This article first appeared in Tax Notes Today on August 1, 2013
Tax Notes Today
President Obama on August 1 announced his intention to nominate John Koskinen to be the next IRS commissioner.
Koskinen was the nonexecutive chair of Freddie Mac from 2008 to 2011, and was acting CEO in 2009, according to the White House. Before that, he was president of the U.S. Soccer Foundation and deputy mayor of Washington. His nomination for a five-year term must be confirmed by the Senate.
"With decades of experience, in both the private and public sectors, John knows how to lead in difficult times, whether that means ensuring new management or implementing new checks and balances," Obama said.
Koskinen served as the deputy director for management in the Office of Management and Budget during the Clinton administration. Before that, he worked for 21 years for the Palmieri Co., a consulting firm that specialized in turning around struggling organizations. He held several leadership positions there, including CEO, chair, president, and vice president. According to an OMB bio of Koskinen, Palmieri's clients included the Mutual Benefit Life Insurance Co., the then-largest failed life insurance company in U.S. history, and Penn Central Transportation Co., which entered into the country's then-largest ever bankruptcy in 1970.
The IRS has come under intense scrutiny ever since the agency admitted in May that it had mishandled the tax exemption applications of conservative social welfare groups, leading to several congressional hearings and investigations. The current IRS head, Daniel Werfel, was chosen by Obama to replace former acting Commissioner Steven Miller following the agency's admission. Werfel is scheduled to step down at the end of September.
Several lawmakers asked by Tax Analysts said that they did not know Koskinen well enough to make an immediate assessment of Obama's choice, but that the important question is whether he can meaningfully reform the IRS.
"I don't know much about him but if he got . . . Freddie Mac turned around, he's probably got some capabilities," said Senate Finance Committee member Chuck Grassley, R-Iowa. "But the main thing is, is he willing to tackle the culture of the IRS?"
House Ways and Means Committee Chair Dave Camp, R-Mich., said he hoped Koskinen "has the ability to reform this agency and really hold those accountable who've been targeting people because of their conservative political beliefs."
Finance Committee Chair Max Baucus, D-Mont., said he expects his panel can act on Koskinen's nomination soon, adding, "I don't anticipate any problems. I hope there are no problems."
Baucus didn't respond directly when asked whether Koskinen's nomination suggests Obama wants to overhaul the agency, but he praised the choice. "I think it's good to have someone with strong managerial background in addition to someone who's got some tax expertise," he said. "Needed now in the IRS is somebody with strong managerial skills and tax expertise."
Finance Committee ranking minority member Orrin G. Hatch, R-Utah, told reporters he wasn't informed of the decision and that Baucus told him he was only told mere hours before the announcement. "You would think they'd call the ranking member and the chairman," he said. "It's just not a good way of handling it."
In a prepared statement on the nomination, Hatch said Koskinen would need to address questions about how the agency will implement the parts of the Affordable Care Act that are under its jurisdiction.
"It's imperative that this nominee explain to the American people how the agency will safeguard the over $1 trillion in premium subsidies from being doled out to those seeking to game the system, while protecting sensitive taxpayer information," Hatch said in the statement.
House Oversight and Government Reform Committee Chair Darrell E. Issa, R-Calif., took a similarly combative tone, referencing remarks made by Obama and others alleging that Republicans were harping on the IRS scandal for political gains. "The first question Mr. Koskinen must answer is whether or not he agrees with President Obama that the IRS targeting Americans for their political beliefs is a 'phony scandal,'" Issa said in a statement. "Anyone who does not share the American people's outrage about IRS wrongdoing is not qualified to lead this agency that has abused its power."
Werfel is scheduled to testify before Issa's committee August 2 on tax-related identity theft.
Former Commissioners' Views
Lawrence B. Gibbs, who served as IRS commissioner from 1986 to 1989, said of Koskinen, "I don't know him personally, but I have friends and partners who know him well and they have nothing but good things to say about him."
Gibbs and others agreed that Koskinen appears to have one skill set that will be important to Congress -- expertise in corporate restructuring -- but may be lacking in another -- knowledge of the link between tax law and tax system administration.
"As a general idea, it is a good idea for a person to have substance knowledge of the agency he's going to run," said Sheldon S. Cohen, who was IRS commissioner from 1965 to 1969 and is now at the investment company Farr, Miller & Washington LLC. "I tried to run [the IRS] for four years, and it's hard enough when you understand the issue. It's much harder when you don't understand it."
Gibbs agreed. "The IRS under normal times is a true conglomerate," said Gibbs, now with Miller & Chevalier. "It requires someone at the helm with knowledge about a variety of areas -- certainly the tax law, since the primary business of the tax agency is to interpret and administer the tax law."
However, Gibbs said, other commissioners have compensated for their relative dearth of expertise in tax law by surrounding themselves with deputies and advisers who are knowledgeable. Koskinen "certainly seems to have the ability to put together teams to deal with challenging situations," Gibbs said.
Cohen added that the next IRS commissioner will face pressures from outside the agency -- in particular, a House determined to make the IRS do more with less even as the agency takes on new responsibilities such as implementation of the ACA. "That's not going to be cured by a management expert," he said.
Gibbs and Cohen agreed that only the Obama administration, in nominating a corporate restructuring expert for the IRS's top job, could answer whether this signals another major restructuring at the Service.
"It's a common approach for new commissioners," Gibbs said. "After they've been there for a while, though, I think it's fair to say that all the commissioners have realized that the problem is not that simple."
Lindsey McPherson and Meg Shreve contributed to this article.