President Obama’s nominee to head the embattled Internal Revenue Service said Thursday that, if confirmed, he would launch an inquiry into nonprofit organizations that have lost millions of dollars to financial wrongdoing and failed to disclose the circumstances to donors and law enforcement.
Nominee John Koskinen’s remarks followed concerns voiced in recent weeks by state and federal officials regarding what are known as significant diversions of assets. Members of Congress have said they are troubled that accounts of multimillion-dollar losses have come to light through news media reports and not from IRS enforcement actions.
“I think that the IRS should take advantage of the many sources of information that come to its attention,” Koskinen wrote in response to questions submitted to him this week by the Senate Finance Committee. “Reports such as that in The Washington Post provide important insights into areas that may have gone unnoticed or have been overlooked. If confirmed, I will look into these issues.”
The Post reported this year that it had identified more than 1,000 nonprofit organizations that in recent years disclosed on annual tax returns that they had suffered significant diversions — many of them acts of fraud and embezzlement carried out by insiders at the organizations.
The diversions highlighted in the articles totaled hundreds of millions of dollars. But the newspaper’s investigation also found that, in violation of IRS reporting rules, many of the organizations failed to include in their disclosures the amounts they lost and other key details.
Sen. Charles E. Grassley (R-Iowa) responded by opening an investigation into legal issues related to the diversions. Sen. Tom Coburn (R-Okla.) asked the Government Accountability Office to look into many of the same issues.
After a hearing this week, Grassley submitted a written question to Koskinen, saying he was troubled about the IRS’s “lack of oversight” of charities and nonprofit organizations.
“The Washington Post’s recent series on charity officials who embezzle money is concerning as the series was based on old-fashioned shoe-leather investigative work,” Grassley said. “The reason this is troubling is that this is data the IRS should be looking at — especially since the IRS went through the trouble and cost to redesign the Form 990 [annual tax return].”
Grassley asked for disclosure of how many of those organizations the IRS has audited and a list of other enforcement initiatives that the IRS has developed as a result of the redesigned Form 990.
The committee hearing went smoothly, otherwise, with lawmakers showing virtually no resistance to Koskinen’s confirmation.
Committee Chairman Max Baucus (D-Mont.) encouraged his colleagues to approve Koskinen, who helped lead Freddie Mac out of its financial difficulties, quickly so the full Senate could vote on the nomination. The panel has scheduled a vote Friday on the matter.
Baucus added that the acting IRS commissioner, Daniel Werfel, is “anxious to leave” the agency after staying longer than he had anticipated.
“We very much need a full-time commissioner to replace Danny Werfel, who’s done a great job,” he said.
Obama appointed Werfel to lead the IRS shortly after a watchdog detailed inappropriate screening methods the agency used to determine whether advocacy groups qualified for tax exemption during 2010 and 2012.
Treasury Inspector General J. Russell George said in a May report that the controversial methods largely affected conservative entities.
The IRS proposed new rules this month to help clarify allowable activities for advocacy groups applying for tax-exempt 401 (c) (4) status as so-called social-welfare organizations.
Josh Hicks contributed to this report.