IRS chief: New rule on the way for tax-exempt groups

WASHINGTON – The Internal Revenue Service is prepared to rewrite a proposed rule regulating the political activities of non-profit groups to address complaints from the right and left that it goes too far, IRS Commissioner John Koskinen said Monday.

"In all likelihood we will re-propose a redefined rule and ask for more public comment," Koskinen told USA TODAY's Capital Download. It's a process he predicts will take "until the end of the year and beyond" to complete. The proposed regulation of groups known as 501(c)(4)s drew a record 150,000 comments before the deadline in late February.

He said the new rule would take into account backlash from conservative Tea Party groups as well as some liberal advocacy organizations that the agency's proposal – intended to address concerns that the tax-exempt groups were engaged in partisan warfare – would bar, even voter education and registration programs.

He was interviewed on the eve of Tax Day, the April 15 deadline for Americans to file their returns.

"I think we have to take all of that into consideration," Koskinen told the weekly video newsmaker series. "There are very thoughtful comments and concerns, and one of the questions that has evoked a lot of comment is, once you define what political activity is, to what organizations should it apply in the 501(c) context and how much of it should be allowed? All of that is going to be very important."

Efforts by organizations to get the non-profit designation, which doesn't require them to disclose their sources of funding, sparked a firestorm over allegations the IRS gave tougher scrutiny to organizations with names that signaled an affiliation with the Tea Party movement than it did to progressive-sounding groups. That is the subject of a half-dozen investigations on Capitol Hill.

When he took office in January, Koskinen told reporters he believed the IRS was "on the home stretch" of the inquiries – an assessment he acknowledges now seems optimistic. He said complying with documents subpoenaed by the House Oversight and Government Reform Committee, chaired by California Republican Darrell Issa, will take years to complete and produce "a lot of irrelevant, vast volumes of material."

Was the committee on a fishing expedition? "I wouldn't want to second-guess what their requests are," he said, adding that the agency would comply with them.

He said he was "pleased" that Senate Finance Chairman Ron Wyden, an Oregon Democrat, told him last week that his committee would issue its report "in the relatively near future," perhaps as soon as June. "We'll take a look at the findings and any recommendations they have, decide if there's anything beyond what we've already done that we need to do, and then we need to move forward," Koskinen said.

Koskinen, 74, came out of retirement to head the troubled tax agency after a career that included stints as a top manager at Freddie Mac, the Office of Management and Budget and the District of Columbia government.

He calls today's task tougher than a previous assignment leading the federal government's response to Y2K, the transition to the year 2000 that threatened to create havoc with the world's computers. He says his current job is more difficult because the IRS has been unable to get adequate funding, even though money spent on enforcement generates revenue.

"If you gave us the $500 million of our sequester funds (slashed under automatic spending cuts) we would have given you back $2 to $3 billion more, and people shrug and move on," he said. The agency now employs 10,000 fewer people and receives $900 million less in federal funds than it did four years ago.

Opposition to the Affordable Care Act, which requires the IRS to assess penalties on most taxpayers who fail to get health insurance, may be one factor complicating the agency's requests on Capitol Hill.

"We're sort of in the middle a political bulls-eye," he said. "Together with the Affordable Care Act, the issues surrounding the qualifications of 501(c)(4) social-welfare organizations has been a battle in public media for the past year. The combination of the two has made getting more funding difficult."

He warns the IRS could be headed toward disaster when new responsibilities, including the Obamacare mandates, kick in a year from now. "If we keep going at this level, with the increased responsibilities, at some point we risk crippling the agency," he cautioned, "and that won't be good for the government and it won't be good for taxpayers."

One consequence already is a reduced chance of being audited. "They're lower than they have been," he said, then added: "I wouldn't encourage anybody to depend upon us not auditing them. As I've told people, the roulette wheel is spinning."

Credit to USAtoday