David Stewart 0:01

Welcome to the podcast. I'm David Stewart, editor in chief of Tax Notes Today International. This week, checking in with the former commissioner, part two . I'm joined again in the studio by Tax Notes senior reporter William Hoffman . Bill, welcome back.

William Hoffman 0:19

Hi, David.

David Stewart 0:20

We're about to play part two of your interview with former Commissioner Koskinen . What can listeners look forward to hearing?

William Hoffman 0:24

Well, as you know, we covered a variety of issues in the first section of the podcast, including earned income tax credit audits, whether they're targeting poor people, the Office of Professional Responsibility's decision to replace their attorneys with non-attorneys regarding alleged violations of circular 230, and some issues related to other tax administration subjects. This one, we'll be talking mainly with the former commissioner about the reports of a federal whistleblower inside the IRS alleging possible misconduct in the audit of President Trump's tax returns, how the former commissioner would grade President Trump on his performance as a tax president, whether presidential candidates should have to release their tax returns for public inspection, and then finally what he would have done if he had gotten the subpoena to turn over President Obama's tax returns.

David Stewart 1:15

Alright. Let's go to that interview.

William Hoffman 1:18

A few weeks ago, The Washington Post reported that a federal employee had alleged to Congress that there was possible misconduct concerning the routine IRS audits of President Trump's tax returns. You said in September that it would be astonishing if the whistleblower were an IRS employee. Now the Post is reporting the whistleblower in fact works at the IRS. What does it say to you about the allegations that someone inside the IRS is willing to risk their career to bring them to light?

John Koskinen 1:44

Well, first let me correct one thing. What I said in September was that it would be astonishing if the person trying to impact the president's return was in the IRS. It didn't surprise me that there was a whistleblower, but I thought it would've been unheard of for an IRS employee not involved in the audit to be trying to influence the audit. Subsequently, it turns out the whistleblower is in the IRS and the claim is it's someone outside the IRS, which is obviously improper. I think whether it's in the IRS or across the government, whistleblowers are important to have and protect. It's important when somebody sees a problem, I mean we all wander through train stations and plane stations with the encouragement, "If you see something, say something." I think the same thing applies across the government, not just the federal government, in any government organization. If someone is concerned about something, sees something they think is untoward, it doesn't follow regulations, or is illegal, it's important for them to say something and it's important for them to be protected. Protected from retaliation, protected even from adverse publicity as you go forward, so it doesn't surprise me. I think that it was an IRS employee. The IRS employees, as I've tried to get the public to understand, take very seriously the protection of everyone's tax information. The only people who can look at a tax return are the revenue agent officer, or someone who needs to know or access that return. Anyone else, even if it's looking for their brother-in-law, their sister, somebody else, it's a firing offense to actually look at a tax return when you don't have a reason to do it. It's within the purpose and the mission of the IRS. So within that context and in the history of Watergate and everything else, it's, I thought, always been clear that no one outside the IRS should be calling into the IRS, certainly out of the White House or any part of the administration trying to impact anyone's tax returns and anyone's tax audit, whether it's the president or the guy who lives next door to you. And I think that's an important thing for the public to understand that the IRS takes this all very seriously and not just because it's a criminal statute to reveal a taxpayer information, but because it's part of the ethos of the IRS that a big part of the mission is implementing the tax law fairly, but it is protecting taxpayer information. But as you say, whistleblowers sometimes are retaliated against sometimes and harassed without end. I think that's why it's appropriate for whistleblowers in a lot of cases to remain anonymous. If the purpose of the whistleblower's complaint is just to have someone investigate it, there's no particular reason you have to then go investigate the whistleblower. The question is, is the claim correct? Is there something that needs to be protected? In the case at hand, I've said, and I think everybody would agree, it's totally improper, particularly in this claim apparently. I haven't seen the claim and I don't know who the whistleblower is, but in this particular situation, for somebody to be calling a career person at the IRS and asking anything about, again, anybody's tax returns and certainly a president's return.

William Hoffman 4:34

How would you grade President Trump on his performance as a tax president ?

John Koskinen 4:38

Well, I'm not sure we've ever graded any presidents ...

William Hoffman 4:40

I'm asking you.

John Koskinen 4:43

There's obviously been a significant tax reform passed, most significant in 30 years, so I think on that basis may or may not agree with all the elements of that tax reform, but it was a serious undertaking that corrected a lot of problems. There arguments, again, about aspects of it, but I think in that sense, the administration and the Congress, it did make a good faith attempt to take a look at the tax code, which hadn't been significantly revised in 30 years and trying to adjust it to present circumstances. I do think that, you know, you ought to do that perhaps more than every 30 years. It's complicated. It's difficult, but there's a lot of the IRS code that you know, made sense 30 years ago or 20 years ago that should be reviewed. We just talked about the earned income tax credit. People are very hesitant to change a program or take a look at it for fear of , you know, make it more complicated or somehow people will end it. But I do think that the Congress and administrations and Treasury on a regular basis ought to be open to taking a look at where are there important changes to be made in the code . We shouldn't keep doing things year in and year out just because that's the way we've always done it.

William Hoffman 6:46

Should President Trump release or have to release his tax returns? Should all presidential candidates have to release some portion of their returns for public inspection? And perhaps most importantly, should taxpayers grade a presidential candidate somehow on whether they release their tax returns?

John Koskinen 7:06

Well, obviously that's the question of the day or in several days is to what should happen. There's no requirement that a candidate or a president do it. And I saw an article recently noting that in the past there have been other presidential candidates in the primaries anyway who did not release their returns.

William Hoffman 7:22

No major party candidate since Ford.

John Koskinen 7:25

Once you got to be a candidate, but there are some serious primary people who did not release their returns. As you go forward. I think as a general matter, you can understand that somebody running for office revealing their taxes may feel that it's private information. The primary candidates out there this year have all released their returns and you know, you find out that Bernie Sanders made a lot of money off his book. And what people have to understand, but all you learn from tax returns is income deductions against that income and expenses and then charitable contributions. So if you go back and look at it, what people are always looking about is well, how much money did you make and really, and how much money have you contributed? And if you don't contribute much, people say, "Gee, you know, you're not very supportive for charities." And if you made a lot of money in a book or some other way, and you're as in the case of Senator Sanders, you're kind of a representative of the people, you suddenly look like, "Gee, he made several million dollars. How does that correspond?" Ultimately, I think you could argue that people are more comfortable with somebody who's going to be running for president if they have some idea of kind of where, where they've been, where they came from. But again, it's important to understand. You'll learn some things from a return. You don't learn as much as everybody thinks you learn. You don't learn who they're in business with. You don't learn the details if they have a K1 or a 990 or the details behind all of that. So I've always thought this argument about the president's tax returns, that the returns by themselves in some ways may be a little disappointing. In the New York Times had 10 years of him from 85 to 94 and you didn't learn anything you didn't already know. He lost a lot of money in that period, but that's about all you learned from 10 years. So you could argue, well why doesn't the president just release them? And that's a decision he has the right to make as you go forward. But it's, you know, in a lot of ways become, I think more of an issue as a process issue then a substantive one because again, if you look at all the returns released from 20 some Democratic primary candidates, nobody's learned too much other than these couple people made a lot of money and then you know, a little more about how charitable they are.

William Hoffman 9:20

So you do not believe that major party candidates should be required to release their tax returns?

John Koskinen 9:26

Well, that's a political issue ...

William Hoffman 9:28

I'm asking you a political question.

John Koskinen 9:30

A political question as a retired ... I tend to think that the public is more comfortable if they have a chance to just have somebody review the return. As I say, I think it does reveal how much money you made, maybe deductions, whether you lost money, what you made as a charitable contribution. But if you're going to run for president, that's not a lot of information that's overly private. You may recall when Bill Clinton, people discovered, you know, he took a lot of very, when he was not making much money, a lot of very kind of personal deductions for charitable in-kind contributions and usually it's a one-day story. You know, I think most people can't remember what any of the primary candidates returns showed other than maybe Bernie making money. So I think that, you know, to the extent it makes people more comfortable with the person who's running for president and they know more, you know, something basically about them . I think it's probably a good thing.

William Hoffman 10:18

Finally, just to put you back in your IRS commissioner shoes for a moment, if Congress had issued you a subpoena to turn over President Obama's tax returns, what would you have done?

John Koskinen 10:28

Oh, what I would have done was I would have talked to the Treasury secretary. Yeah , it does seem to me, you know that it's an interesting question. The statute says that secretary shall turn over the return. It doesn't have exceptions. Treasury secretary has delegated tax administration issues to the commissioner. Question is whether this is a tax administration issue or a tax political issue. I tend to think at this particular situation, and it might've been with President Obama as well, if it's part of a political debate going on, it's a political issue that I think needs to be resolved by politicians, not the IRS commissioner. The IRS commissioner is a non-political person running a non-political process and to the extent that there's politics around an issue, then that issue ought to be decided by the politicians. So in this case, Secretary Mnuchin, I think to his credit, became the front person for whether they were going to provide the returns are not, consulted with his lawyers, with the Justice Department, and made a decision. And to a large extent, while Commissioner Rettig was copied on things, it was really a decision being made by politicians. And I think that's important for the IRS. I think the IRS commissioner ought not to be making political decisions.

William Hoffman 11:37

Well, as commissioner you communicated openly with the press. Current IRS leadership seems to be taking a more closed approach. Why did you take the approach you did and is the recent change a mistake?

John Koskinen 11:47

Well, I've always operated on the theory and I've been in a number of public positions. I was the deputy director management at OMB as you know , and I was the Y2K coordinator. I was the deputy mayor and city administrator for the city of Washington. And also I viewed it as pretty much a public position when I was asked to start at the meltdown to become the nonexecutive chairman of Freddie Mac. And so my approach has always been the public has a right to know what I was doing and what the organization was doing. And in fact, particularly when I was with the city, where at that time before the shrinkage of the press, the Post had three or four people working full time following activities in the city. As I used to say, all trying to get the Pulitizer Prize generally not given for good news. So they were always looking to see what was going on that wasn't supposed to be going on. And I tried to get all of the division heads in the district to understand that it was important for the public to know what was going on. If the reporter had a question, if you didn't answer the question, you refuse to talk to them, then you shouldn't be surprised when your side of the story didn't get into the paper. That all you could ask of a reporter was to make sure that they knew what your position was. And a good reporter always did that. And if there was a problem, there was no way to hide it. And in fact, it was important for the public to be confident that if there was a problem, people would know about it and you would be trying to address it. So that's been my approach from the start of my career. So when I got to the IRS, especially with all of the attacks on the IRS, it seemed to me especially important to be available and open to reporters anytime they were interested. So anytime I would give a speech, anytime I testified, numerous times of testifying, I always was open to answer questions for reporters because again, I thought it was important for the IRS side of the story, the commissioner's side of the story to be available. I also told people when I was at the district, I said, "You know, if you don't talk to the reporters, you're just making their job harder and therefore you shouldn't be surprised if they're not overly sympathetic to your side of the issue when you're making their life more difficult." So it's just been my approach. But everybody has to kind of paddle our own canoe and make their own decisions. And there are any number of people in public positions who talked very seldom. My predecessor was not particularly a communicator with the press. Some of it depends upon how comfortable you are with answering questions. I mean they're sort of asking a question, you've got to answer it on the spot. Some people are less comfortable with that, want more time to respond, will respond in writing or due amount of time for deliberation. And I think you have to respect that as well. So, and then in sometimes, the situation may be that questions that are being asked are political questions and you aren't comfortable dealing with those or don't think it's appropriate to deal with those . So I've never judged anybody in a public position as to the decision they make about how open they are and accessible they are to the press. Just in my experience, I always felt that things went better if the press were comfortable. If there was a question, I'd give them the best answer I had. I always said, "If I didn't know the answer, I would tell you, I didn't know as we go forward." But it seemed to me that was the best way to get your side of the issue out.

William Hoffman 14:49

For an agency that touches more Americans than any other one directly and an agency where public communication about complex matters is extremely important. An agency that has basically started triaging Freedom of Information Act requests that are important to inform the public and whose officials, including at the very top, read from basically scripted comments and do not answer questions. Does that not pose a longterm difficulty for the agency as this policy continues? As the, not the lockout, but maybe the tamp down of the press continues? We have an IRS that communicates mostly through scripted responses when they respond at all. We don't have any kind of interaction with the most senior member of the team, the commissioner. We know that FOIA requests, Freedom of Information Act requests are being delayed or denied for what many consider spurious reasons and I'm putting all this together and imagining it going on for years and wondering if it is going to have some kind of effect on either the tax practitioner or the taxpayers' trust in the agency in their ability to understand what is coming out given the interaction is much more limited in the past. In other words, how successful can an IRS commissioner and the IRS be when it decides not to communicate with the press?

John Koskinen 16:17

Well, as we were discussing, I may have spoiled you guys by being readily available at the drop of a hat. And as I said earlier, it's quite a personal issue of are you comfortable answering questions on the run and in a short space. You have to think about it. And not everybody is. As I said, my predecessor at the IRS was not someone who regularly talked to the press. And I think if you went back and looked at historically at IRS commissioners, probably a good number of them who were tax lawyers or accountants did a good job as commissioner were not necessarily readily available. In some years, there may not have been as many hot issues, although the IRS always has issues that people are interested in. So I think you have to say the place runs most effectively if people are comfortable with their role in it and how they're managing it. And so to the extent of system as in the past historically has been more comfortable getting questions and having time to think about them and giving them back written answers that are thoughtful and they make sure properly reflect the position of the agency, you have to respect that. And as I said, I think sometimes you see that public officials who are readily available misstate issues, have to come back and correct them, are uncomfortable. Many times they wish they hadn't made that comment or had given that interview. So I don't think you can say it's a requirement to be the IRS commissioner or cabinet secretary that you have to have my theory that you're readily available press. I think it depends on the person and they have to do what they and the agency at the time are comfortable with. As I said, I think the present commissioner Chuck Rettig has done an excellent job. He had a great background in terms of tax administration, sitting on the IRS advisory commission, and it seems to have gone seamlessly. I understand the frustration of the press. As I said in my history of dealing, before when I was at the city and other places, where you know if you can't get an immediate response, it makes your job a little more difficult. You've got to put the question in writing. You've got to wait. Then you can't cross examine the question in writing get back. But again, I think the agency and in individuals just have to decide what's their most effective way of getting you the information you're seeking. And for, I understand for a lot of people the most effective, efficient, and accurate way to do it isn't necessarily doing interviews on the run.

William Hoffman 18:25

So now the question that you really came for, the one you've been waiting for -- How is Duke University basketball looking for the upcoming season?

John Koskinen 18:32

Ah, good question. I think they'll do well. They're in the one and done theory where last year the most iconic college basketball player in a couple of generations, Zion Williamson was here and now is gone along with everybody else. But they've got a good recruiting class. They've got two or three players have been there three or four years. Krzyzewski is one of the all-time great basketball coaches, so I think they're going to be very, very competitive. Ultimately by the end of the year, I think there'll be one of the half a dozen teams people think have a chance to go all the way. They've been in that situation for the last three or four years and haven't gone all the way. But I think they'll be fun to watch. They'll be exciting. It'll be interesting to see how the team gels.

William Hoffman 19:07

Who's going to be their biggest, fiercest competitor?

John Koskinen 19:10

In terms of which team are they going to be competing with ? Well, Carolina has always good. Louisville is going to have a very good team. We're going to be ... last year there were four or five ACC teams that people thought could win the national title. One of them did -- Virginia. This year, I think probably beyond Duke and maybe Louisville, it's not clear who's going to be the national contenders. The usual suspects every year are , you know , Kansas, Villanova, Kentucky, and I suspect that will hold true again.

William Hoffman 19:34

Well, we know who you'll be rooting for, so good luck.

John Koskinen 19:37

Thank you. Thank you. We need all the support we can get.

William Hoffman 19:40

Thank you, Mr. Commissioner for joining us.

John Koskinen 19:42

It's been my pleasure.

David Stewart 19:44

And now, coming attractions. Each week we preview commentary that will be appearing in the Tax Notes magazines. I'm joined by Content and Acquisitions Manager Faye McCray. Faye, what will you have for us?

Faye McCray 19:55

Thank you, Dave. In Tax Notes Federal, Sarah-Jane Morin and Michael Liu examine how GILTI, FDII, and foreign tax credits affect M&A decisions. David Higgins considers whether the Trump administration's whistleblowers will be able to deduct their legal fees. In Tax Notes State, Brian Kirkell, Mo Bell-Jacobs, and Andrienne Albritton discuss five common misconceptions regarding how Wayfair may affect a foreign business making sales into the United States. Garry Fujita addresses the Washington State Legislature’s 1991 adopted statute that provides taxpayer rights and offers thoughts about whether the state’s Taxpayers Rights and Responsibilities might provide an implied remedy for a violation. In Tax Notes International, Jason Dimopoulos and Thomas Linguanti discuss the tax treatment of international athletes and entertainers after passage of the TCJA. Jason Connery, Ron Dabrowski, and Jennifer Blasdel-Marinescu provide flowcharts to assist practitioners in determining whether companies are eligible for benefits under the Finland-U.S. income tax treaty. In the Opinions page, Ben Willis discusses how repealing debt-equity regs would encourage American investment and Marie Sapirie examines direct taxes under the Constitution.

David Stewart 21:14

You can read all that and a lot more in the October 21st editions of Tax Notes Federal, State, and International. That's it for this week. You can follow me online at @TaxStew, that's S-T-E-W. if you have any comments, questions, or suggestions for a future episode, you can email us at podcast@taxanalysts . org. And as always, if you like what we're doing here, please leave a rating or review wherever you download this podcast. We'll be back next week with another episode of Tax Notes Talk.