[n]othing in this section prohibits the Secretary from offsetting any liability for the shared responsibility payment against any overpayment due the taxpayer, in accordance with section 6402(a) and its corresponding regulations.” That’s sufficiently passive aggressive, right? You’re on notice that the IRS doesn’t think that it’s barred from taking your refund. They’re not saying they will (for certain) but they’re not saying they won’t either.
So is there anything you can expect for sure? You can definitely expect a lot of letter writing and virtual shaking of the government’s fist at you. Maybe even some blustering, for good measure.
But real consequences? Other than that potential refund seizure and a guilty conscience, there’s nothing to keep taxpayers from opting out of paying. Will they? We’ll have to wait and see.

As Republicans and Democrats fight it out on the Hill over tax extenders, Internal Revenue Service (IRS) Commissioner John Koskinen doesn’t care to take sides. It doesn’t matter, he told me, how Congress resolves the issue, so long as they resolve it. The IRS is, he says, “agnostic” about the specifics, reminding taxpayers that:

Our job is in tax administration, we’re not the tax policy people.

That tax administration job has become a lot more difficult over the past year. With spending cuts already taking a toll on taxpayer services, the agency is bracing itself for another tough season. In fact, Koskinen cites funding the IRS as his biggest challenge since taking office last December.

“It’s a serious problem for us,” he says. “I don’t know who got our $500 million but I’ll bet they’re not gonna give you back the $2-3 billion we would have if we had it.”

The IRS has continued to bring in dollars even though funding is down and new challenges are up. Over the past four years, the IRS has made cuts to personnel in an effort to make up for a whopping $850 million in cuts. That means, for example, that the agency has 13,000 fewer employees to deal with 7 million more taxpayers – and to tackle the statutory mandates of implementing the Affordable Care Act (ACA, or sometimes called Obamacare) and the Foreign Account Tax Compliance Act (FATCA). The agency is, the Commissioner notes, being asked to do “more and more with less and less” which he says is doable for a while “and then you run into a wall.”

The IRS is largely made up of people and technology. Cuts mean that one or both will be affected. The Commissioner says that, so far, they’ve tried to lessen the impact on taxpayers but that the concern continues to be the level of taxpayer services. In particular, taxpayer services on the phones have been dramatically affected: last year, 3 out of 10 taxpayers couldn’t get through to the IRS on the phones. That looks to be worse for the 2015 filing season with answer rates expected to dip as low as 53% – and that’s after an average of 34 minutes of wait time.

To combat the problem, the IRS is trying to move taxpayers onto the web. The agency has already improved its online services to include transcript requests, installment agreements, and refund updates; those services would have been done over the phone or in-person in prior years. The Commissioner would like to expand the availability and scope of online services but “obviously it takes funding.”

The Commissioner has been in conversations with those on the Hill, trying, he says, to “articulate our vision of what the IRS experience ought to look like three to five years out.”

And what it should look like isn’t cutting edge. Rather, the Commissioner says, he wants to see the IRS services brought up to the level of a Bank of America or Wells Fargo. He’s not looking for fancy. But, he says, “Sometime in the near-term future, people ought to be able to deal with us like they do with their financial institutions.” He envisions a system where taxpayers can log into their accounts online, check out posted information and make additions or corrections immediately – without waiting on the phones, IRS office appointments or (gasp) the postal system.

The IRS sends out more than 200 million notices every year. 200 million. The cost of postage alone is horrendous.

The time delay is even worse. Correspondence season for the IRS starts in summer. That’s the term that tax practitioners give to the time period after filing season ends when IRS starts examining returns and sending out notices regarding errors and questions. By that time, taxpayers have often forgotten what was on the return. They may not have their records handy. The lapse in time from filing to resolution can be dramatic.

But what if, the Commissioner queried, the IRS could just post a note in your account online? It might be something as easy to fix a forgotten form 1099 (it happens all of the time). If your account was available online, you could agree or disagree fairly immediately – and perhaps even file an amended return on the spot. The potential for processing and correcting taxpayer information quickly could result in less frustration from taxpayers and less expense for the agency.

And what if tax practitioners could respond to IRS almost immediately on behalf of their clients? Increased services for practitioners would save agency dollars – and taxpayer dollars.

Making the agency more efficient and allowing taxpayers to address problems early in the process would be a win for everyone. Increased taxpayer compliance, the Commissioner notes, is a primary goal of the agency. “This image that we just love banging on doors and assigning penalties,” he says, “it’s not us.”

A system like that isn’t cheap. And there are additional challenges. In particular, the agency has a responsibility to protect taxpayer information but it’s clear from other sites that it can be done: banks and financial institutions do it all of the time. There’s “no reason,” according to the Commissioner, that “we shouldn’t be able to do that.”

But to make it happen, the IRS would have to improve their existing technology significantly. The Commissioner likened the existing tech system to driving a Model T, saying it has a “great GPS system and a wonderful sound system… We rebuilt the engine but it’s still a Model T.”

How old are these systems? The Commissioner says that the IRS is still using systems that were in place when John F. Kennedy was President. In fact, many of the tech gurus around today don’t know how to use some of the programming languages (like Cobol) that IRS still uses: they are nearly 50 years old.

But the IRS is getting money, right? We’ve seen the line items. Can’t that money simply be redirected to tech? Not so fast. Those funds aren’t earmarked to improve the existing systems. They’re targeted to Congressional mandates for new programs like ACA and FATCA. In 2014, for example, Congress gave IRS $430 million to implement ACA: $300 million of that was specifically directed to tech but only for ACA. Other funds were directed towards compliance for FATCA. Not for tax filing season. Not for taxpayer customer service. There has been no increase in the tech budget for IRS systems not tied to ACA or FATCA. IRS expects the same for 2015.

The Commissioner agrees that the IRS can’t just ask for a pot of money. That’s why, he says, that the agency has been clear about what the funds would be used for and why they need ongoing funding for operation and maintenance costs (it doesn’t make sense to fund a project if you can’t run it).

And yes, the agency could be more efficient. According to the Commissioner, the agency has made cuts. They’ve cut travel. They’ve cut training. They’ve cut support. They’ve cut office space. They’ve cut printing (no more printed instructions). They’ve cut postage (no more tax forms in your mailbox).

But the cost of putting on filing season is still significant: nearly $400-500 million. Most of those dollars are in programming and customer service.

Last year, filing season went pretty well. The face to the public looked pretty good (some refund concerns notwithstanding). But that level of service can’t continue with existing numbers. The Commissioner says that “we’re our own worst enemies in pretending that we can keep doing this because what we’re doing is hollowing out the agency… but the system will collapse.”

It already looks pretty grim for 2015. While saying that IRS employees still have an “amazing level of dedication” and a “reasonable amount of energy,” the Commissioner says there is the sense that if 2015 budget gets cut further, and if 2016 is the same, “people will begin to think there’s no end to this, there’s no light at the end of the tunnel.”

The agency is already down 3,000 employees last year. Another 2,000-3,000 are on their way out by the end of this year.

The current rate of replacement is one new employee for every five employees who leave. It’s a series of blows to what the Commissioner calls the “best workforce I’ve ever been associated with in all of my wanderings through troubled agencies.”
As of yet, the IRS isn’t sure what kind of dollars they’ll see in 2015. The Congress and the President haven’t been able to agree. The Senate would give the agency $250 million above the numbers from 2014: $225 million of that is already earmarked in cost-of-living pay and retirement benefits that can’t be adjusted. The House would give them more. But, it’s not unlikely that Congress could switch gears and offer nothing, as they did last year, forcing the IRS to absorb those internal increases and make more cuts.

What gets cut next? The Commissioner is clear that it will be more personnel. That is, he noted, all that’s left.

That result, warns Nina Olson, the National Taxpayer Advocate, “bodes poorly for compliance.” That doesn’t mean that she thinks it’s the wrong answer. There are, she concedes, “no good choices” with the budget that’s being touted.

That can’t make IRS employees feel good. And it’s worrying for the upcoming filing season. Preliminary estimates are that employees will only be able to answer 53% of calls made to the agency: that assumes just 5-6 million new calls. With ACA and FATCA in play, some expect that number will go as high as 11 million. To address the spike, the agency plans to continue to put all of its resources into filing season and hope for the best. Realistically, however, that means that the 53% average answer rate could go even lower in the offseason.

What does that mean for taxpayers? The Commissioner offered a weak smile, then said, “Don’t call us after April 15.”

(Author’s Note: This is part two of my conversations with the IRS Commissioner and the National Taxpayer Advocate. You can read the first part of the conversation here. For more information about challenges for the upcoming season, including identity theft, the future of tax professionals and compliance/enforcement, continue to follow the conversation.)

That’s how Internal Revenue Service (IRS) Commissioner John Koskinen described the upcoming tax season to a group of tax practitioners at the AICPA National Tax Conference in Washington, D.C. earlier this month. Citing concerns about extenders, increased responsibilities due to the Affordable Care Act (ACA) and the Foreign Account Tax Compliance Act (FATCA), and cuts to the agency’s budget, the Commissioner told the crowd, “All we can do is try to maximize our services as well as we can; as well as we can is still going to be miserable. You really do get what you pay for.”
Since that announcement, nothing has changed. And that’s an even bigger problem.
Congress hasn’t moved forward at all with the extenders provisions. Extenders are those tax deductions and credits – about 55 of them – that expired as of December 31, 2013. If those provisions had simply expired, that would be the end of the story. But Congress keeps making noise about reinstating the provisions retroactively to January 1, 2014 – which would be fine if the plan was to reinstate all of them. But that’s not what is in the cards. Some in Congress have introduced bills to extend just one or two provisions while others have bunched some provisions together and ignored others. Some of the extensions would be for one year, others, two years; still others may be made permanent. So far, there’s no confirmation which provisions – if any – will be reinstated (or for how long) by Congress. And the clock is ticking. According to their own calendar, the House of Representatives has already left the Hill for November: they’ll return for just eight days in December before breaking on December 12, 2014. The new Congress will report to D.C. on January 3, 2015.
Commissioner Koskinen says that the IRS can’t wait that long. Together with Janet Novack of Forbes, I sat down with the Commissioner at his office in Washington, D.C., to talk about the challenges looming for the upcoming tax season. We asked about what the delay in passing a bill to deal with tax extenders might mean for taxpayers.
Confirming that he has been in contact with Congressional officials, including the Senate Finance and House Ways and Means leadership, the Commissioner said, “Clearly everybody recognizes that the later they make those decisions or the more complicated they are, the greater at risk filing season is… so I think I’m comfortable that they understand, appreciate and are concerned about that issue.”
But that doesn’t mean that we have any indication what’s going to happen – and that is problematic. By November, the IRS is generally in the throes of testing systems (you may remember that IRS shuts down their systems in mid-October each year to begin preparations for the upcoming tax season). The Commissioner had hoped to have word from Congress by mid-November in order to have everything “up and running and ready to go.” But word didn’t come. So what happens next? Exactly what you’d think: IRS has to begin making plans for a delayed season. Here’s what you should expect:
If there’s no word from Congress by December 1 – yes, that’s on Monday – you can likely expect a delayed start to the tax season.
If there’s no word from Congress by December 11 – about two weeks from now – tax season would absolutely be delayed, likely to the end of January 2015.
And then it gets more complicated.
If Congress approves the tax extenders without any changes by December 11, the result is that tax season would merely be delayed, again likely to the end of January.
If, however, Congress approves the tax extenders with changes by December 11, those changes would require re-programming of systems. The result? A switch to a tiered opening, a move that that the Commissioner acknowledges complicates the lives of taxpayers and tax preparers, as well as the IRS. A two-tiered opening means that some taxpayers can file when IRS opens its virtual doors in late January 2015 but those affected by the extenders would have to wait until the re-programmed systems are ready.
If you think you’re experiencing a little déjà vu, it’s not your imagination. In 2013, following tax law changes made in January 2013 as part of American Taxpayer Relief Act (ATRA), the IRS opened the filing season late – on January 30 – and implemented a tiered system. Under the tiered system, all taxpayers faced an opening delay to January 30, 2013, but those claiming certain provisions like the residential energy credits, depreciation of property or general business credits faced an additional delay and could not submit returns until late February.
That was a tough season. Combine the chaos of 2013 with the increased compliance challenges of ACA and FATCA together with budget cuts and it feels like a disaster.
Already, the Commissioner is anticipating that the IRS will only be able to answer about 53% of calls – after a wait time of about 34 minutes – for the upcoming fiscal year. That’s just about half – but, the Commissioner confirms, “It could be worse.”
The 53% estimate assumes an increase of 5-6 million calls, largely attributable to confusion over ACA and FATCA rules. But that number is just a guess. We haven’t had a filing season yet that addresses some of these questions such as how to deal with errors in calculating the premium tax credit for health care. The number of questions, and thus, the number of potential calls, could go higher: some estimates have placed the number of new calls at 11 million.
Up to 11 million more calls. 3,000 fewer workers just in the last year. You can do the math.
To make those numbers work, the IRS traditionally shifts resources – meaning people – to focus on filing season. That means, the Commissioner pointed out, more calls are answered, as a percentage, during filing season than at other times of the year. Last season, calls were answered about 71% of the time, a number the agency hopes to approach this year during filing season but that means that call answering rates at other times of the year could be below 50%.
And what about those calls that do get answered? Simple questions only. To keep call times short, IRS representatives have been instructed to answer simple questions and pass on the tough ones. So even though tax questions are becoming more difficult, fewer taxpayers will get complete answers. That’s not good for compliance.
It’s a concern echoed by the National Taxpayer Advocate, Nina Olson. Olson also sat down with us for a few minutes to talk about challenges for the upcoming season (she was running to a meeting to talk budgets). Her office is already gearing up for more volume as a result of ACA, FATCA and budget cuts which may result in “more problems, more confusion.” She’s hoping to mitigate some of the tax season troubles – including those specifically related to the premium health care tax credit – by identifying problems early. Despite these added preparations, the tax season could be, she said with a sigh, “Awful.”
(Author’s Note: This is part one of my conversations with the Commissioner and the Taxpayer Advocate. Find out more about the upcoming tax season, budget cuts, identity theft and what’s on tap for the future when the conversations continue.)

Today, the House Oversight and Government Reform Committee voted to proceed with contempt charges against Lois Lerner, the former Director of Exempt Organizations for Internal Revenue Service.

Nothing about the vote was unexpected. The Committee had announced that the vote would happen today (not a surprise) and had released a draft of the contempt charges. The vote passed along party lines (also not a surprise).

The resolution will now go to the full House for approval. If it passes, the next stop is the U.S. Attorney’s Office – a pretty tall order. The U.S. Attorney’s Office hasn’t pursued criminal contempt charges since 1983. In that case, a contempt citation was filed against the then head of the Environmental Protection Agency (EPA), Anne Gorsuch Buford, who had been appointed to serve under President Reagan. In that case, Buford had invoked executive privilege during an investigation into the EPA over the $1.6 billion toxic waste Superfund. Buford had initially said she’d rather go to jail than turn over documents which had been requested by Congress: she didn’t go to jail and the documents were eventually turned over.

That doesn’t mean that Congress hasn’t pushed for other contempt charges. Most notably, the House made history in 2012 when they approved contempt measures against Attorney General Eric Holder for his role in the Fast and Furious scandal. Like Buford, Holder had also refused to turn over documents for a Congressional investigation; in both cases, the White House had announced that the subpoenaed documents were protected by executive privilege.

The Lerner matter is not likely to be graced with the same privilege protections. It also may not matter. The House faces significant challenges in successfully prosecuting Lerner, prompting Lerner’s attorney, William Taylor III, to remark, “There is not a court in this country that will hold Ms. Lerner in contempt of Congress.”

He may be right. No American has been successfully prosecuted for invoking Fifth Amendment rights before Congress. A string of cases was pursued from 1951 to 1968, most of which involved the House Un-American Activities Committee. Of those, not one that focused on testimony – as in Lerner’s case – was successfully prosecuted.

These cases are generally not successful because the Fifth Amendment is jealously guarded by the courts. When the Lerner matter broke last year, I spoke with Hayes Hunt, an attorney in the Philadelphia office of Cozen O’Connor, about privilege and the Fifth Amendment (you can read his article on Fifth Amendment Fundamentals here). I specifically asked Hunt about waiver of privilege since Chairman Issa’s argument has largely hinged on Lerner’s opening statement in her first appearance before the Committee. Hunt indicated that the Fifth Amendment isn’t generally waived simply by making an opening statement. That’s true, he says, even if the statement is under oath (as it was in this case) since a statement isn’t usually considered testimony because it’s not in response to a direct question.

Even as attorneys argue over whether Lerner’s statement is actually testimony and whether that statement constituted a waiver of her Fifth Amendment privilege and whether she’s entitled to one at all in this case, Americans may not have the stomach for prosecution. That will matter to the House in the run-up to an election. While taxpayers are largely disappointed and suspicious of how IRS targeted tax-exempt applications, they appear to both weary of the investigation and leery of the motives of those leading the charges.

What all of this comes down to is whether Lerner broke any laws. Not whether she’s a bad manager or a terrible person or anything else you want to say about her. Those may be personality flaws – and they may be grounds for dismissal (which didn’t happen, she resigned instead) but they aren’t crimes. If she did break the law, she deserves to be prosecuted. But so far, there’s no proof that happened, just a lot of supposition.

That hasn’t stopped the House Ways and Means Committee from compiling a list of laws that Lerner might have broken. Committee Chair Dave Camp (R-MI) announced that the Committee was sending a criminal referral letter to Attorney General Eric Holder asking for additional investigation to determine whether Lerner violated criminal statutes. Chairman Camp said about the decision:

This investigation has uncovered serious, unprecedented actions taken by Lois Lerner that deprived conservative groups of their rights under the Constitution. Almost a year ago we learned that the IRS subjected certain groups to extra scrutiny because of their political beliefs. At the time, Lois Lerner shamefully attempted to blame the mistreatment on low-level employees in Cincinnati. The investigation to date has demonstrated that the targeting did not happen until IRS headquarters in D.C. intervened. Today’s action highlights specific wrongdoing for the Department of Justice to pursue. DOJ has a responsibility to act, and Lois Lerner must be held accountable. It is also important that the American people know what really occurred at the IRS, so this powerful agency cannot target American taxpayers ever again.

The Committee indicated that it believes Lerner that may have violated one or more criminal statutes. If convicted of those crimes (for which, to be clear, she has not been charged), Lerner could face up to 11 years in prison.

You can read the letter here (downloads as a pdf). Be prepared to sit awhile: together with exhibits, the letter is 97 pages long.

For the record, it had previously been announced that no criminal charges were expected to be filed.

Do you know that childhood game “Duck, Duck, Goose”? It’s the one where whoever is “it” walks around a circle patting players on the head as he or she says, “Duck” over and over. Finally, whoever is “it” pats one particular player on the head, screams “Goose!” and runs away, taking everyone by surprise.

That’s kind of how I felt today when I heard that President Obama had announced his intent to nominate John Koskinen as Commissioner of the Internal Revenue Service. It took me – and many others in the industry – completely by surprise.

Koskinen doesn’t have any experience in tax policy or tax law, though, in his defense, most IRS Commissioners over the past twenty years – including Shulman – didn’t either. Rather, Koskinen’s background is heavily institutional, including a stint as the former chairman of Freddie Mac: he served as Non-Executive Chairman of Freddie Mac from 2008 to 2011 and acting CEO of the company in 2009. Freddie Mac. Hmm. Okay, there has to be something else…

Prior to that, according to his resume, he was President of the United States Soccer Foundation. Um, okay. I like soccer. And it has something to do with taxes, I’m sure. Thinking, thinking. Nope, I got nothing.

What else? He served Deputy Mayor and City Administrator of Washington, D.C. from 2000 to 2003, under D.C. Mayor Anthony Williams. Yeah, D.C. residents aren’t keen on paying federal taxes… So what else?

Before that, Koskinen headed up efforts to save the world from certain collapse – or not – due to computer failures related to “Y2K” for the year 2000. Yeah. Anything?

Oh, wait. He served Deputy Director for Management of the Office of Management and Budget under President Bill Clinton (Acting Commissioner Danny Werfel likewise served in the OMB). And he used to be a lawyer, like everyone else in D.C.

So he’s totally qualified, right?

With that resume, it feels like a pretty obtuse nod, considering the state of affairs in Washington as between Congress and IRS.

President Obama, of course, has confidence in Koskinen, saying:

John is an expert at turning around institutions in need of reform. With decades of experience, in both the private and public sectors, John knows how to lead in difficult times, whether that means ensuring new management or implementing new checks and balances. Every part of our government must operate with absolute integrity and that is especially true for the IRS. I am confident that John will do whatever it takes to restore the public’s trust in the agency.

And Treasury Secretary Jack Lew supports the nomination, saying that Koskinen is “the right person to take on this critical position at this important time.”

But not everyone is a fan.

Sen. Orrin Hatch (R-UT), the top serving member of the Senate Finance Committee, was clearly more than a little miffed at the announcement. He said about the choice, “As is always the case, this nominee will be fairly and thoroughly considered by the Finance Committee and the Senate to serve as the next IRS Commissioner. But given the magnitude of the scandal facing the IRS, I am more than a little mystified that neither the President nor the Secretary of Treasury either consulted with or told me in advance about this decision to select this nominee.”
Sen. Max Baucus (D-MT) offered a more positive spin. Sen. Baucus said, about the nod, “I am pleased with the President’s choice of John Koskinen to be the next IRS Commissioner. He has the right background and experience in helping turnaround organizations facing tough challenges.” Koskinen will require confirmation by the full Senate in order to take over the reins at IRS.

If confirmed, Koskinen would replace Acting IRS Commissioner Danny Werfel who stepped up in May one day after President Obama accepted the resignation of then Acting Internal Revenue Service Commissioner Steven T. Miller. Miller resigned on May 15, 2013, in the midst of the tax-exempt organization scandal that has plagued the IRS. Miller accepted the post after former IRS Commissioner Doug Shulman said goodbye in November 2012; Shulman had served a nearly four-year term at the helm of the IRS.

You got all that?

While Werfel was well-liked in D.C., it is not surprising that he didn’t get a permanent nod – and it’s not clear that he would have wanted the position. Historically, the Acting Commissioner does not accede to be Commissioner, with most acting only a few months (believe it or not, a few have only held the position for a couple of days).

And it’s clearly a tough gig. Assuming Koskinen is confirmed, he will oversee the agency’s nearly 90,000 employees and be responsible for an increasingly complicated set of tax laws and related rules – including the controversial individual mandate in the health care act.

As expected, Internal Revenue Service (IRS) Commissioner Doug Shulman, the 47th commissioner to serve, has officially announced his plans to step down at the end of his term. That makes November 9, 2012, his last day in office. Shulman has served as IRS Commissioner since March 24, 2008.

Shulman had already indicated earlier in the year at a Q&A at the National Press Club that he would be stepping down after his term ended. Commissioners generally only serve one term after being appointed and no Commissioner has served longer than five years since the office was created by Congress by the Revenue Act of 1862 (although the IRS was, at that time, referred to as the Bureau of Internal Revenue). In Shulman’s case, November 9 is the last day of the term because November 12 is Veteran’s Day, a federal holiday.

Shulman was appointed to office by President George W. Bush. He made waves in 2010 when he announced that he doesn’t do his own taxes, saying: “I use a preparer… I’ve used one for years. I find it convenient. I find the Tax Code complex, so I use a preparer.” It became quite the sound bite for Congressional officials to rail against the complexity of the Tax Code (ironic, of course, since Congress made it that way).

It has been a challenging term for Shulman, who has managed 100,000 employees at the IRS in the midst of a tough economy. That level of employee management is pretty impressive: according to the Census, fewer than 1,000 U.S. companies even come close to those kinds of numbers, putting it on par with Marriott, GM, and Starbucks and well ahead of Apple and Microsoft.

“The IRS team made remarkable progress in the last few years during a challenging period,” Shulman said. “It has been an honor to serve the American people during this dynamic time.”

Since IRS commissioners are nominated by the President and confirmed by the Senate, a new Commissioner won’t step in immediately. For now, Deputy Commissioner for Services and Enforcement Steven T. Miller will serve as acting IRS Commissioner when Shulman steps down. As to who will be officially appointed to take Shulman’s place? That die is likely cast the Tuesday before Shulman officially steps down, following the Presidential and Congressional elections.

Two minutes isn’t a lot of time to talk about taxes. It’s even less time when you’re trying to get in zingers and tout your platform. That’s what makes debates both fun and frustrating.

During the Vice Presidential debate, VP hopeful Paul Ryan referred to his tax plan but didn’t offer any specifics. There was pressure to offer more about the plan than he did on Fox News when he refused to talk numbers, saying, “it would take me too long to go through all the math.”

But numbers are important. And math is important. In fact, far from rhetoric, budgets and tax are all about numbers. And some basic understanding of tax plans is important to voters. So here’s a quick primer:

Under the Romney/Ryan plan, the 2001 and 2003 tax cuts (the ones that I’ve promised to stop calling the Bush tax cuts) would be permanently extended for all taxpayers. That would include the 3.8% Medicare tax on investment income of high-income taxpayers scheduled to take effect in 2013.

In contrast, the tax provisions that were effective under the Obama stimulus plan would be allowed to expire. Those include, for example, expansions of existing credits such as the child tax credit, the earned income tax credit (EITC), and the American Opportunity Credit (the souped-up version of the Hope Credit).

What would be eliminated? The alternative minimum tax (AMT) and any taxes under the Affordable Care Act (the new health care act); the latter makes sense because Romney has promised to repeal the health care act. Also scheduled to be cut are taxes on long-term capital gains, dividends, and interest income for married couples filing jointly with income under $200,000 ($100,000 for those filing as single).

Romney has also suggested that he might cap itemized deductions at $17,000 for those taxpayers who file a Schedule A (only about 1/3 of taxpayers do). Ryan kind of skimmed over this during the debate – tossing it out as a sound bite – for a very good reason: it will never happen. Ryan’s in Congress, he knows. Lobbyists jealously guard those Schedule A deductions: between charitable organizations and real estate special interest groups, there’s no wiggle room.  And this isn’t a new idea. Obama suggested limiting deductions in 2009 and Sen. Pat Toomey (R-PA) suggested the same thing in 2011 – the result was the same for both (nothing). While I think that the idea makes sense on a fiscal level, I don’t expect it to pass. Or even get talked about much beyond the election, which might explain why Ryan didn’t make it a focal point of the debate.

Under the Romney/Ryan plan, tax rates would become flatter: rates would be compressed. The result would be a bottom tax rate of 8% and a top tax rate of 28%.

Those across the board tax cuts would, of course, lower tax bills for almost everyone. Statistically, most taxpayers (about 3/4 of those currently paying taxes) would have a lower tax bill under the Romney/Ryan plan. Only about 10% of taxpayers would see their tax bills increase under the plan (those affected are probably at the lower end of the spectrum due to disappearing tax credits). This has become a point of interest for many since Romney said during the first presidential debate, “I will not reduce the taxes paid by high-income taxpayers.”

Overall, analysts seem to figure that the plan would result in about $500 billion less tax revenue out of pocket (over ten years, that works out to the $5 trillion cut that Obama threw out during the debate). Reduced taxes sound great except for the elephants in the room: spending and the deficit. While Romney promises to cut wasteful spending, he also intends to increase other kinds of spending, like defense. It’s not clear from Romney’s plan how he plans to simultaneously make up the difference between lower revenues and the gaping hole that is the deficit. We can’t just keep raising the debt ceiling and calling it a day.

So back to Ryan. Before the debate, I said that I thought Ryan had a better grip – whether you agree with his policies or not – on the economy than any of the four candidates. He drafted the GOP economic plan. He’s the chair of the powerful House Budget Committee. He’s a numbers/money guy. So why didn’t he sound better during the debates? Why not hammer home the economic policies that he had so confidently presented in years past – even in the face of opposition from his own party (like Gingrich)? Here’s what I think: it’s Romney’s fault. Romney changed the plan. And Ryan couldn’t spin that positively.

I think changing your mind in the face of new facts and new information is a good thing. This economy is nothing if not a roller coaster ride (The market’s up! The market’s down! Unemployment is up! Unemployment is down!). And making an adjustment to accommodate that is smart. Reagan did it successfully during his administration when his 1981 cuts weren’t working in a 1986 world. I expected the Romney/Ryan ticket to embrace the legacy of Reagan but I don’t think they’ve settled on how that’s going to work. I’m not sure why. The campaign feels divided. And that division was clear when Romney broke with the economic script during his debate, leaving Ryan in the lurch.

I think Ryan is an asset to the GOP ticket. He’s smart, he’s young and he is much more relatable than Romney. I think he needs to find his spot on the ticket, though. I know that Romney wants to be the money guy but his policies are rooted in the private sector and – even though that sounds like a good thing – isn’t how Washington works. Ryan has figured that out. He’s really the money guy.

In the weeks leading up to the election, it will be interesting to see where this interplay takes the ticket. The numbers need to add up, the math needs to work and the team cannot continue to be mum on the details. More important, Romney and Ryan need to be on the same page.

(I know what you’re wondering: where’s my take on Biden? One tax plan at a time, folks. Tune in tomorrow!)

This week, we head out to the midwest to meet our tax pro. Christopher J. Wittich is a supervisor in the tax department at Boyum & Barenscheer PLLP with offices in Minnesota (see how I totally didn’t mention the Vikings there and I could have?). Christopher also blogs for the firm at Here’s what Christopher had to say:

1. Where are you now?

Sitting in my cubicle surrounded by my four monitors.

2. What’s your official title and what does it mean?

Tax Supervisor at Boyum & Barenscheer PLLP which means I prepare and review tax returns, do research and planning, and somewhat supervise staff that are working on tax projects that I will review.

3. What books are on your night stand?

Mere Christianity by C.S. Lewis (although I haven’t started it yet)

4. If you weren’t working in the tax profession, what would your dream job be?

Definitely something sports related, probably a sports talk radio host or fantasy football writer.

5. What’s the last movie that you saw (DVD or in the theatre)?

I got to see an early showing of the new Batman movie at an IMAX theater, it was amazing. It pays to have friends who get free tickets to stuff like that.

6. Tax is a huge subject. What’s your area of special interest?

I enjoy blogging about taxes at my company’s website and I also enjoy doing research. Looking for a kernel of information about taxes can actually be fun.

7. What’s the best tax or financial advice that anyone ever gave you?

Free is a good price. I think my Dad said it first, now I say it all the time.

8. Coffee or tea?

Neither, I don’t like hot liquids.

9. Name five artists on your iPod (or mp3 player).

Maroon 5, The Rocket Summer, The Fray, The Script, and Jackson 5

10. What would I be surprised to know about you?

I love to play Ultimate Frisbee and my nickname is Ravenous Tiger.

11. What college did you attend (in what subject)?

Went to the University of Minnesota, first an undergrad in Accounting and then the Master of Business Taxation

12. If you had the opportunity to make one change in the tax code tomorrow – an extra credit, a disallowed deduction, whatever – what would it be?

I would outlaw publicly traded partnerships; they are such a big hassle to enter into tax returns.

13. What’s the best thing on TV right now?

The Daily Show and Colbert Report, especially during the political campaign season.

14. What do you think Congress will repeal first: estate tax or AMT?

I would say neither is likely, but maybe the estate tax just because politicians can’t understand how AMT really works. It would be easier for them to just chop off the estate tax.

15. If Uncle Sam handed you a huge refund check right now, what would you do with it?

Invest it or buy gummy bears, I could go either way.

16. Biggest tax newsmaker: Obama, Bloomberg or Buffett?

Obama, everything a president does is going to make news

17. And, other than taxgirl, what’s your favorite tax related web site? for tax info and tax links and which is more of a guilty pleasure tabloid for accountants

Thanks Christopher!

If you’d like to recommend a tax pro to be featured send your suggestions to inquiry (at) taxgirl (dot) com. Self-nominations are totally okay and, in fact, encouraged!