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Magazine

The IRS Was Built to Be Tone Deaf

Insularity and autonomy were once thought to be key ingredients for a nonpartisan tax-collecting agency.

Cubists: There’s a downside to the faceless bureaucracy.(iStock)

When the former commissioner of the Internal Revenue Service testified before Congress this week, he did not offer a grand mea culpa or sweeping apologies for the agency’s misdeeds. Douglas Shulman did not even pretend to know who was responsible for the poor handling of tax-exempt applications during the last presidential campaign. In fact, he acted as if it wasn’t really his problem—even though he ran the IRS for five years as its top political appointee.

At one point during a hearing, Senate Finance Committee Chairman Max Baucus asked Shulman about the atmosphere that led employees to bungle the screening of tax-exempt organizations known as 501(c)(4)s. “What caused that culture to develop, and what did you do about correcting that culture?” the Montana Democrat asked. Shulman responded: “Mr. Chairman, I can’t say I know that answer.”

That dodge sums up much of the attitude of top IRS officials, past and present, as they confront the mushrooming scandal. Both Shulman and the former acting commissioner, Steven Miller, came across as defiant and defensive. So did Lois Lerner, the head of the division overseeing tax-exempt groups, who pleaded the Fifth Amendment at Wednesday’s hearing, after reading a statement insisting she did nothing wrong. Together, the three officials gave the impression of an agency so isolated and insular—historically, out of political necessity—that its employees could not even clearly see the magnitude of the IRS’s blunders, or why they triggered such a backlash.

 

“The confidentiality built into the culture can be a convenient way to not talk to people outside of the organization,” one former high-ranking employee says—so much so that internal meetings are valued over trips to other agencies or Capitol Hill. “There’s an attitude of, ‘Let’s just stay behind these walls.’ ”

Partly, the isolation is by design. It ensures that politicians do not interfere with the agency’s goal of collecting taxes and auditing individuals or corporations—or worse, use it as a way to target political opponents.

In the wake of President Nixon’s misuse of the IRS to target Democrats and other enemies, the White House is not permitted to have any direct contact with the agency. Communication instead must go through the Treasury Department. If the IRS has a boss (and the scandal makes it unclear whether the agency actually answers to anyone), that person is somewhere in Treasury’s top ranks.

But, over the last decade, this autonomy has become a burden. It has left the IRS on an island to figure out complex rules that govern tax-exempt organizations, for instance, or tax laws related to the Affordable Care Act. Treasury now keeps its distance, no longer issuing the same volume of guidance on tax-exempt groups as it did in the 1990s, says Marvin Friedlander, a manager who recently retired after more than 40 years with the IRS.

This isolation has created an internal environment in which officials and employees became tone-deaf to the consequences of the IRS’s sensitive work. It’s not that they don’t take their jobs seriously—Friedlander was quick to point out the weekends and nights that he and others worked—it’s more that many of these career government employees work for the agency for so long, they no longer see the massive political implications of the job or the ways the public might perceive their actions.

“When I saw the House Ways and Means Committee hearing, it seemed to me like the Republicans were grandstanding and had no interest in solving the problem,” said Paul Streckfus, a former IRS employee who edits a newsletter devoted to the agency and tax-exempt organizations. He chalked up IRS misdeeds to a lack of oversight and overworked employees. Strekfus’s biggest concern with the Treasury inspector general’s report was that it would discourage lawyers and accountants from joining the agency, given the way Congress has treated IRS officials in the hearings.

Perhaps the most salient clue was the incremental news that trickled out of two hearings. Americans learned that Lerner, the head of the tax-exempt division, had purposefully planted a question for a lawyer to ask at a conference, as an indirect way of hinting at the upcoming inspector general’s report. Worse, Lerner’s boss at the agency, then-acting Commissioner Miller, sanctioned this type of “press rollout.” To outsiders, it’s a public-relations blunder straight out of an Onion article—certainly no way to come clean to taxpayers already suspicious of the IRS.

Certainly, no one wants to strip the IRS of its independence. But even with just two political appointees out of roughly 90,000 workers, the agency must work to maintain a nonpartisan tone if it is to operate with the public’s trust.

The downside is that the lack of contact with the outside world, at least in this case, created a culture so out-of-touch that neither Democrats nor Republicans could offer much defense of the agency. Even the liberal ranking member of the Ways and Means Committee, Rep. Sander Levin, spent the week calling for Lerner’s resignation. When Levin and House Republicans agree on a talking point, something has gone seriously awry.

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