[EL] Wall Street Journal IRS Atmosphere Timeline

[Mark Schmitt]

He was discussing a report released that day, on tax reform options. (
http://www.whitehouse.gov/sites/default/files/microsites/PERAB_Tax_Reform_Report.pdf)
A major section of the report was on corporate tax reform, and the idea of
lowering the corporate rate by broadening the base. One option for
achieving the lower corporate tax rate was, "Option 2: Review the Boundary
Between Corporate and Non-Corporate Taxation." This sub-section discussed
at length the problems created by the different treatment of companies
based on corporate structure, and the increasing use of pass-throughs, and
proposals to bring more such entities into the corporate tax base.

In a call with reporters about the report, he said: "So in this country, we
have partnerships, S corps, we have LLCs—we have a series of entities that
do not pay corporate income tax. Some of which are really giant firms. You
know, Koch Industries, I think, is one, is a multibillion dollar business,
and so that creates a narrower base because we got literally something like
50 percent of the business income in the US is going to businesses that
don’t pay any corporate income tax."

Koch is a well-known company, most people or reporters are aware that it's
quite large, so if it were an LLC, it would be a good example to illustrate
the tax-reform point. Goolsbee's mistake was that he was wrong. But the
fact that he was wrong pretty much exonerates him of the charge of
accessing IRS information, doesn't it?

Examples are a tried and true way of making complicated concepts like
corporate tax reform accessible. A major event in the 1986 tax reform was a
report identifying some large corporations that paid no tax -- not to
"place a political target on them" but simply to illustrate that the system
was a mess.

Ironically, since it's not a pass-through entity, Koch Industries would pay
a lower tax rate under the proposal the administration floated at that
time.



Mark Schmitt
Senior Fellow, The Roosevelt Institute <http://www.rooseveltinstitute.org/>
202/246-2350
gchat or Skype: schmitt.mark
twitter: mschmitt9


On Mon, Jun 10, 2013 at 2:02 PM, Bill Maurer <wmaurer at ij.org> wrote:

>  Why exactly was a high-level political appointee of the Administration
> speaking publicly about the tax status of a private entity over which he
> had no regulatory authority in the first place if not to place a political
> target on them?****
>
> ** **
>
> *From:* law-election-bounces at department-lists.uci.edu [mailto:
> law-election-bounces at department-lists.uci.edu] *On Behalf Of *Mark Schmitt
> *Sent:* Monday, June 10, 2013 10:44 AM
> *To:* law-election at uci.edu
> *Subject:* Re: [EL] Wall Street Journal IRS Atmosphere Timeline****
>
> ** **
>
> I remember Austan Goolsbee well, what of it? He made a statement, which
> was wrong, that he "thought" Koch Industries was structured as an LLP or
> MLP. He was mistaken. It was a statement about tax policy, a reminder that
> some large companies aren't subject to the corporate income tax, which is
> true. As it turns out, his example was mistaken. The Koch Industries
> website shows that several of its large subsidiaries are LLCs, but the
> corporation itself is not.
>
> What is the signal that you think low-level IRS employees would take from
> that misstatement about tax policy and public information?****
>
>
> ****
>
> Mark Schmitt
> Senior Fellow, The Roosevelt Institute<http://www.rooseveltinstitute.org/>
> 202/246-2350
> gchat or Skype: schmitt.mark
> twitter: mschmitt9 ****
>
> ** **
>
> On Mon, Jun 10, 2013 at 10:27 AM, <BZall at aol.com> wrote:****
>
> No one seems to be reacting to the *Wall Street Journal* column
> attempting to use a timeline to explain how "low-level" IRS agents might
> find it necessary to scrutinize 1024s from some groups more than others,
> asking otherwise inappropriate questions about volunteers and individuals.
> ****
>
>  ****
>
>
> http://online.wsj.com/article/SB10001424127887323844804578529571309012846.html?mod=opinion_newsreel
> ****
>
>  ****
>
> This echoes a debate at last week's First Tuesday Lunch meeting where one
> set of public policy attorneys (my own term for lawyers who specialize in
> both campaign finance and exempt organization law) discussed with another
> set whether there was direction, either explicit or tacit, from the
> Administration. One set remembers Austan Goolsbee very well; others not so
> much, and the discrepancy taints the analysis of current events. ****
>
>  ****
>
> We have long known that the IRS reads the newspapers, as you would expect
> them to. The question is whether they consciously or unconsciously absorb
> some of the campaign rhetoric, and if they do, whether it is absorbed
> evenly or not. In an area where confirmation bias runs rampant, as
> evidenced by recent posts to this list, are we training IRS agents to avoid
> it? Even lawyers who read some IRS publications have no clue about how the
> political rules actually work. In many cases, it takes years to understand,
> just as you expect in any other complex area. There's no real evidence of
> that type of training in the IRS, and the TIGTA report indicates that
> training sessions were either late or incomplete. Was Judy Kindell, the
> resident guru on political matters in the IRS EO Division, consulted in
> 2009, when this whole mess began? Apparently the isolation of Cincinnati
> imposed by the 2003 IRS reorganization bore its bitter fruit, fertilized by
> a continual lack of resources, in that time period.****
>
>  ****
>
> Perhaps the point is one also made at last week's lunch: the real problem
> here is that IRS Determs was using audit techniques instead of reviewing
> applications. That may have been because the agents were fearful that some
> of what was being said in the media (as opposed to the applications) was
> true, and sought to get to the bottom of it. That is not necessarily a bad
> thing if you are tasked with determining how organizations will operate in
> the future (itself an incredibly difficult task), particularly with
> charities. But these were c4s, where political activity is perfectly
> lawful. Audit techniques are likely inappropriate when an organization does
> not have a track record, and will only result in shutting down the smaller
> and newer organizations who can't afford the skilled counsel who can simply
> stare down the inappropriate questions or call the managers they already
> know to complain. It is all well-and-good to question the competence of
> low-level employees who made mistakes, but we should look at the system to
> see the real structural issues. ****
>
>  ****
>
> Barnaby Zall
> Of Counsel
> Weinberg, Jacobs & Tolani, LLP
> 10411 Motor City Drive, Suite 500
> Bethesda, MD 20817
> 301-231-6943 (direct dial)
> bzall at aol.com
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