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89–660—PDF 2013

S. HRG. 113–390 

NOMINATION OF JOHN ANDREW KOSKINEN 

HEARING 

BEFORE THE

COMMITTEE ON FINANCE 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON THE

NOMINATION OF 

JOHN ANDREW KOSKINEN, TO BE COMMISSIONER, 

INTERNAL REVENUE SERVICE 

DECEMBER 10 AND 11, 2013 

( 

Printed for the use of the Committee on Finance 

COMMITTEE ON FINANCE 

MAX BAUCUS, Montana, Chairman 

JOHN D. ROCKEFELLER IV, West Virginia 

RON WYDEN, Oregon 

CHARLES E. SCHUMER, New York 

DEBBIE STABENOW, Michigan 

MARIA CANTWELL, Washington 

BILL NELSON, Florida 

ROBERT MENENDEZ, New Jersey 

THOMAS R. CARPER, Delaware 

BENJAMIN L. CARDIN, Maryland 

SHERROD BROWN, Ohio 

MICHAEL F. BENNET, Colorado 

ROBERT P. CASEY, Jr., Pennsylvania 

ORRIN G. HATCH, Utah 

CHUCK GRASSLEY, Iowa 

MIKE CRAPO, Idaho 

PAT ROBERTS, Kansas 

MICHAEL B. ENZI, Wyoming 

JOHN CORNYN, Texas 

JOHN THUNE, South Dakota 

RICHARD BURR, North Carolina 

JOHNNY ISAKSON, Georgia 

ROB PORTMAN, Ohio 

PATRICK J. TOOMEY, Pennsylvania 

AMBER COTTLE, Staff Director 

CHRIS CAMPBELL, Republican Staff Director 

(II) 

C O N T E N T S 

OPENING STATEMENTS 

Page 

Baucus, Hon. Max, a U.S. Senator from Montana, chairman, Committee 

on Finance ............................................................................................................ 1 

Hatch, Hon. Orrin G., a U.S. Senator from Utah ................................................. 3 

ADMINISTRATION NOMINEE 

Koskinen, Hon. John Andrew, nominated to be Commissioner, Internal Revenue Service, Washington, DC ............................................................................ 5 

ALPHABETICAL LISTING AND APPENDIX MATERIAL 

Baucus, Hon. Max: 

Opening statement ........................................................................................... 1 

Prepared statement .......................................................................................... 39 

Grassley, Hon. Chuck: 

Letter from Senator Grassley to John Koskinen, dated September 26, 

2013 ................................................................................................................ 41 

Hatch, Hon. Orrin G.: 

Opening statement ........................................................................................... 3 

Prepared statement .......................................................................................... 46 

Koskinen, Hon. John Andrew: 

Testimony .......................................................................................................... 5 

Prepared statement .......................................................................................... 48 

Biographical information ................................................................................. 52 

Responses to questions from committee members ......................................... 64 

(III) 

(1) 

NOMINATION OF JOHN ANDREW KOSKINEN, 

TO BE COMMISSIONER, 

INTERNAL REVENUE SERVICE 

TUESDAY, DECEMBER 10, 2013 AND 

WEDNESDAY, DECEMBER 11, 2013 

U.S. SENATE, 

COMMITTEE ON FINANCE, Washington, DC. 

The hearing was convened, pursuant to notice, at 10:04 a.m., in 

room SD–215, Dirksen Senate Office Building, Hon. Max Baucus 

(chairman of the committee) presiding. 

Present: Senators Wyden, Menendez, Carper, Cardin, Bennet, 

Casey, Hatch, Grassley, Crapo, Roberts, Enzi, Thune, and 

Portman. 

Also present: Democratic Staff: Amber Cottle, Staff Director; Mac 

Campbell, General Counsel; Rory Murphy, International Trade Analyst; Tiffany Smith, Tax Counsel; and Lily Batchelder, Chief Tax 

Counsel. Republican Staff: Chris Campbell, Staff Director; Mark 

Prater, Deputy Chief of Staff and Chief Tax Counsel; and Nicholas 

Wyatt, Tax and Nominations Professional Staff Member. 

OPENING STATEMENT OF HON. MAX BAUCUS, A U.S. SENATOR 

FROM MONTANA, CHAIRMAN, COMMITTEE ON FINANCE 

The CHAIRMAN. The hearing will come to order. 

The famed journalist, Grantland Rice, once wrote, and I quote 

him, ‘‘You can develop good judgment as you do the muscles of your 

body—by judicious daily exercise.’’ 

That is a valuable lesson for anyone, especially one who serves 

in government. And, in the wake of the charges of political targeting that erupted last spring, it is vital for those who serve at 

the IRS. 

With us today is John Koskinen, the President’s nominee to be 

the Commissioner of Internal Revenue. If confirmed, Mr. Koskinen 

will face many challenges. The IRS plays an important role in tax 

reform. It is key to the Affordable Care Act’s implementation, for 

example. And perhaps most importantly, it must win back the 

American people’s trust. That means undoing the damage done by 

the Inspector General’s report on the IRS’s handling of 501(c)(4) 

applications. 

The American people are willing to pay their taxes. They understand that it is their civic duty. But when there are charges of political bias at the IRS, it makes everyone feel like the deck is 

stacked. 

2 

This committee is in the midst of a bipartisan investigation of 

those charges. In the meantime, IRS needs to do its job in a fair 

and evenhanded manner. The acting Commissioner, Danny Werfel, 

deserves credit for his steady management since arriving at the 

IRS in May. 

Last month, the administration proposed clear new standards for 

the treatment of tax-exempt social welfare organizations. That was 

a positive step, but there is more work to be done. We need to install new safeguards to ensure that the mistakes identified in the 

Inspector General’s report do not happen again. 

Winning back the public’s trust will not happen overnight. It will 

take time and, in Grantland Rice’s words, judicious daily exercise 

of good judgment. I believe Mr. Koskinen will exercise that judgment. He is the right person for the job. But the task will not be 

easy. 

The IRS must be an active partner in tax reform. This committee 

is hard at work fixing the Nation’s broken tax code, and, as we develop ideas, we need the IRS’s input. No reform proposal is worth 

the paper it is printed on unless the IRS can implement and manage it as intended. And that is why productive communication between the IRS and this committee is so critical. 

Last month, my office released three staff discussion drafts on 

tax reform proposals. The first focused on modernizing our international tax system; the second focused on improving tax administration, fighting fraud, and making filing safer, easier, and more 

simple; and the third focused on making the tax code more neutral 

for American businesses. 

Now we are gathering feedback on those proposals from stakeholders, from the public, and from businesses, and the work will 

continue. More drafts are coming, and we will need the IRS’s input 

on those as well. 

The IRS must also continue to play its part in implementing the 

Affordable Care Act. Helping individuals, families, and businesses 

pay for health insurance is a cornerstone of the health reform law. 

According to the independent Kaiser Family Foundation, 17 million 

people will qualify for assistance. The IRS must be ready to handle 

that task, and, by all accounts, preparations are on track. It needs 

to keep up the good work. 

Mr. Koskinen has a history of succeeding in demanding roles: at 

Freddie Mac, in the heat of the financial crisis; at the helm of the 

District of Columbia’s financial turnaround in the early 2000s; as 

a turnaround artist in the private sector; and even as leader of the 

team that addressed Y2K concerns. 

He is the right person to take on this challenge, and, with filing 

season approaching, the IRS needs a leader in place. The IRS has 

been without a confirmed Commissioner for more than a year. Before this year, the longest any nominee for IRS Commissioner had 

waited before confirmation was 100 days. Mr. Koskinen was nominated 132 days ago. 

Mr. Koskinen, with your knowledge, experience, and expertise, I 

expect you would be highly sought after by many players in the 

private sector. Instead, you have chosen to continue your career in 

public service, and for that, we thank you. 

3 

Thank you for accepting the nomination to this position. The IRS 

Commissioner may not be the most glamorous job in the administration, but it is certainly one of great importance. 

Again, the acting Commissioner, Danny Werfel, deserves credit 

for taking on a very tough job in the wake of the Inspector General’s report, and I believe he has performed very well. But Mr. 

Werfel will be leaving the IRS at the end of this year. 

So now is the time for us to act. The IRS needs its Commissioner. John Koskinen is the right man for the job. He has broad 

support from Democrats and Republicans, and I hope we can approve this nomination quickly and take it to the full Senate for a 

vote. It is time we get this done. 

[The prepared statement of Chairman Baucus appears in the appendix.] 

The CHAIRMAN. Senator Hatch? 

OPENING STATEMENT OF HON. ORRIN G. HATCH, 

A U.S. SENATOR FROM UTAH 

Senator HATCH. Thank you, Mr. Chairman. Today we are here 

to discuss the future of the Internal Revenue Service and hear testimony from President Obama’s nominee to head the agency, John 

Koskinen. 

Mr. Koskinen, I do not think that I have to tell that if you are 

confirmed, and I expect you to be, you will have a difficult job 

ahead of you. The IRS is one of the most powerful agencies in our 

government, and, consequently, it is both feared and loathed by 

millions of Americans. 

That being the case, it is vital that the IRS maintain its credibility. The American people should be able to trust that the IRS 

will enforce our Nation’s tax laws without bias or prejudice. Any 

hint of impropriety on the part of the IRS or its leadership damages its credibility and that of our entire government. 

Unfortunately, over the last few years, the credibility of the IRS 

has been eroded through actions taken by the IRS itself, and the 

agency has, in large part, lost the trust of the American people. As 

proof, one needs to look no further than the IRS political targeting 

scandal currently under investigation by this committee. 

When this scandal was revealed, President Obama said, ‘‘I have 

got no patience with it. I will not tolerate it, and we will make sure 

that we find out exactly what happened on this.’’ Senate Majority 

Leader Harry Reid expressed similar views on the Senate floor, 

stating, ‘‘I have full confidence in the ability of Senator Baucus and 

the Finance Committee to get to the bottom of this matter and recommend appropriate action.’’ 

Now, I share both President Obama’s desire to find out exactly 

what happened and Leader Reid’s view of the Finance Committee’s 

investigative abilities. Indeed, if there is one thing we should all 

be able to agree on, it is that the IRS should enforce the tax laws 

as they are written by Congress, without consideration of political 

views. 

That being the case, I had hoped to hold off on proceeding with 

this nomination until the Finance Committee’s bipartisan investigation had concluded. The confirmation of an IRS Commissioner 

should not and must not be a partisan issue. And, like I said, with 

4 

an agency this powerful, the leadership should have the confidence 

of members of both parties. 

I had hoped that the next Commissioner would begin his time 

with the benefit of the findings of our investigation so that he 

would be in a better position to fix the problems we have uncovered 

and to move the agency forward with strong bipartisan support. 

Chairman Baucus has chosen to go a different direction, which is, 

of course, his right. My hope is that this will not impede our efforts. 

Also, I would like to personally pay tribute to Danny Werfel as 

well. I think he took over a very tough situation, and he has handled himself with great skill and dignity and integrity, in my opinion, and he has worked pretty closely with us in trying to get to 

the bottom of some of these problems. 

Mr. Koskinen, I hope that today you will commit to continuing 

the cooperation the committee has enjoyed thus far in its investigation and that you will encourage others to do the same at the agency. As far as I am concerned, the top priority for the next IRS Commissioner should be to restore the agency’s damaged credibility 

with the American people and their trust that the actions taken by 

the IRS are fair and impartial. 

Toward that end, it is essential that we continue to receive full 

and open cooperation in our investigation. There are many other 

issues the next leader of the IRS will have to address. For example, 

there is the IRS’s significant role in the implementation of Obamacare. If what we have seen thus far is any indication, this is going 

to be a difficult proposition, both in terms of operation and enforcement. 

Just last week, the Treasury Inspector General for Tax Administration issued a report that found that the IRS has an inadequate 

system in place for preventing fraudulent Affordable Care Act premium subsidy payments from occurring and that people’s personal 

information would be at risk. 

Insurers and others have raised questions about the income 

verification for the premium subsidies. I have also raised this concern on a number of occasions. Similar tax subsidy programs, including, for example, the earned income tax credit, have improper 

payment rates as high as 25 percent. Can we expect the same for 

the Obamacare premium subsidies? 

These are just a few of the many potential issues IRS will be facing as implementation continues. On top of that, there are proposed regulations addressing the political activities of tax-exempt 

organizations. These proposals have been controversial for a number of reasons, not the least of which is the widespread doubt as 

to whether the IRS is able to perform its duties in an independent, 

nonpartisan fashion. 

Now, Mr. Koskinen, I hope to get a sense of your views on these 

and other issues during the course of today’s hearing. Like I said, 

the IRS is an agency rife with problems, most of which are, at least 

in my opinion—I think in the opinion of many people—selfinflicted. 

If you are confirmed, I hope that you will begin working jointly 

with Congress—and with members of both parties—to fix these 

problems. 

5 

I want to personally pay tribute to you for being willing to take 

this very difficult job at this very difficult time and for the excellent work that you have done in the past in so many ways. I believe you will make a great IRS Commissioner, and I intend to support you. 

Thank you, Mr. Chairman. 

[The prepared statement of Senator Hatch appears in the appendix.] 

The CHAIRMAN. Thank you, Senator. I also join in your complements of Danny Werfel. I am very impressed with how frequently he has called you, called me, giving us updates on what he 

is doing before items break in the press, and I think he has been 

a terrific Acting Commissioner. Thank you very much for praising 

Danny Werfel. 

Joining us today is John Koskinen, nominated to be the Commissioner of the Internal Revenue Service. Thank you for coming, Mr. 

Koskinen. And I would ask you, at this time, to introduce your 

family. 

Mr. KOSKINEN. Thank you, Mr. Chairman. 

I am delighted that my wife Pat is here immediately behind me. 

My daughter Cheryl, who lives in Bethesda, was planning on coming before they closed school. And so she is at home with her two 

young children. 

My son and his wife live in Los Angeles. His in-laws, who are 

now part of our extended family, are in Annapolis. And so they 

called this morning, again, and regretted that they could not join 

us, but their son, Scott Cantor, and his fiance ́e, Kathleen Scher, 

are with us, along with a long-time friend of mine, Roger Waldman, 

who started out—when I started my career in government service—working on the Kerner Commission staff a long time ago, joining us with his friend Barbara Coe. 

So that is my support staff. I have told them they cannot use 

their noisemakers until later in the hearing. 

The CHAIRMAN. Wonderful. Why don’t you all stand so we can 

recognize you? All of you. Thank you very, very much for joining 

us. [Applause.] 

Mr. Koskinen, go ahead. This is a time for you to tell us why you 

want this job. 

STATEMENT OF HON. JOHN ANDREW KOSKINEN, NOMINATED 

TO BE COMMISSIONER, INTERNAL REVENUE SERVICE, 

WASHINGTON, DC 

Mr. KOSKINEN. Thank you. Chairman Baucus, Ranking Member 

Hatch, and members of the committee, I am honored to appear before you this morning as the nominee to be the next Commissioner 

of the Internal Revenue Service. With your permission, Mr. Chairman, I will summarize my prepared statement here this morning 

and submit the full statement for the record. 

This past May, when I was asked whether I would be willing to 

serve as the next Commissioner, I agreed, because I believe that 

the successful operation of the Internal Revenue Service is vital for 

this country. The activities of the IRS touch virtually every American. 

6 

The agency collects over $2.5 trillion a year, over 90 percent of 

the revenues collected by the government. And this is a challenging 

time for the agency as it confronts new responsibilities, while dealing with a budget that has declined substantially since 2010. And, 

of course, as already mentioned, on top of that all are the management problems that have shaken public trust in the agency. 

I have had a longstanding commitment to public service, and 

most of my career has been spent helping large organizations in 

both the public and private sectors respond to significant financial 

and management challenges. If confirmed, I look forward to leading 

the IRS as Commissioner and to working with this committee to 

deal with the range of challenges that it confronts. 

In our meetings as part of this confirmation process, many of you 

have asked what my plans for the agency are, if I am confirmed 

as Commissioner. While I still have a lot to learn and thousands 

of employees yet to meet and listen to, it is clear that the responsibility of the Commissioner is to make sure that the agency fairly, 

efficiently, and effectively collects the taxes owed by every business 

and individual; that the agency provides taxpayer services in the 

form of easily understandable information and prompt answers to 

questions to make it as simple as possible for people and firms to 

pay their taxes; and that the agency creates a working environment that allows employees to reach their full potential and generates an enthusiastic, energetic, and high-performing workforce. 

In every area of the IRS, taxpayers need to be confident that 

they will be treated fairly, no matter what their background or 

their affiliations. Public trust is the IRS’s most important and valuable asset. 

There are immediate challenges in each of these areas. To protect government revenues, the agency has to continue to increase 

its efforts to combat refund fraud. Taxpayer services need to be improved, particularly in the areas of tax-exempt organization filings 

and operations. 

There are several investigations ongoing into the delays encountered by many of those seeking to establish themselves as 501(c)(4) 

social welfare organizations, and I look forward, if confirmed, to 

working with this committee as it concludes its investigation of 

that matter. 

And Senator Hatch has asked, and I am actually more than delighted to commit that, if confirmed as Commissioner, I will continue the good work that acting Commissioner Danny Werfel has 

done in this area and cooperate fully with the committee and its 

members as it seeks to bring this investigation to a close, providing 

you all of the information that you need. 

The IRS also needs to continue its successful implementation of 

the Affordable Care Act. Its responsibilities at the front end of the 

process have been effectively implemented, thanks to long planning 

and a smooth IT implementation. 

The new Commissioner also needs to address employee morale. 

My experience is that the people in an organization who know most 

about what is going on are the front-line employees. The next Commissioner needs to listen to those employees and make sure they 

understand that they are seen as part of the solution, not part of 

the problem. The IRS is fortunate to have an experienced workforce 

7 

committed to the mission of the agency. We need to provide them 

with the leadership, systems, and training to support them in their 

work. 

We have to listen not just to our employees but, also, others who 

are most likely to know about the challenges the agency faces. A 

government manager’s best friends can be the Inspector General 

and the Government Accountability Office. They do not create the 

problems they highlight, they just help you know about them before they get bigger. 

In addition, the IRS benefits from the information and perspective generated by the Office of the Taxpayer Advocate and the 

Whistleblower Office. And another important source of information 

is congressional inquiries. An individual complaint or question may 

be simply anecdotal. A series of them from various areas is a 

source of valuable information that needs to be pursued. 

To make all of this happen and to protect the revenues coming 

into the government, we need to solve the funding problem facing 

the IRS. This is a view shared today by the IRS Oversight Board, 

the Taxpayer Advocate, and, most recently, the Treasury Inspector 

General for Tax Administration and the Internal Revenue Service’s 

Advisory Council. 

As the Inspector General report earlier this fall noted, the government has saved $1 billion in cuts to the IRS budget on an annual basis and lost $8 billion in compliance revenues. 

Even with all the challenges the IRS faces or, in fact, because of 

them, I am excited about the opportunity, if confirmed, to work 

with the employees of the agency as the IRS moves forward into 

the future. The IRS has a long and honored tradition of service to 

this country, and it is filled with a great number of public servants 

who take pride in their work to help the IRS achieve its mission 

with integrity and fairness to all. 

I appreciate the time each of you has spent with me individually, 

sharing your interests and concerns. If confirmed, I look forward to 

working with you and your staffs to help make the IRS the most 

effective, well-run, and admired agency in government. 

Thank you. 

[The prepared statement of Mr. Koskinen appears in the appendix.] 

The CHAIRMAN. Thank you, Mr. Koskinen, very much. 

I have four standard questions that are asked of all nominees. 

Number one, is there anything that you are aware of in your 

background that might present a conflict of interest with the duties 

of the office to which you have been nominated? 

Mr. KOSKINEN. There is not. 

The CHAIRMAN. Do you know of any reason, personal or otherwise, that would in any way prevent you from fully and honorably 

discharging the responsibilities of the office to which you have been 

nominated? 

Mr. KOSKINEN. No. 

The CHAIRMAN. Do you agree, without reservation, to respond to 

any reasonable summons to appear and testify before any duly constituted committee of Congress, if you are confirmed? 

Mr. KOSKINEN. I do. 

8 

The CHAIRMAN. Do you commit to provide a prompt response in 

writing to any questions addressed to you by any Senator of this 

committee? 

Mr. KOSKINEN. Yes. 

The CHAIRMAN. Thank you. That last one was added fairly recently, because we have had problems with other nominees. So 

thank you very much. 

I want to start off by asking—I apologize. There is a vote going 

on now. We just have a few minutes left remaining on the vote. We 

will recess for—regrettably, we might have to recess for up to half 

an hour. There are two votes. So we will make those two votes and 

then come back as quickly as possible. 

The committee will stand in recess for one-half hour. 

[Whereupon, at 10:25 a.m., the committee was recessed, reconvening at 11:40 a.m.] 

The CHAIRMAN. The hearing will come back to order. 

I apologize to the witness and others for the delay. We had several votes which took our time here. 

I am going to be very brief and then let Senator Hatch ask a couple of questions. 

If you could, just very briefly, maybe in a couple, three words, 

Mr. Koskinen, tell me what you learned in your prior jobs, either 

crises jobs or near-crises jobs, whether it was Freddie Mac or DC 

or Y2K? What lessons did you learn there that you can bring to 

this job? 

Mr. KOSKINEN. Well, I think, as I said in my opening comments, 

the first thing you need to do, especially if you are running a very 

large organization, is to create a system where information flows 

freely both from the front-line workers up to the people at the top 

of the organization but, again, across silos that inevitably get created in an organization, because you need to know as quickly as 

you can what is actually going on with the organization. 

You also need to involve people within the organization, as well 

as externally, in discussions about what the problems are and what 

the solutions are. Because my experience has always been that a 

group of people addressing a problem will always come up with a 

better solution than any single member of that group, no matter 

how smart they think they are or how smart they might actually 

be, and that it is important to get as many different perspectives 

on a possible solution as you can. Also, the more people you involve 

in the decision-making process, the easier it is to execute that decision, because, to the extent they were involved in it, they then understand the reasoning behind it and they will go out and make it 

happen. 

So, in an organization this large, you need to have consistent 

messaging, and you need to ensure that people are participating, 

and I have found that it energizes people. If you spend your life 

simply being told what to do and nobody ever asks you what your 

view is, you have one response to your job. If you are regularly 

asked not only what you think the problems are or potential solutions are, but people listen to those answers, you are much more 

enthusiastic about your participation in the day-to-day operations 

of that organization. 

9 

The CHAIRMAN. The Sunday New York Times business section— 

I think it is the business section—has a corner office page, which 

shares lessons that CEOs and other managers have learned while 

managing. 

Have you, by chance, ever glanced at any of those? 

Mr. KOSKINEN. I have not had the opportunity to. 

The CHAIRMAN. Well, I urge you to: Sunday mornings, business 

section, it is page—I forgot what page it is, but they are very interesting. 

Thank you very much for that answer. 

Senator Hatch? 

Senator HATCH. We have to get back over and vote, but let me 

ask you just one question, maybe two. 

As you know, Mr. Koskinen, Chairman Baucus and I have been 

conducting a joint bipartisan investigation into the IRS targeting 

scandal. If you are confirmed, will you assure us that you will cooperate with our investigation by continuing to produce all documents we deem relevant and by making any IRS employees we 

want to interview available for interviews? You can answer that 

‘‘yes’’ or ‘‘no.’’ 

Mr. KOSKINEN. Yes. Senator, as you and I have talked personally, I am delighted to be able to make that commitment to you. 

Senator HATCH. That means a lot. 

Mr. KOSKINEN. As both of you have said, I think Danny Werfel 

has done an excellent job, and I look forward to continuing his 

working relationship with this committee. 

Senator HATCH. I do too. And let me just say, I would like to talk 

for a moment about the IRS scandal involving 501(c)(4) organizations. In my opinion, the greatest single challenge facing the IRS 

is its need to recover the trust of the American people. 

It is not possible to overstate the amount of damage the IRS has 

done to its reputation by selectively targeting politically conservative tax-exempt social welfare groups for harassment during the 

last two elections. But rather than staying focused on cleaning up 

the mess caused by a scandal of its own making and waiting until 

this committee completes its bipartisan investigation, last month 

the IRS published a proposed regulation that once again targets social welfare groups only. 

The political activity rules for tax-exempt 501(c)(4) organizations 

also apply to 501(c)(5) labor unions and 501(c)(6) trade associations. 

Now, as the Treasury Inspector General for Tax Administration, 

TIGTA, said in a report issued last May describing the IRS scandal, all three groups may engage in limited political campaign activities as long as that is not the primary activity of the organization. 

I know that the IRS asked for comments from the public on 

whether to apply the new regulations to unions, but the regulation, 

as drafted, only applies to 501(c)(4)s. That is strong evidence that 

the IRS intends to hammer social welfare groups and, in the end, 

let the unions slide by. 

Will you commit to this committee that, if confirmed, you will ensure that any political activity regulation the IRS finalizes will 

apply equally to 501(c)(4), 501(c)(5), and 501(c)(6) organizations? 

10 

Mr. KOSKINEN. Senator, it is an important question. The IRS and 

Treasury, as you know, have issued draft regulations for comment 

and suggestions. I think it is important for us to get active participation in that comment period, because there are, as you know, a 

wide range of organizations, and one of the specific questions the 

regulation asked for is for people to comment on just this issue: 

that is, what the definition of acceptable and unacceptable political 

activity ought to be and to which organizations it should apply. 

Should it apply to the other (c) organizations or not? It also asks 

for comments on the amount of activity that can be allowed before 

you run the risk of losing your exemption. 

Overall, my sense is that what we need, and I hope will come out 

of that comment period in the final regulations, is clarity—for all 

organizations making applications—about what the permissible 

level of political activity is and what the definition of that political 

activity is. Because the clarity is important, not only for people 

when they make their applications, but greater clarity is needed by 

the IRS employees when they review those applications. And then 

people running the organizations in the future need to know what 

the rules are so they can be comfortable that they are operating 

within them and are not exceeding whatever the limitations are. 

And part of the problem in the past has been that the definition 

of what is allowable political activity has not been clear, nor has 

it been clear what amount of that activity is acceptable before you 

run the risk of losing your exemption. 

So I think the question you raise is an important one, and I will 

commit that I will actively participate in the review of the comments that come in and try to make sure, as we have said earlier, 

that people view the IRS and its regulations and their application 

as fair, that you are not discriminated against because of your 

background, your views, or your affiliations. 

Senator HATCH. Well, thank you. 

I think we are going to have to wrap it up for the day, Mr. Chairman. 

The CHAIRMAN. Thank you, Mr. Koskinen. I regret that, because 

of the votes, we are unable to have a complete hearing at this 

point. And second, the other side of the aisle, the Republican party, 

has objected, as is their right under the Senate rules, for this committee to meet 2 hours after the Senate convened, and that 2 hours 

expires at noon today. 

So we are unable to have a hearing after noon today, but we will 

reconvene at the earliest possible time, given the complexities and 

special rules of the Senate. 

I, again, regret that we cannot continue the hearing now, but we 

will resume the hearing at an appropriate time. But I cannot resume the hearing after this next vote which is occurring right now 

because the Republican party has said—which is their right—that 

the Senate hearings cannot continue for 2 hours after the Senate 

comes into session. 

Mr. KOSKINEN. Thank you, sir. 

The CHAIRMAN. The committee stands in recess subject to the 

call of the chair. 

[Whereupon, at 11:50 a.m., the hearing was recessed for the day, 

reconvening at 9:15 a.m. on Wednesday, December 11, 2013.] 

11 

The CHAIRMAN. The hearing will come to order. 

Today we will pick up where we left off yesterday. Joining us 

again is John Koskinen, nominated to be the Commissioner of the 

IRS. 

I believe it is very important—and I think most Americans believe it is very important—to have a very strong leader at the helm 

of the IRS, and I am hopeful that we can approve this nomination 

very quickly and take it to the full Senate for a vote this year. 

As this is the continuation of yesterday’s hearing, we will maintain the speaking order already established. That is, those Senators 

who arrived ahead of other Senators yesterday will speak ahead of 

those other Senators, at least have a chance to ask questions. 

The order will be Senator Menendez, Senator Grassley, Senator 

Carper, Senator Crapo, Senator Cardin, Senator Roberts, Senator 

Thune, Senator Bennet, and Senator Casey. 

Thank you very much again, Mr. Koskinen, for your willingness 

to serve. With the filing season upon us and this committee’s ongoing investigation of the 501(c)(4) situation, it is critical to have a 

confirmed leader in place, especially when acting Commissioner 

Danny Werfel is anxious to leave. He has done such a super job 

and has stayed on longer than he anticipated, and we very much 

need a full-time Commissioner to replace Danny Werfel, who is 

doing a great job. 

Mr. Koskinen, when you and I spoke earlier, you said something 

I thought was quite insightful. If I remember the conversation correctly, it was essentially that a lot of your colleagues that you have 

worked with, and you yourself, do not mind paying income taxes, 

because, after all, you are all red-blooded Americans, and it is important that we have the revenue to make our government function. 

But you were saying, as I recall—I would like you to expand on 

this a little bit—you and a lot of your colleagues are a little frustrated with the current code, the complexity of the code, and all the 

high-priced accountants who have to be hired these days, highpriced tax attorneys who have to be hired these days, to figure out 

how to get to the bottom line, to the total taxes that are owed. It 

is a very confusing process—a lot of high-priced talent goes into 

compiling that number. 

On the other hand, if the code were much more simple and you 

got that same number much more simply with much more transparency and much less wasted use of high-priced CPAs and highpriced tax attorneys, we would all be a little better off. 

I think that is what you said. I use that conversation sometimes 

to explain why we need to simplify the code. There are a lot of reasons why we have to simplify it, but this is just one person’s observation of and experience in dealing with the code. 

If you could just expand on that a little bit, I would surely appreciate it. 

Mr. KOSKINEN. Mr. Chairman, some years ago, when I began my 

career in the private sector, we were responsible for the bulk of the 

non-rail assets of the Penn Central while it was in bankruptcy. 

Penn Central operated out of Philadelphia, and I commuted back 

and forth from Washington and discovered early on that the rule 

in Philadelphia was, if you were in the city more than 50 hours a 

12 

year, you were supposed to file taxes, which, in the 1970s, most 

people were paying no attention to. 

Well, my thought was, it was very important for us to follow all 

of the laws and particularly that law. So, at the end of the first 

year, I asked for the form for non-resident filing in Philadelphia, 

and I got a 1-page form that called on me to fill in the adjusted 

gross income on the first line, multiply by a small percentage, write 

the number down, and write a check. And at that time, the nonresident form for Pennsylvania was the same 1-page form—adjusted gross income, a slightly different percentage, and you wrote 

a check. 

And, as I have told people ever since then, I became a fan of tax 

simplification because it was almost fun to pay your taxes, and it 

certainly was a lot simpler. There was great clarity about how 

much you owed, and you could do it in 5 minutes. And so, ever 

since then, I have always thought that if we could simplify the code 

as part of tax reform, I think people—most people want to pay 

their taxes, they want to pay the right amount, and we ought to 

try to make it as easy for them to determine what the correct 

amount of their taxes is. 

The CHAIRMAN. I was quite struck by that, and I think you are 

right. As you know, one of the reasons for tax reform is just that— 

it is simplification. The code is immensely complex. 

I was told that since 1986, the last time we significantly reformed our tax code, there have been 15,000 changes to the code. 

This Congress has enacted 15,000 changes to the code, and, obviously, some of those—most of them were well-intended, some of 

them are dated, but they certainly caused the code to become unnecessarily complex. But I appreciate that insight. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

Mr. Koskinen, yesterday I asked you about the proposed regulations the IRS recently published that would define political activity 

for 501(c)(4) organizations, as currently drafted. But also, as currently drafted, the rules do not apply to 501(c)(5) labor unions and 

501(c)(6) trade associations. 

Now, I asked if you would make a commitment to this committee 

that, if confirmed, you will ensure that any political activity regulation the IRS finalizes will apply equally to 501(c)(4), 501(c)(5), and 

501(c)(6) organizations. 

You mentioned that the IRS asked for comments from the public 

on whether to apply the new regulations to unions and trade associations, and you said you would commit to the IRS being evenhanded and nonpartisan under your watch. And I appreciate that, 

but I am still concerned about the possibility of a final regulation 

under which the IRS once again singles out 501(c)(4) groups for 

harsher treatment. 

I will give you an example. Voter registration and ‘‘get out the 

vote’’ activities are currently treated as general advocacy, not political campaign activity on behalf of a particular candidate. The proposed regulation redefines voter registration and ‘‘get out the vote’’ 

activities as political activity, but only for 501(c)(4) groups and not 

for labor unions. It is crazy to have the same activity defined one 

13 

way for social welfare groups and a different way for unions. But 

that is the result under the proposed regulation in its current form. 

I do not think the IRS can restore its reputation as a nonpartisan agency if it finalizes a regulation that favors one group 

over another like this. And the fact that the IRS is seeking comments on 501(c)(5) and 501(c)(6) organizations is not an adequate 

answer. The IRS should have asked for comments on all three 

groups before it published a proposed regulation or it should have 

proposed a regulation for all three groups at once and received 

comments on the regulation. 

In tax administration, there is a big difference between an advanced notice of proposed rulemaking, where the IRS asks for public comment before publishing a proposed regulation, and the actual publication of a proposed regulation. The publication of a proposed regulation, which is what the IRS has done for 501(c)(4) 

groups, is a more significant step, in my view, down the regulatory 

road than a mere request for comments. 

So, Mr. Koskinen, I would ask again if you would commit to this 

committee that you will ensure that any political activity regulation the IRS finalizes will apply equally to 501(c)(4), 501(c)(5), and 

501(c)(6) organizations. 

Mr. KOSKINEN. Senator, as you know, I was not involved in any 

of the discussion or the decisions—— 

Senator HATCH. I know that. 

Mr. KOSKINEN [continuing]. About how that regulation was 

issued, and I do not know the details of the range of—there are 

thousands, hundreds of thousands of organizations under all of the 

501(c) categories. 

Senator HATCH. Right. 

Mr. KOSKINEN. I will commit that I will pay close attention as 

I participate in the process, if I am confirmed as Commissioner, 

and I do think that the regulations need to be evenhanded and fair 

and that people need to have a view that the IRS is a nonpolitical, 

nonpartisan agency and that they will all be treated fairly no matter what their affiliation or political views. 

Senator HATCH. Well, it is my contention that if the regulations 

do not apply to all three of those categories, it is not fair and could 

turn out to be very unfair. 

Mr. KOSKINEN. Well, as I say, I look forward to receiving comments and participating in that decision, and I look forward to and 

will be pleased to work with you and the committee as we move 

toward finalization of those regulations. 

Senator HATCH. Well, thank you. 

The Obamacare premium subsidies, in my opinion, are a fraudster’s dream come true. Last week, the Treasury Inspector General 

for Tax Administration, TIGTA, issued a report that found that the 

Internal Revenue Service has an inadequate system in place for 

preventing fraudulent Affordable Care Act premium subsidy payments from occurring. 

Now, the TIGTA report makes clear that the very nature of these 

credits—pay first, verify a person’s income later—will lead to potentially hundreds of billions of dollars of improper payments. Most 

troubling, over 3 years after the passage of Obamacare, the IRS 

has admitted to TIGTA that its system for preventing fraud in this 

14 

core tax subsidy program is still, quote, ‘‘under development’’—that 

is bureaucrat-speak meaning ‘‘not ready’’—and that is not very reassuring. And, while the IRS obviously needs to put safeguards in 

place, the fact is that the problems with these tax credits are deeply rooted in the law itself. 

Now, I fear that the IRS will never be fully capable of ensuring 

that advanced refundable tax credits go only to those who are truly 

eligible. The IRS struggles with similar tax subsidy programs, including, for example, the earned income tax credit, where improper 

payment rates are as high as 25 percent. 

Now, Mr. Koskinen, if confirmed, what steps will you take to protect taxpayers and ensure the new premium tax credits will not 

create a massive new opportunity for waste, fraud, and abuse? 

Mr. KOSKINEN. I think it is critical for the IRS to pay close attention to the possibilities of fraud, as well as the existence of fraud, 

and I know that is the position of the agency. 

In response to this Inspector General report, Danny Werfel, the 

acting Commissioner, responded that he remains confident that the 

work underway will appropriately protect the public and the government against refund fraud in this particular area. 

Fortunately, the bulk of the payments under the Affordable Care 

Act do not go to individuals. They go to insurance companies on behalf of individuals buying those policies. So there is less incentive 

for fraud than there is in programs where the refunds go directly 

to the beneficiary. 

But even having said that, I think it is an important matter. 

Thus far, as you know, the IRS participation in the rollout of 

Obamacare has been very successful, and I am confident that with 

Mr. Werfel’s view, who has been working on this problem, that the 

IRS will meet its responsibilities in this area, that we will be able 

to do so, and it clearly will be a high priority for me, if confirmed, 

as Commissioner. 

Senator HATCH. Thank you, Mr. Koskinen. 

Mr. Chairman, could I just mention one thing? I just want to personally congratulate you. This is your birthday today, as I understand it. 

The CHAIRMAN. You are congratulating me? 

Senator HATCH. I am congratulating you for living this long and 

going through all this torment all these years on the Finance Committee, among others. We are proud of you. 

The CHAIRMAN. Well, I went this long because of your support 

and your help. 

Senator HATCH. Happy birthday. 

Mr. KOSKINEN. Many of us are delighted to see younger people 

continue to move on and make progress this way. 

The CHAIRMAN. You just won your confirmation. [Laughter.] 

Thank you. Thank you, Senator. 

Senator MENENDEZ. Well, Mr. Chairman, happy birthday as well. 

The CHAIRMAN. Thank you. 

Senator MENENDEZ. And if it was not that it was being televised, 

I would actually sing ‘‘Happy Birthday.’’ [Laughter.] 

Mr. Koskinen, your reputation as a strong manager precedes you, 

and I look forward to having you bring those skills to bear in an 

15 

agency that has some very significant challenges and significant 

tasks. 

You write in your testimony, ‘‘I don’t know any organization in 

my 20 years’ of experience in the private sector that has said, ‘I 

think I’ll take my revenue operation and starve it for funds to see 

how it does.’ ’’ And you also referenced a recent Inspector General’s 

report which found that $1 billion in budgetary savings from the 

IRS has actually cost the Treasury $8 billion in compliance revenues. 

So my question is, would you say that you could increase revenues by having the budgetary appropriations that existed in years 

past and, thus, be able to actually either use those revenues for 

deficit reduction or critical programs that we are dealing with right 

now by ensuring the IRS has the funds available to accomplish its 

mission? 

Mr. KOSKINEN. I think the historic record would demonstrate 

that, Senator. As a general matter, the IRS budget has been in the 

range of $12 billion. The compliance revenues alone, which are the 

revenues received as a result of IRS actions pursuing taxpayers, 

have generated between $50 billion and $60 billion a year. 

So, historically, the ratio of expenditures for the entire budget of 

the IRS compared to the revenues generated by their activities has 

been 4:1 or 5:1. The IG report noted that the more recent impact 

has been an 8:1 ratio. 

So I think, while the IRS does not need unlimited funds and does 

not need substantial funds compared to the entire budget—the 

President’s budget for 2014 provided a budget of $12.8 billion for 

the IRS. It is presently operating on an assumption of $11.2 billion. 

That difference is a substantial and significant one. If the funds 

were made available to the IRS, I am confident that more than the 

additional revenues provided to the IRS would be returned to the 

government in additional tax collections and revenues. 

Senator MENENDEZ. Well, whether your recognition is of the historical 4:1 or 5:1 ratio or the Inspector General’s suggestion of 8:1, 

that is a ratio that people would be willing to invest in at any 

given time, it seems to me, and it seems to me one that we should 

certainly consider. It is a great way, as we are dealing with the 

challenges of both budgetary and deficit reduction, to try to achieve 

that. 

Let me ask you a different question on a more specific issue. 

When the Finance Committee imposed a fee on branded prescription drugs during the creation of the Affordable Care Act, we made 

sure to exclude drugs used to specifically treat what we call orphan 

diseases. The intent was to protect the current incentives in law 

which encourage innovation and the development of treatments for 

rare diseases, a goal which I believe just about every colleague on 

this committee would share. 

The ACA says, and I quote, ‘‘Branded prescription drugs shall 

not include sales of any drug or biological product with respect to 

which a credit was allowed for any taxable year under section 

45(c),’’ which is the section of the tax code that defines what the 

orphan drug tax credit is. In its temporary rule, however, the IRS 

has interpreted this orphan drug exemption as only applying to 

16 

drugs that were allowed and granted the orphan drug credit rather 

than to all orphan drugs, as designated by the FDA. 

Now I can tell you, as a member of the committee during the 

drafting of the law, we intended to exclude all drugs whose design 

served the critical purposes laid out in the eligibility for the orphan 

drug credit, not just for those drugs for which the paperwork was 

filled out to claim the credit. 

There may be reasons why a company may or may not choose to 

claim the credit, but they, in fact, were allowed that credit. So, 

since not all makers of FDA-designated orphan drugs applied for 

and received the discretionary credit, the result is that now some 

orphan drugs are going to be subject to the fee, even though Congress clearly intended to exempt all orphan drugs. 

So my question is, knowing that congressional intent was to exempt orphan drugs from the Affordable Care Act’s branded drug 

fee in order to encourage manufacturers to develop treatments for 

rare diseases, do you believe that using a definition of the orphan 

drug exemption that would allow the full spectrum of FDAdesignated orphan drugs to be eligible for the exemption would be 

more in line with the congressional intent than the current definition, which arbitrarily excludes those that are eligible and are allowable, but just did not claim it? 

Mr. KOSKINEN. Senator, I was not aware, until you raised this 

issue, of that particular question under the Affordable Care Act. 

Senator MENENDEZ. Well, this is commonly known. 

Mr. KOSKINEN. But—— 

Senator MENENDEZ. I am kidding. I am just kidding. [Laughter.] 

Mr. KOSKINEN. Certainly, if confirmed, if I am Commissioner, I 

would be delighted to work with you and get back to you and discuss what the possibilities are to make sure that the congressional 

intent is followed. As I say, I am not familiar with the details of 

the regulation and the thinking behind it, but I would be pleased 

to talk with you further about it. 

Senator MENENDEZ. I appreciate that. 

So let me close, Mr. Chairman. Clearly, our intent with those 

drugs, with the treatment we gave them under the code for avoiding the new fee under the Affordable Care Act, was to create the 

opportunity for those drugs to be available for rare diseases, where, 

in fact, the universe that will use them is not as great as other 

drugs that will maybe be used very commonly. 

And, unless there is that incentive, then there will be no incentive to create the drugs, and people who have rare diseases and 

critically need them will not have access to them. And so I hope 

we can work on that together. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Roberts? 

Senator ROBERTS. Thank you, Mr. Chairman. 

Good morning, John. 

Mr. KOSKINEN. Good morning, Senator. 

Senator ROBERTS. Second time around. Thank you for paying me 

a courtesy call, where we had a very nice discussion. 

When we met earlier, you acknowledged that the Internal Revenue Service is stretched very thin, that its role in implementing 

17 

the Affordable Care Act will necessarily result in the scaling down 

of some of the other IRS core functions. 

The question is, in implementing this law, will you be able to do 

more with less or less with less? But this brings to mind a larger 

issue with the agency. Have we asked the Internal Revenue Service 

to do too much? Is the IRS too entrenched in everybody’s life? Quite 

frankly, I have little confidence that the agency you are being 

asked to lead will be able to take on the Affordable Care Act in an 

efficient and effective way or in a way that does not increase the 

burdens all taxpayers face in dealing with the tax laws. 

In fact, the Treasury Inspector General has already identified 

substantive weaknesses in the IRS work to prevent fraud and 

abuse in implementing the Affordable Care Act. This has been confirmed in hearings held recently by the Intelligence Committee 

Chairman, Mike Rogers, over in the House, where it has been determined that the Affordable Care Act is rife with all sorts of security problems. 

The Affordable Care Act may be one step too far. One asks too 

much for the IRS to handle. But now we see the agency taking on 

a new role, rewriting the rules of political speech. Now, forgive me, 

but I thought we already had the Federal Election Commission 

working in this space. 

How is the tax administrator, your new job—already stretched 

thin and taking on a massive role in our health care system—going 

to be able to handle free speech issues after being caught selectively and egregiously attacking the First Amendment right to free 

speech? 

The IRS has not been able to conduct their current limited role 

in this area without engaging in blacklisting and attacking people’s 

First Amendment rights. It is hard to see why the administration 

discounts these issues, in particular, when this committee continues its bipartisan investigation into the IRS actions, an investigation I hope that we will be able to conclude sooner rather than 

later. 

On a deeper level, I find it hard to understand how the IRS will 

be able to conduct a much broader role in regulating political activity, right or left, Democratic or Republican, without damaging 

Americans’ ability to engage in free political discourse. 

Now, given all of the issues with the current tax code, with the 

IRS difficulty in implementing the current system, with fraud rife 

in a number of programs, with the huge workload hitting now with 

the health care law, and IRS’s politically motivated targeting of 

nonprofit groups, is it time to fundamentally rethink the Federal 

tax system? 

The first step is—and this is the question—we should heed the 

admonition detailed yesterday in the Wall Street Journal and get 

the Internal Revenue Service out of politics permanently. I do not 

see why we are promulgating new rules when we have not even 

finished the investigation of the attack on people’s First Amendment rights at this particular time. 

I would be interested in your comments. 

Mr. KOSKINEN. Thank you, Senator. I enjoyed our earlier meeting and, if confirmed, would look forward to more discussions about 

the full range of issues confronting the IRS. 

18 

With regard to the draft regulations just put out, they are in response to a significant recommendation in the IG report that first 

raised the question of the handling of (c)(4) applications, in which 

the Inspector General suggested or requested that the IRS define 

with greater clarity what would be defined as acceptable and unacceptable political activity. Because part of the core problem in the 

implementation of that has been, I understand, that the lack of 

clarity as to what were permissible political activities caused the 

IRS and its employees, as they reviewed applications or audited organizations, to spend far more time trying to sort through the various activities and make those determinations. 

So my understanding, although I did not participate in the drafting of the draft regulations, is that the goal is to respond to the 

Inspector General’s request, and I think everybody’s goal, which is 

to have clearer definitions so that those creating organizations and 

making applications will have a very clear—— 

Senator ROBERTS. If I might interrupt. It would be helpful if we 

would be able to conclude the investigation. I know we are working 

hard with Danny Werfel and others, and I hope we could conclude 

with that, and I hope we could get the IRS out of politics. 

Why are we trying to regulate free speech or the First Amendment rights? The IRS has become a 4-letter word with too many 

people, and that is not right. That is a tremendous burden you will 

have to face. 

Why do we not just disengage the tax system as much as possible 

for economic decision-making or political free speech? I think we 

need to start over. That is why I have supported a fundamental restructuring of the tax system, such as the proposed fair tax. 

But I look forward to discussing this with you, what I think is 

a burden and a very unnecessary step, and I thank you so much 

for coming. 

The CHAIRMAN. Thank you, Senator Roberts, very much. 

Senator Crapo, would you like to—so you will pass. 

Senator Wyden? 

Senator WYDEN. Thank you, Mr. Chairman. 

I want to pick up on Chairman Baucus’s point with respect to tax 

simplification, because this is right at the heart of any successful 

reform effort. But it also goes to something that you talk about at 

length in your prepared statement, and that is the IRS budget situation. 

I just would be interested in your thoughts about whether a simpler tax code might also have the added benefit of reducing the administrative and enforcement costs of the Internal Revenue Service, and would that, in effect, free the Service up to allocate resources more efficiently to areas of greater need. 

What are your thoughts on that? 

Mr. KOSKINEN. I think, Senator, it is clear that if the code were 

simpler and easier to understand for taxpayers, it would be much 

easier to administer and enforce from the standpoint of the IRS 

and that a significant part of IRS activity is spent working with 

taxpayers, particularly the corporations, but individuals as well, 

sorting through a set of nuances in what counts as revenues, what 

are appropriate deductions. 

19 

Senator WYDEN. And, on the bottom-line point, do you share my 

view that a simpler tax code could help you stretch your resources 

at the Service in order to focus on areas of greater need? 

Mr. KOSKINEN. I think that would be one of the beneficial results 

of tax simplification. 

Senator WYDEN. Very good. The second point deals with the 

IRS’s technology deficit, which you have, to your credit and others, 

acknowledged. It is very clear that profound challenges remain 

with respect to the modernization of the Internal Revenue Service 

so that we have a 21st-century administrative system to go along 

with a 21st-century code. 

In your view, what does the Service most need from a technology 

standpoint? 

Mr. KOSKINEN. I think it is important, having watched the IRS 

over a long period of time, starting with my tour of duty as the 

Deputy Director for Management at OMB 20 years ago, to note 

that the IRS has made great strides in information technology, particularly in the last 5 to 7 years. So they are in a much stronger 

position than they were 20 years ago when they were struggling, 

sort of across the board. 

I think the challenge for the IT at the IRS is a challenge similarly that has been faced over time by financial institutions in the 

private sector, and that is that it is dealing with significant legacy 

systems developed 30 and 40 years ago at a time when, obviously, 

technology was at a very different stage. And over time, those legacy systems have been built upon, so that the newest applications 

are very up-to-date, but the basic underlying systems still need significant work and improvement. 

Senator WYDEN. One of the reasons I am attracted to your candidacy is because you do have experience in this area. But whether 

it is expanded electronic filing or fraud efforts, increased information reporting or pre-filing compliance, I think we ought to recognize we still have a long way to go. 

So I hope that you will make that a priority early on. 

The last point I want to make is to just get your take with respect to the relationship between the taxpayer and the Service. 

Anybody who reads a newspaper sees that there is a real challenge 

with respect to making sure that the country clearly sees the Internal Revenue Service as an impartial collector of revenue. 

What do you think you can do to send that message? 

Mr. KOSKINEN. Well, I think it starts at the top. I think it is important for all of us to make clear that that is an important goal— 

in fact, the primary goal—that the operation of the IRS is to be 

seen as impartial so that people are comfortable they are being 

treated fairly no matter what their organizational affiliations, their 

political views, or otherwise. 

But I think the proof will be in the pudding. What we have to 

be able to do, besides having that as a goal, is to demonstrate dayin and day-out that that is the way the IRS operates. And I think 

taxpayers—inevitably, some will be audited, some will receive notices, and they have to be comfortable that they are receiving those 

notices, they are receiving those inquiries, because of something in 

their tax return, not because of who they are. 

20 

And I think over time, that is a goal that I am confident the employees, the existing employees, at the IRS share, and my hope 

would be, as I have said earlier, that at the end of my tenure, people would look at the IRS and be comfortable that it meets that 

standard. 

Senator WYDEN. My time is up. I just hope you will send the 

strongest possible message with your actions and your words early 

on that you want people in this country to understand that impartiality is going to be the coin of the realm. That is really what is 

going to be your priority, because I think we have some heavy lifting to do in terms of getting that message out. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Enzi, you are next. 

Senator ENZI. Thank you, Mr. Chairman. 

And I thank you for being here to testify. I have been following 

what was asked yesterday, and I know you have had a lot of questions on dealing with the tax-exempt organizations. So I am not 

going to cover that. 

Instead, I would like to know a little bit more about the current 

culture at the Internal Revenue Service that a lot of my constituents view as wasting taxpayers’ money, as seen with the IRS internal conferences and the videos prepared for those conferences over 

the last several years. 

Can you tell me any ideas you have on how you can change that 

culture at the IRS, how you would expect to win back the American 

public’s trust in this agency? 

Mr. KOSKINEN. Those examples were clearly unfortunate misjudgments, poor management. 

The publication of those issues, I think, was important so people 

understand that the IRS is reviewing them. Those activities took 

place, most of them, 3 or 4 years ago. They no longer are possible, 

I hope. Danny Werfel, the acting Commissioner, has worked hard 

to change that culture. 

I think, on the other hand, it is also important to recognize, 

though, that a lot of travel and training and conferences—both internally and externally, for the IRS, both with its own training facilities but also reaching out to practitioners and the public—are 

important functions. 

So what you need to do is ensure that there are appropriate reviews, appropriate standards, so that people are confident that the 

money being spent is being spent well. I think it is important for 

everyone in the agency to recognize we are spending taxpayer dollars. 

Senator ENZI. Yes. 

Mr. KOSKINEN. These are not funds that we found someplace 

along the way. And we have an obligation to the public to spend 

those dollars wisely. 

Senator ENZI. And, along that line, I have heard about some efforts by the IRS to create pre-populated individual tax forms, as 

well as an IRS online tax preparation system. During a time when 

Congress is looking for cost savings, estimates of what a Federal 

online system would cost the government are estimated to be tens 

21 

of millions to build, not counting upgrades each year, which could 

cost billions of dollars over a 10-year budget window. 

These efforts could dismantle a currently successful and free 

private-public partnership. I have concerns about the IRS performing the simultaneous roles of tax preparer, tax collector, and 

tax auditor. Do you share these concerns? Do you believe it would 

be a mistake for the IRS to create the pre-populated tax forms? 

Mr. KOSKINEN. I have not looked into those problems in great detail, but I do think that there are significant priorities in the technology area that are ahead of where you might conceivably go down 

the road in terms of providing that kind of taxpayer service. 

I think the most important services we can provide to taxpayers 

at this point are clarity in their obligations to pay taxes, appropriate taxpayer response to inquiries they make, and answering 

their questions they have. 

I think it will be a long time before we get to the stage where 

the code is simple enough that the IRS can actually pre-populate 

a form for you. At this point, everybody has a customized form. My 

understanding is the experience in States like California is that 

very few people are able to use anything that looks like a prepopulated form, because there are not very many people to whom 

it applies. 

So I think, as I say, that is, in my understanding, not a high priority for the IRS at this time. 

Senator ENZI. Well, my emphasis on that, of course, is on the private sector, which has some real incentive for getting things done. 

And, when we start having government infringe on what the private sector has the capability to do and has already shown the ability to do, I hate for the IRS to step in and muddle it up. 

The IRS has a free file program. It is a public-private partnership between the electronic tax software companies and the IRS or 

the State departments of revenue that enables people who earn 

$57,000 or less a year, or 70 percent of all taxpayers, to choose between the best-known and most-trusted commercial tax preparation products to prepare for their Federal tax return for free. 

Now, the IRS free file program is up for renewal in 2014. It has 

been renewed twice since 2003. However, it is my understanding 

that the renewal discussions with the Free File Alliance and the 

IRS have not yet occurred. 

Will you commit to expediting discussions with the Free File Alliance upon your confirmation in order to renew the program for another 5 years? 

Mr. KOSKINEN. Senator, I am happy to commit that those discussions will move forward appropriately and quickly. 

Senator ENZI. Thank you very much. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Grassley just walked in. Do you want to ask a question? 

Senator GRASSLEY. Thank you. Congratulations on your nomination. 

Every Commissioner has a different view on how private individuals and companies can help the IRS. In particular, your predecessor, Douglas Shulman, did not embrace whistleblowers, and one 

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22 

gram. Given our current fiscal challenges, I believe that the IRS 

should be working with as many partners as possible. 

In your response to my letter on whistleblowers and private debt 

collections, you indicated that you could not fully respond because 

you were not yet Commissioner, and I understand that. And in regard to that letter, Mr. Chairman, I would like to have that letter 

put in the record. 

The CHAIRMAN. Without objection. 

[The letter appears in the appendix on p. 41.] 

Senator GRASSLEY. So to you, as a nominee, I ask now if you 

could commit to responding to this letter fully within 60 days of 

your confirmation. 

Right now, I would like to understand your views on working 

with third parties, like whistleblowers and private debt collection 

companies. So you can give me your Commissioner response in the 

letter, but give me your general view right now. 

Mr. KOSKINEN. Thank you, Senator. I think my letter contains 

my views, but I am delighted to review them with you. 

As I noted, I think the government has, in a range of agencies, 

experience with private debt collectors, including the IRS, and I am 

pleased to be able to commit that, if confirmed as Commissioner, 

I will review that information and get back to you with further discussions about what role, if any, private debt collection might play 

with the IRS. 

As I noted, it has been effective in many areas. In particular, 

with regard to the IRS, one of the goals would be to make sure that 

we do not do anything that causes taxpayers who have questions 

with the IRS to be treated in an overly aggressive or an unfair 

way, but that is not necessarily an insuperable obstacle. 

As you know from our conversations, I am a strong believer in 

the concept of the Whistleblower Office. As noted, I think particularly large corporations with complicated tax systems that decide 

that, for one reason or another, they are going to actually underpay 

their taxes knowingly, need to be a little uncertain about the fact 

that there are a number of people internally and externally in 

those corporations who are aware of that activity who would have 

an incentive to report it to the IRS. 

So I am pleased to be able to commit to you that, if confirmed 

as Commissioner, I will do what I can to ensure that the whistleblower program becomes effective as quickly as possible. 

Senator GRASSLEY. The 2006 updates to the IRS whistleblower 

program required an annual study and a report to Congress on the 

program. In several previous letters to the IRS and Treasury, and 

that is, obviously, before you were involved, I have indicated the 

importance of having this report issued on a timely basis. However, 

every year, the report is delayed a month or months on end. Fiscal 

year 2013 ended more than 60 days ago, yet no report has been 

issued. 

I hope that you could commit to finalizing and issuing a whistleblower report prior to the end of January, assuming you are in the 

position by then. 

Mr. KOSKINEN. I think all I can commit to is I will, if confirmed 

as Commissioner, as quickly as possible, get you that report. 

23 

I agree with you. If the IRS has an obligation to provide the public and the committee an annual report, we ought to do it as close 

to the end of the fiscal year as possible, and we will do that going 

forward, if I am confirmed as Commissioner. 

Senator GRASSLEY. I have a question about the carrying out of 

the Affordable Care Act. 

The Internal Revenue Service has been faced with many challenges these past years due to the current fiscal realities and its 

role in implementing and enforcing the Affordable Care Act. This 

Act will continue to consume large amounts of IRS time and resources in the coming years. Besides requesting more funds, what 

additional plans do you have to ensure IRS’s core duties of tax collection are not undermined by its new role as chief Obamacare enforcer? 

Mr. KOSKINEN. The new statutory responsibilities that include 

the Affordable Care Act—there are other statutory requirements, 

including the Foreign Account Tax Compliance Act—impose additional responsibilities on the IRS. 

In the course of my general briefings and from people—executives—across the IRS, as well as in my discussions with acting 

Commissioner Werfel, they are confident and, therefore, I am confident that the IRS will be able to discharge its responsibility in 

those new areas at the same time it protects the filing season and 

the collection of revenues. 

There obviously is a major set of resource decisions to be made 

in light of the constraints of the budget, but those resource decisions will not affect either the implementation of the statutory responsibilities or the basic filing season responsibilities of the IRS. 

Senator GRASSLEY. Thank you, Mr. Chairman. 

Thank you, sir. 

The CHAIRMAN. Thank you, Senator. 

Senator Cardin? 

Senator CARDIN. Thank you, Mr. Chairman. I want to join in 

wishing you a very happy birthday. 

The CHAIRMAN. Well, aren’t you nice? 

Senator CARDIN. Well, I hope it is a nice day. 

The CHAIRMAN. It is even better now. 

Senator CARDIN. Good. 

The CHAIRMAN. Thank you. 

Senator CARDIN. Again, I want to welcome our nominee and 

thank you for your willingness to step forward in public service. 

I am going to ask a somewhat different type of a question in that 

this committee has responsibility over the IRS. That is, we are the 

so-called authorizing committee. And you will also be subjected to 

the appropriators and the budgets and the realities of the budget. 

I want to make sure that we get information from you as to the 

resources you need in order to carry out your responsibility. 

I am deeply concerned about the morale at the IRS today of the 

very dedicated professional people who are there, and I want to 

make sure that we have our very best. And I want to make sure 

that you make available to this committee what you need in order 

to succeed, and that is to enforce our laws fairly and to collect the 

revenues that are due to this country under the laws that have 

been passed by the Congress. 

24 

Several years ago, I joined with then-Congressman Portman in 

the House on the commission that was set up to review the operations of the IRS, and we enacted laws to try to help the IRS in 

modernizing to meet the current needs. 

Today, it is our responsibility, this committee’s responsibility to 

oversight, to make sure that you have the resources necessary for 

the most professional people to do their jobs, as well as to recognize 

that you are also in a retail consumer business and you have to be 

able to reach millions of Americans in a way so that they understand their responsibilities and can interact with you in a nonhostile way and comply with the laws of this country. 

So I know the pressures that are on you, and I know that at 

times you always seem to be on the defense of the IRS. But can 

we rely upon you to keep this committee informed in a very frank 

and honest way about the resources that are necessary in order to 

carry out the responsibilities, including the personnel needs, of 

your agency? 

Mr. KOSKINEN. I am happy to commit to that, Senator. As I said 

earlier, I think the IRS—and all government agencies, but certainly the IRS—has an obligation to the taxpayers to spend the 

funds provided to the IRS efficiently and effectively. And I know 

all organizations, when constrained, will become more efficient, and 

the IRS has taken steps to become more efficient in use of space, 

use of outside contractors, travel, and training. 

But, as I noted in my testimony, there comes a point at which 

you cannot be asked to do more and more with less and less without jeopardizing the operation of the agency. So I am delighted to, 

having opened that dialogue, continue it with this committee and 

the Congress to make sure that you are aware of the implications 

of the funding that is available to the IRS and the limitations provided therein. 

Senator CARDIN. There have been several studies done by congressional agencies that have shown that by making more resources available to the IRS, we actually bring in more revenue to 

this country. So it is not only denying you the resources you need 

to carry out your professional responsibilities when budgets are cut 

below the level that is necessary, but it is also counterproductive 

to the revenue collections of this country. 

So we want the IRS not to be oppressive to the people, the taxpayers, of this country. We want them to be fair. We want them 

to be able to provide the services. 

The tax code is complicated. That is not the fault of the IRS. 

That is the fault of the Congress. And I know our chairman and 

ranking member are trying to simplify the tax code and reform the 

tax code. But you need to have the tools in order to be able to deal 

with what we have done here, including some recent changes that 

added more responsibility to the IRS. 

So I think your frank advice to this committee, recognizing that 

we are the committee that is responsible to make sure that you are 

organized in a way that you should be in order to carry out your 

responsibilities, is critically important to the responsibilities of this 

committee and to your agency. 

Mr. KOSKINEN. Thank you, Senator. I appreciate your concern 

and the concern of several of the members I have met with about 

25 

the financing of the IRS, and I look forward to having further frank 

conversations with you about it. 

Senator CARDIN. Thank you. 

Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Senator Casey, you are next. 

Senator CASEY. Mr. Chairman, thank you. 

And we are grateful that you are here with us today, not just for 

your testimony and your willingness to serve, but also, in your 

case, I guess, a continuing commitment to public service over a 

long period of time. So we are especially grateful that you are putting yourself forward at a difficult time to serve, and it is critically 

important that we have people who do that. So we are happy about 

that and looking forward to your confirmation. 

I have two questions that relate to the kind of definitional questions as relates to the Affordable Care Act. One of them—both represent significant issues in Pennsylvania, one in particular, the 

first one I will raise, with regard to volunteer firefighters. 

I was the State’s Auditor General for 2 terms. It was an elected 

position. And one of our fundamental responsibilities was, we had 

to audit every volunteer firefighter relief association. So there are 

hundreds and hundreds of them across the State. 

And through that work, I became intimately aware of the impact 

of volunteer firefighters on a State like ours. I do not remember the 

exact percentage, but a very high percentage of our State is served 

by volunteers. A lot of the fire service is done by volunteers, probably on the order of more than three-quarters of the State, once 

you are outside of the bigger cities. 

A question has arisen—and I know that the International Association of Fire Chiefs has sent the IRS a letter asking for clarification. The basic issue is this: whether it is volunteer firefighters or 

EMS personnel, under the IRS code, they are defined as employees. 

For purposes of the Affordable Care Act, the shared responsibility 

provision, the concern is that they would be counted for purposes 

of the Act as employees, and that, of course, would entail fees that 

really do not make sense in the context of the work that they do, 

even if they are defined as employees in other parts of the code. 

So I am just asking you about that issue and, in particular, asking you to commit to seeing that the IRS resolves this problem for 

both volunteer firefighters and EMS personnel. 

Mr. KOSKINEN. I am not aware of the details of that, but I certainly am willing to commit that, if confirmed, this would be one 

of the first issues I will address and get back to you about. 

Senator CASEY. It is, obviously, a big population of people for our 

State, but I think you can go across the country and you will see 

a lot of States where most of the fire service—fire protection—is 

provided by volunteer firefighters. So I appreciate your attention to 

that. 

Secondly, along the same lines to a certain extent, are institutions of higher education. We have, like a lot of States, a great network of community colleges. The concern there, as it relates to 

some of the definitional parts of the Affordable Care Act, would be 

community colleges determining how hours will be calculated for 

adjunct faculty members, and the same concern is raised there. 

26 

And I know that the American Association of Community Colleges 

sent to the IRS comments asking for an alternate method to be 

used for applying the employer responsibility requirements. 

So, if you can take a look at that, as well, that would be very 

helpful. 

Mr. KOSKINEN. I would be delighted to take a look at it. Obviously, when you pass new legislation that covers everyone, then 

you have to start to actually work your way through how different 

people fit within it and what the appropriate definitions are. And, 

if confirmed, I will be pleased to look at that—and I am sure other 

similar issues like that—to make sure that we make as appropriate 

a decision as we can. 

Senator CASEY. I appreciate that. And finally, identity theft: I 

know this has been an issue that has arisen, not only in your confirmation, but more broadly. 

Interestingly though, in Pennsylvania we are hearing more about 

it at the local level, local prosecutors coming to us seeking some 

kind of help or assistance. And I know that the Inspector General 

for Tax Administration at Treasury identified both fraudulent 

claims and improper payments as one of the 10 most important 

challenges the IRS will face for this coming fiscal year, fiscal year 

2014, and I just want to get your comments on that. 

Mr. KOSKINEN. It is an important problem and, unfortunately, a 

growing one that the IRS is devoting significant resources toward. 

It is reaching out—there have been pilot programs that have been 

very successful—to cooperate with State and local prosecutors within the context of protecting the privacy and security of taxpayer information. 

But the programs have been working where the taxpayer whose 

identity has been stolen provides appropriate releases to allow the 

IRS and local law enforcement to work together. 

As I say, it is a problem across the board that the IRS has been 

dealing with. It has grown significantly in the last 2 or 3 years, 

and the IRS, both technologically and legally, is working vigorously 

to ensure that we limit that risk to the receipts of the IRS as much 

as we can. 

So, again, I am aware of the need for the continuing cooperation 

among State and local law enforcement with the IRS in this area. 

Senator CASEY. Well, thanks very much. My time has expired. 

Thank you. 

The CHAIRMAN. Thank you, Senator. 

Senator Thune? If you want to, you can now ask questions, Senator Thune. You are next. Do you want to pass? You can pass. 

Senator THUNE. I will pass. 

The CHAIRMAN. Senator Portman? 

Senator PORTMAN. Thank you, Mr. Chairman. 

And to our nominee today, thank you for being willing to step up 

and take on what is considered by most to be a thankless task. I 

think it is a really important role, and, as you know, I was involved 

in the 1990s on the IRS Commission that Senator Bob Kerry and 

I co-chaired. I think Ben Cardin mentioned it earlier. Ben Cardin 

and I were the two House cosponsors of that legislation. 

The idea was to reform and restructure the IRS so that it would 

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27 

payer service, and to help regain trust in the IRS. At that time, the 

IRS was at the bottom of the heap in terms of Federal agencies’ 

and departments’ efficiency, trust, morale. 

And there have been some good steps taken. Unfortunately, I 

think what happened recently with regard to the IRS targeting certain groups based on their political views reversed a lot of that 

progress. And I do not have to tell you that there is a real concern 

now about public trust in this institution again, and so you are 

going to have your work cut out for you to try to restore that sense 

of public trust. 

I got involved in this a couple of years ago, when Ohio groups 

started to send me correspondence they got from the IRS and other 

information that led me to send a letter to the Deputy Commissioner back in March of 2012—never responded to initially—that 

was then finally responded to by saying, everything is fine. 

Unfortunately, we learned that that was not true. So I feel like 

I was misled, in a way. And so I have been following this closely 

and continue to believe that there is a need for more transparency 

and more information as to how this happened, why it happened. 

So I hope that, should you be confirmed, which I expect you will 

be, with my support, that you will be willing to really dig into this 

and get to the bottom of it and be able to provide this committee 

the answers that Chairman Baucus and Senator Hatch have asked 

for, but also that some of us have asked for individually, so that 

we can begin to repair this sense of trust that I think has been reversed and eroded through the process. 

So I guess the question I would ask you is, are you prepared to 

undertake that task, and then, to the extent you find there was 

misconduct that has not already been dealt with or perhaps has 

not been dealt with appropriately, to take swift action to ensure 

that there are meaningful consequences for those who are responsible for the misconduct? 

Mr. KOSKINEN. Yes, Senator. As I have already committed to 

with Senator Hatch generally, if confirmed, I look forward to working with this committee generally, but particularly to provide and 

make sure you have all the information you need to conclude the 

investigation and to respond appropriately to whatever the findings 

are. 

I think also, within the IRS, we need to make sure that we provide employees with appropriate training and support and structure to ensure that they have the resources necessary to make appropriate decisions when they are confronted with challenging 

questions, and that we do not end up in these situations going forward. 

But ultimately, going forward, I think it is important for us to 

be transparent. As I noted in my testimony, I think congressional 

inquiries, especially if there are numerous inquiries from a wide 

range of constituencies, are an important source of information 

that there is a problem worth pursuing. And, if confirmed as Commissioner, I am willing and pleased to commit that we will share 

all of that information with you. 

If there are difficulties we are confronting, this committee will 

know about them promptly and know that, ultimately, whatever 

goes on at the agency is the responsibility of the Commissioner. 

28 

So I want employees to know, and I want the committee to be 

comfortable, that my position going forward is, if we have a problem, ultimately it is my problem, and the employees need to understand that we are all in it together. 

If there is a problem, we are going to find it as quickly as we 

can, we are going to fix it, we are going to make sure it stays fixed, 

and we are going to be transparent about it. But, ultimately, we 

are all accountable for whatever goes on in that organization. 

Senator PORTMAN. I guess this accountability you are talking 

about would require some sort of consequences if you do find that 

people have engaged in some of these improper activities. And are 

you prepared to do that as well? 

Mr. KOSKINEN. Yes. I think that appropriate accountability is important. Acting Commissioner Werfel has set up an accountability 

review board to look into actions here, and also he has undertaken 

and completed an investigation to see if there are other similar 

problems across the agency, and, fortunately, he did not find any. 

But I do think that employees have to be held accountable for actions that they take, but at the same time, I think we need to understand that there are oftentimes mistakes made that are simply 

mistakes, and we need to ensure that we understand why they 

were made and make sure they are not made again. But every mistake does not necessarily mean that somebody gets fired. 

Senator PORTMAN. Mr. Chairman, I would like to ask another 

question, but, since my time is up, if we could have a quick second 

round, it is about tax-exempt organizations, and we could give Mr. 

Koskinen a chance to answer. 

The CHAIRMAN. I think Mr. Thune is still getting ready, so why 

don’t you go ahead and ask your question? 

Senator PORTMAN. As you know, there are these new rules for 

tax-exempt social welfare organizations and their political activities. These were proposed just a week ago. 

I understand that the proposed rules are meant to try to clarify 

some confusion that I acknowledge is out there and some ambiguity with regard to the distinction between campaign intervention 

and social welfare activity, as well as regarding the measure of an 

organization’s social welfare activities relative to its total activities, 

which are all parts of the current regs that probably could use 

some additional clarification. 

Have you had the opportunity to review these proposed rules, 

and, if so, do you have an opinion on them? Do you support them? 

Mr. KOSKINEN. I have had an opportunity just to look at them 

in the public domain. Obviously, I did not participate in the development of them. They raise a set of very important questions and 

have sought, I think, active comment and participation from the 

public in responding to the two basic questions that are: what is 

the definition of political activity that will count against the social 

welfare activities of an organization, and what amount of otherwise 

not allowed political activity can you engage in as an organization 

before you run the risk of decertification? 

I think an important question that Senator Hatch has raised, 

and others have raised, is, whatever the definition of political activity is, to which of the 501(c) organizations should it apply? And I 

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29 

ple to see it as a decision made by a nonpartisan, independent organization that is trying to treat everyone fairly, so that those applying for any application feel that the response is going to be 

straightforward and evenhanded across the board. 

Senator PORTMAN. In particular, there is a concern that some of 

us have that the IRS is not very good at getting into political activity, and that there could be some political speech that is affected 

by some of these new rules. 

One thing that I looked at that concerned me was that (c)(4)s 

have to remove any records of officeholder votes or public statements from their websites 2 months before an election. There is another one that says (c)(4)s cannot publicly talk about a President’s 

judicial nominee from February 2 to a national election, some 9 

months later. 

It seems sort of arbitrary, one; but, two, it seems like that is getting the IRS in the middle of political stuff. And I guess my question to you is, does this concern you that some of these proposed 

rules might further entangle the IRS in making political judgments 

and open the door to more potential mischief, as we have seen over 

the last couple of years? 

Mr. KOSKINEN. I think it is all-important that it be reviewed. I 

think the goal of the regulations and, ultimately, the final regulation, will be to get the IRS out of politics as much as possible rather than into it. I think part of the difficulty with the previous regulations and their implementation was that the lack of clarity meant 

that the IRS had to make a whole series of political judgments on 

what counted and what did not count. 

And the goal of the regulations, and I think, ultimately, my hope 

would be, that you end up with clarity so that it is relatively easy 

for applicants to decide, for the reviewers to decide, and for people 

running an organization to decide, which political activity counts in 

the bucket that you are not supposed to be doing and which does 

not, and that the lines are clear enough that the IRS itself is not 

making those distinctions, that they are made and they are clear 

in the regulations, and the organizations all understand that and 

can respond accordingly. 

So I think the point is well-taken. I think everybody would like 

to make sure the IRS is involved in political decisions to the minimum amount necessary. 

Senator PORTMAN. There was a recent statement that was made 

by the Taxpayer Advocate. This is Nina Olson in her June report 

to Congress. She said, ‘‘It may be advisable to separate political determinations from the function of revenue collection.’’ 

That seems to me to make sense, and I guess my thought is, are 

there steps that you believe you can and should take to further 

depoliticize the IRS and take away some of those responsibilities? 

And I guess what you are saying is that, by establishing some 

standards that are clear, that helps. 

But the question is still, are these political judgments appropriate to be made, or is that something that should be done in a 

different way? 

Let me give you one suggestion, and that is that the IRS follow, 

for example, the determinations of the FEC, the bipartisan Federal 

30 

Election Commission, on questions about what a group’s political 

status is. 

What are your thoughts on that? 

Mr. KOSKINEN. Well, I think we are going to get a lot of comments in response to the regulations, and I would hope that some 

would include this discussion as well. 

I think when the dust settles, the goal really has to be, what can 

we do to ensure the public that, to the maximum extent possible, 

the IRS is in the business of tax administration, not in the business of making political decisions? 

And as I say, my goal, if confirmed as Commissioner, in reviewing with the Treasury the final regulations, would be, to the extent 

possible, to make the rules clear enough so that the decisions are 

not being made by the IRS on a case-by-case basis. They are clear 

on the regulations and everyone running an organization, everyone 

trying to set up an organization, would understand very easily 

what they are allowed to do and what is not permissible if they 

want to be a 501(c) organization. 

Senator PORTMAN. Thank you, Mr. Chairman, for your indulgence, and Senator Thune. And again, I appreciate your willingness to serve in this important capacity. I think it is a critical time 

to restore trust, and, given your experience and background, I 

think you will have an opportunity to do just that. 

So thank you, Mr. Koskinen. 

The CHAIRMAN. Senator Thune? 

Senator THUNE. Thank you, Mr. Chairman. 

I want to follow up on that a little bit, if I might. 

The IRS, during the last year, as it has been under all this scrutiny, has been accused of incompetence, mismanagement, stonewalling—a whole range of things. But I think one of the things that 

gets at what Senator Portman was talking about in terms of restoring the trust—and, frankly, we congratulate you on your willingness to take this on, because there is a huge, huge need, I think, 

to try to get the American people to trust the revenue collector 

again in our country. 

But I think the politicization of the IRS is a stigma that has attached to the agency, and that is something you do not want to 

have with the agency that has so much power over the American 

people when it comes to collecting revenue. And so the point that 

he is raising with regard to how the IRS is now sort of in this role 

of stepping on the scales to determine what is or is not political 

speech, to me, seems to be completely outside the realm of what 

the IRS ought to be about. 

And so I would just ask you a question as a general matter. Do 

you believe our country is better off with more political speech or 

less political speech and, if confirmed, what principals will you follow in applying your views? And I think it bears on this particular 

issue and these regulations that have been proposed. 

Mr. KOSKINEN. It is an important question. I think what the public needs to be confident about with any Commissioner, and certainly what I would try to do, if confirmed to be Commissioner, is 

that, whatever his political views are, he is not going to apply them 

to the IRS. 

31 

So my sense would be, having served both Republican and Democratic administrations, having spent most of my time in management, not politics, I would want the public to be confident that the 

decisions we are making are primarily focused on what is the best 

for tax administration. So, while I may have political views of one 

kind or another, I want people to be comfortable that those views 

are not going to influence my decisions in terms of what is best for 

the IRS, what is best for the country. 

So I think, as a general matter, I think the country’s political 

system works well. I think political speech is important. But I do 

not think it is my role to have a view as to what ought to happen 

in the political realm. I think my role is going to be, how do we 

most efficiently and effectively administer the tax code in a way 

that people have trust and have confidence that, whatever our 

views are politically, whatever organizations we happen to belong 

to, that they are not influencing the decisions we are making at the 

IRS? 

Senator THUNE. And I would share the view that there should 

be a way to separate the tax administration role from these political determinations, because I just think that it completely undermines the confidence and the trust the American people have in an 

institution that is so important and so powerful in our country and 

in our culture. 

I want to just ask another question, too, because this comes back 

to the whole seriousness, I guess, with which you take these issues 

that have occurred in the last year. Because the President earlier, 

if you go back to May of this year, called the targeting of conservative groups for extra scrutiny by the IRS, quote, ‘‘outrageous.’’ 

And then a few months later, in July of this year, the President 

came out and referred to what he called, quote, ‘‘the phony scandals’’ in the context of discussing the IRS scandal. 

I guess what I would ask, just in terms of that characterization, 

is where you fall. What is your view of what happened there and 

all that came out of that and all it did to erode the trust of the 

American people. 

Mr. KOSKINEN. I think it is important for the investigations—of 

which there are numerous going on, but a significant one is the bipartisan investigation of this committee—to be concluded so that 

we can actually reach as much of a consensus as we can of what 

the facts are as to what actually happened. I think, as the President responded and everyone responded, to the extent that the 

facts show that conservative groups or liberal groups or any groups 

were targeted because of their political positions when they made 

applications, that really is intolerable. 

I think people, when they apply for certifications, whether it is 

a 501(c)(3), (4), (5), or (6), should be comfortable that, no matter 

who they are, no matter what their political beliefs are, their religious beliefs or other beliefs are, they are going to be treated fairly 

and evenhandedly and they will get the same treatment everybody 

else gets, and I think that that is a message that needs to go forward. 

I think, to the extent that that did not happen—and I hope that 

this investigation, when it is completed, will give us the facts and 

tell us what actually did happen—to the extent it did not happen, 

32 

as the President said, that is intolerable, and I think people deserve to know that we have looked into it, that the investigations 

have been public and have revealed whatever the facts are, and appropriate responses have been taken. 

And as Commissioner, going forward, the best I can do at the 

start is to commit that we are not going to let that happen, that 

the culture will not be designed to further that; that we will be 

transparent about any problems we run into; and that the public 

and certainly this committee will know about those problems as 

soon as we do. 

Senator THUNE. I guess what I hear you saying—at least I hope 

what I hear you saying—is, when you say ‘‘intolerable,’’ the President described this in May as ‘‘outrageous’’ and then later, as I 

said, in the summer, described it as a phony scandal. 

You do not view this to be a phony scandal? 

Mr. KOSKINEN. No. On the basis of what has been determined 

thus far, I think it has been an important matter to run to ground. 

I think to the extent that, for whatever reason, whether inadvertently or simply in an attempt to respond to the overwhelming number of applications that get filed, to the extent that organizations 

felt that they were treated poorly and that they were, that is not 

fair, it is not acceptable, it is intolerable. 

I think that is not the way the IRS operates generally. I think 

to the extent that the public can restore its confidence and be comfortable that this was, to the extent it happened, an unfortunate 

event that is not going to happen again, I think that is important, 

because, as I said yesterday, trust is the most important asset that 

the IRS has. 

And I will do the best I can, as I am sure the employees are prepared to do, to restore the American public’s confidence and trust 

in the agency. 

Senator THUNE. One final question, Mr. Chairman. And this 

comes back to what your view is on whether or not IRS employees 

who are going to be responsible for enforcing Obamacare ought to 

also have to be subject to that law, because earlier this year we 

learned that the National Treasury Employees Union, which includes IRS employees, opposes the legislation that would require 

them to leave the FEHBP and enroll in the exchanges. 

What is your view on whether or not the IRS, which is the enforcement agency, also ought to have to be participating in those? 

Mr. KOSKINEN. I had not been aware that the union had taken 

that position. I think IRS employees, as Federal employees, ought 

to be treated as all Federal employees, and, if the Federal employees are going to be in the program, the IRS ought to be in the program. I do not think the IRS employees should have some special 

status in regard to that issue. 

Senator THUNE. Mr. Chairman, thank you. 

Mr. Koskinen, thank you. 

The CHAIRMAN. Thank you, Senator. 

Mr. Koskinen, I wish you very good luck. I was impressed with 

your statement yesterday that your goal is to make the IRS one of 

the most admired Federal agencies in government. I think that is 

a noble goal, and I commend you for it. 

33 

I also, just for whatever it is worth, think it is a good idea for 

you, as you said you would pursue, to go around the IRS, listen to 

employees, find out what they are thinking, what is going on, what 

do they think, what ideas do they have, what do they like, what 

do they not like, et cetera. Now, that is a huge job, because I think 

there are about 600 locations in this country, maybe other countries too, for all I know. But that is a lot of visits, and it is a lot 

of people to talk to. 

But I urge you to talk to as many as you can and listen as much 

as you can and make some decisions. I think the best approach 

would be to be fair but firm. You listen, but if somebody is clearly 

not performing, then something has to be done about that. But 

what is to be done is, you have to try to get that person to perform, 

but if that person does not perform, you have to do something else 

about that. 

But I also, for whatever it is worth, offer gratuitous advice, and 

that is: you put a public face on the IRS. You present yourself very 

well. You, in addition to managing, obviously, should lead in the 

IRS and be inspirational so the employees are all pumped up: 

‘‘Hey, we like this new Commissioner we have here. He is a good 

man. We would like him to be our new Commissioner.’’ 

Then get around the country a little bit, putting a positive face 

on the IRS, and that will boost morale too. ‘‘Hey, our guy is out 

there, he is talking about us in an appropriate way. He is not 

overdoing it, he is not over the top, but he is very appropriate 

about it.’’ And that is going to take time. It is going to take a lot 

of time. 

You have, technically, a 5-year term, but actually it is more like 

4 years. So you can keep moving, keep going, not only under President Obama, but the next President. So you have almost a mandate. You have an opportunity here. 

So I urge you to get around, listen, make some decisions. You 

have a great track record, a great business track record. And then 

I also suggest you kind of get around the country a bit and talk 

to groups and be on television a little bit, explain what the IRS is 

doing and get that confidence back. 

It is a real opportunity. Among all the Commissioners I have 

known, I think you have a better opportunity to do that than any 

of them, and I urge you to think about that. 

Your response? 

Mr. KOSKINEN. Thank you, Mr. Chairman. I did early on make 

the comment that I would go to all of the IRS offices, before I discovered how many there were. My present position is, I am going 

to go to some of the offices, as many as I can. 

I actually, early on, want to go to Cincinnati to talk with the employees who were involved in the 501(c)(4) and (c)(3) issues. They 

have challenges. I want to review the work that acting Commissioner Werfel has already put in motion, to review the processing, 

to try to make sure that we solve whatever problems exist within 

the system, as opposed to employee actions. 

But I think it is important for the employees to, as I said, understand that we are all in this together, that they are part of the solution, and that I need to understand what their views are, what 

34 

the obstacles are, and what we can do to make the agency more 

efficient. So I am going to do that. 

I would invite Senator Portman, if he has the time, to join me 

if I am in Ohio, and I will let all of you know when I am in your 

State visiting your employees of the IRS, because I do think you 

are exactly right, Mr. Chairman: it is important for the employees 

to see the Commissioner, to know that the Commissioner is interested in what they have to say, and, in particular, is interested in 

doing whatever he can to make their jobs easier, to allow them to 

have the resources they need to appropriately serve the public. 

My experience in these circumstances is that the employees who 

interface with the public, whether at the State and local level or 

at the Federal level, want to do a good job. They want to please 

the constituents. They want to make sure that customer service 

works. 

In the IRS, customer service is trying to make it as easy as possible, though not necessarily always pleasant, to pay the taxes that 

are owed. And I think that that is an important mission and mandate for the agency, and I look forward to working with the agency 

and its employees, and I look forward to working with this committee to make sure that that happens and to improve and restore 

the public trust in the agency. 

The CHAIRMAN. I appreciate that, and I am quite confident that 

you will. But in addition, it is helpful, in my judgment, to get 

around and talk not only to employees, but also to the public, because you will pick up stuff. They will tell you things that you 

might not otherwise pick up. And for you to do your job, you are 

going to have to know what that is and then be able to talk back 

to people in a positive way and say, ‘‘Yes, that is a good idea, but, 

you know, this is what we are trying to do, and we are doing that 

over there,’’ so there is a dialogue between the people and the Commissioner. 

I think you have a huge opportunity here. It is a wonderful opportunity, as you begin your roughly 5-year term, so that at the 

end of 5 years, we look at the little scorecard there and say, ‘‘Gee, 

my gosh, you would never believe it, but the IRS is one of the most 

admired agencies in the Federal Government.’’ 

We wish you well. 

Mr. KOSKINEN. Thank you, Mr. Chairman. That is very good advice that I will take. 

The CHAIRMAN. Thank you. 

Senator Hatch? 

Senator HATCH. I have a few more questions that I would like 

to ask that I think are important. 

For years, I have been concerned that the personal financial 

records of millions of Americans are at serious risk due to Obamacare’s new information-sharing requirements. Individuals signing 

up in the Obamacare exchanges are required to provide personal 

information such as Social Security numbers and household income 

information, which is entered into the Federal Data Services Hub. 

That is a new information-sharing network that allows the State 

and Federal agencies like the IRS to access this sensitive information. 

35 

But that is why I introduced the ‘‘Trust But Verify Act,’’ which 

would stop the Obamacare exchanges from operating until the 

GAO and HHS Inspector General can certify that necessary privacy 

and data security parameters are in place. Unfortunately, my fears 

about privacy and security have been confirmed in recent months 

as the implementation of the Obamacare exchanges has led to 

countless problems. 

The Healthcare.gov website, including the back-end data hub 

functions, were rushed to launch and were not adequately tested 

to ensure adequate security and privacy standards. It remains unclear as to whether the data hub has adequate security in place to 

prevent enrollees’ information from falling into the hands of data 

thieves. 

Just last week, the Treasury Inspector General for Tax Administration released a report that found the IRS needs to improve 

Obamacare systems to protect security. In that report, the Inspector General reported that IRS security controls do not meet standards set by the Institute of Standards and Technology and Internal 

Revenue Manual guidelines. The report recommended the IRS develop a corrective action plan for resolving security issues. 

Now, Mr. Koskinen, do you support an independent review of 

data hub privacy and security protections, and, if confirmed, will 

you develop a corrective action plan at the IRS to ensure that this 

sensitive data is protected? 

Mr. KOSKINEN. Yes, Senator. The data hub and the exchanges 

are not run by the IRS. The IRS data that is provided to them on 

background information, as we noted yesterday, has worked very 

well and is security-protected. What the IG is concerned about and 

what the IRS is focused on is, at the back end, when the IRS enters 

into its review of the filings for 2014 to make premium determinations, to make sure that all of that information is secure. 

The IRS has actually a very strong record historically of protecting data, protecting taxpayer information, being very concerned 

about the loss of data and identity theft. So acting Commissioner 

Werfel has been confident, and the information technology people 

are confident, that the IRS security of data will meet the standards. 

It is important for the Inspector General to continue to be involved. In fact, several of the reports on information technology recently by the Inspector General were requested by the IT department, which I think is a good sign that they are reaching out for 

independent verification as the systems are developed. 

And, if confirmed as Commissioner, I would encourage that continued, in effect, independent review by the Inspector General, and 

ultimately by the General Accountability Office, of the systems, not 

only once they are established, but as they are being developed, because, if you get that information during the development period, 

obviously, you can continue to make midcourse corrections, and 

that is important. 

Senator HATCH. The Affordable Care Act provides for refundable 

advanced premium tax credits and cost-sharing subsidies for taxpayers who, one, purchase a policy through an exchange and, two, 

have household income between 100 percent and 400 percent of the 

Federal poverty level. 

36 

The Obamacare website rollout has been—it has really been such 

a disaster that taxpayers are now being encouraged to purchase 

health insurance directly from insurance companies for 2014 rather 

than through the exchange. Now, there are reports that the administration intends to pay subsidies for policies purchased directly 

from insurance companies, even though the tax code requires that 

a taxpayer purchase a policy through an exchange in order to qualify for a subsidy. 

Now, unlike income levels, which will have to be reconciled after 

2014, when a tax return for 2014 is filed, the IRS will know from 

the outset whether a policy was or was not purchased through the 

exchange. So will you commit to this committee that, should you 

be confirmed, you would follow the tax code and ensure that premium subsidies are not paid on behalf of any taxpayer who purchases a policy directly from an insurance company? 

Mr. KOSKINEN. I am not familiar with the details of that particular question, but I certainly am willing to agree that, if confirmed as Commissioner, I will ensure that we look into that problem, as well as others, and that we appropriately implement the 

law. 

Senator HATCH. I think my time is up, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. Do you have another question? 

Senator HATCH. I have one more that, if I could ask it, I would 

surely like to ask. I do not mean to delay this. 

I am also very favorably disposed toward your nomination and 

want to see you confirmed. 

Mr. KOSKINEN. Thank you, Senator. 

Senator HATCH. And I will do what I can to see that you are. 

But in 2007, Congress enacted the new 20-percent penalty for 

credits or refunds erroneously claimed by individuals. It came to 

light that IRS was interpreting this new provision incorrectly and, 

thus, was not assessing the penalty in many situations where it 

should have. So the IRS revised its interpretation of the law concerning the erroneous refund penalty in May 2012. 

However, the Treasury Inspector General for Tax Administration, or TIGTA, issued a report in November 2013 saying that, ‘‘Despite the new and more accurate interpretation of the law, the reality is that many IRS agents in the field still are not aware of the 

erroneous refund penalty and are often under-assessing the penalty.’’ TIGTA has stated, ‘‘In view of the significant problem of erroneous claims for credits and refunds and the related costs to the 

government . . . the IRS should . . . put appropriate procedures 

and processes in place to comply with the erroneous refund penalty 

and to make sure it is assessed in those situations where a refund 

is erroneously claimed.’’ 

So, Mr. Koskinen, if you are confirmed as Commissioner, what 

will you do to assure that the TIGTA recommendation is followed 

and that the problem of erroneous credit claims is reduced? 

Mr. KOSKINEN. As we discussed, Senator, one of my concerns 

about the funding constraints is that travel and training have been 

cut by 80 percent to respond to the budget and some concern about 

previous meetings that were held. And my concern about that is, 

37 

particularly on the training side, that we often think of training as 

training for new employees. 

But a significant amount of training money is spent educating 

existing employees, both to improve their capacity and to allow 

them promotion opportunities, but particularly, in situations like 

this, to make sure that, when you have 95,000 employees and a lot 

of revenue agents, when there are changes in interpretation or mistakes are discovered, the training funds and the meetings and the 

exchange of information allow you to make sure that people are updated in terms of what the rules and regulations require, what the 

standards are, what they need to do to be effective in their work. 

And so, if confirmed as Commissioner, this would be one example 

where we need to make sure that the information is pushed out to 

the front lines. And one way to do that is to, on a regular basis, 

have meetings and training sessions where people are updated 

about a range of issues that they may not have understood previously or where we have discovered misinformation or misunderstandings, because we need to have revenue agents and those on 

the front lines as up-to-date as possible as regularly as possible. 

Senator HATCH. Thank you, Mr. Chairman. 

The CHAIRMAN. Thank you, Senator. 

Thank you, Mr. Koskinen, for your willingness to serve. 

With the filing season upon us and this committee’s ongoing investigation of 501(c)(4)s, et cetera, I believe it is critical to have a 

confirmed leader in place at the IRS as soon as possible, and even 

more critical when the acting Commissioner, Danny Werfel, has indicated that he is going to be leaving by the end of this year. 

Therefore, I intend to hold a markup this Friday on your nomination, and this will allow the Senate enough time to consider your 

nomination by the end of the year, again, which I think is critically 

important. 

And I am asking all Senators to submit their questions for the 

record by 5 p.m. tonight, and I urge you to answer thoroughly and 

fully those questions by tomorrow. 

Mr. KOSKINEN. We are looking forward to a late-night session. 

Senator HATCH. Mr. Chairman, I would have to object to Friday, 

because I cannot be here Friday, unless we are voting; then I might 

have to change my schedule. 

But I do want to have you confirmed as quickly as we can, but 

I would prefer that we do it when I am here as well. 

The CHAIRMAN. Well, let us see what we can do. The Senate is 

in session this week, and it is my understanding there will be votes 

on Friday, and I do think it is critical that this nominee be confirmed by the end of the year. We should take every advantage 

that we can. 

Thank you very much. The hearing is adjourned. 

[Whereupon, at 10:42 a.m., the hearing was concluded.] 

(39) 

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