Retired IRS Chief Koskinen Warns Against Agency Budget Cuts

Safe at home, fully retired with time to putter around the garden, former Internal Revenue Commissioner John Koskinen is no longer under threat from congressional Republicans who demanded his impeachment.

In a wide-ranging interview with Government Executive on Nov. 21, the man President Obama brought in as a “Mr. Clean” to fix the beleaguered IRS expressed disappointment that the Senate appears poised to continue cutting the IRS, a habit of the Republican-controlled Congress he regularly warned against during his four years leading the tax agency.

Koskinen, still referring to his former agency as “we,” pointed to only a small silver lining in the bill reported out by the Senate Finance Committee on Nov. 16 that proposes cuts of about $110 million from IRS’s current spending levels, roughly equal to the proposal from the House but with less than half the cuts requested from the Trump administration.

“When people talk about cutting by another [$110 million], they often don’t pay attention to the fact that we also have to fund pay raises and inflationary costs, which are another $150 million to $200 million,” he said. “So it’s really a cut of $300 million.” That’s leaving aside any new costs for implementing a new tax code, should tax reform pass, he noted.

The budget cuts that have been steady at the agency since 2010 forced delays in modernizing outdated legacy information technology, he added, because of the urgency of combating the growing threat of identity theft. “In my farewell tour of Congress and at press conferences,” he said, “I noted that my real concern is that if you keep cutting the budget, you run the risk of failure—it’s not a question of whether, but when.”

Koskinen takes modest comfort in the statement included in the Senate committee chairman’s mark expressing “the sense of the Senate that politically motivated budget cuts are counterproductive to deficit reduction, diminish the IRS's ability to adequately serve taxpayers and protect taxpayer information, and reduce the IRS's ability to enforce the law.”

At 78, Koskinen hangs up his spurs after an award-winning career in both the public and private sectors, including running the Clinton White House effort to counter the Y2K computer crash threat at the turn the century and chairing Fannie Mae. “John is an expert at turning around institutions in need of reform,” Obama said when naming him to the IRS job in August 2013. “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.”

Though popular among IRS employees who valued his accessibility during town hall meetings, Koskinen endured continuing outrage and lengthy investigations from House Republicans who believed he misled Congress and tolerated the destruction of evidence in the dispute over alleged political bias in the IRS’s Exempt Organizations division’s mishandling of nonprofits seeking tax-free status as social welfare organizations.

“I said from the start that while there was no evidence of outside direction or political targeting or purposes, clearly it was a management problem and a mistake to have people with applications pending for two years or longer,” Koskinen said. “We took everyone’s recommendations—the inspectors general’s, the Senate Finance Committee’s—and restructured to assure it never happens again.”

It was important to Koskinen that “taxpayers understand not only that everyone gets treated fairly, but that we’re doing our best to respond to every taxpayer inquiry,” he said. His hope is that, after the initial report on the alleged political targeting from nearly five years ago, a more recent report on the division’s handling of applicants of all persuasions “will set the whole issue to rest. Then I hope Congress and the administration and the IRS will have a more reasonable discussion about the IRS budget, focused only on what IRS needs, rather than on ongoing attempts to punish the IRS,” he said.

As he has repeatedly, Koskinen warned that political disputes threaten the “crucial services” the IRS provides in processing 150 million individual tax returns efficiently and collecting over $3.3 trillion—more than 90 percent of the government’s revenue.

Does he have any regrets over his own handling of evidence demanded by Congress during the political targeting controversy?

The inspector general and investigators examining the destruction of backup tapes containing emails related to former Exempt Organizations chief Lois Lerner “found it was a simple error by two guys on the midnight shift in Martinsburg, W. Va.,” he said. “My regret is that the hearings got so contentious that it doesn’t look like much fun, which will discourage good people from coming into government.”

Many in Congress never read the thousands of pages of documents IRS provided, he added. In testimony in May 2016, Koskinen said the IRS incurred more than $20 million in expenses and devoted more than 160,000 man-hours to collect, review, and produce approximately 1.3 million pages of documents during the investigation. 

“My theory of management has always been that you need to make sure information flows from the bottom to the top as well as from the top to the bottom,” he said. That problem revealed itself in recent corporate scandals, such as the General Motors faulty ignition switch, Wells Fargo’s creation of unauthorized consumer bank accounts and Volkswagen’s fudging of emissions tests, he noted.

At the IRS, “The people on the front lines knew what was going on, but the information never really got the attention at the top,” he said. “I spent a significant amount of time meeting with front-line employees and encouraging them all to raise their hand when they see a problem or challenge. And I said at my confirmation hearing four years ago, if there’s a problem, let’s work on it and fix it. If there’s a mistake, it’s my mistake.”

Press coverage of the IRS’s troubles, Koskinen said, was reasonable. “We got treated very fairly, as a general matter,” he said. He often counseled IRS staff that “If you don’t talk to the press, you shouldn’t be surprised if your side of the story doesn’t get out.”

Koskinen said he never spoke to the retired Lois Lerner, who came to embody IRS politicization in the minds of her Republican critics, though the Justice Department twice ruled out criminal charges.

He has had regular contact with current acting revenue commissioner, David Kautter, the assistant Treasury secretary for tax policy whom President Trump asked to double up as IRS chief. “I met with him every other week for years, and met with him a couple of times since then. He’s made it clear he is anxious to be helpful and supportive while he’s got another full-time job. He understands the issue at the top of the list is funding.”