The IRS's E-Mail 'Coincidences' Are Too Many

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For decades the Internal Revenue Service has been the most feared and the familiar agency to ordinary Americans. Many people spend countless hours preparing detailed information to send to the IRS with the implicit understanding that the personally-sensitive information will be kept at the highest levels of confidentiality.

Now we learn, to our utter amazement, that the IRS handles information with little care.

IRS commissioner John Koskinen, testifying before the House Committee on Oversight and Government Reform on Monday evening, said that he only recently found out that the emails of Lois Lerner, director of exempt organizations at the IRS, were unobtainable after the crash of her hard drive on June 13, 2011.

Coincidentally, Lerner's computer crashed 10 days after Congress expressed concern about possible targeting of conservative groups. Emails between January 2009 and April 2011 were lost. Her computer is not available for examination, because it has already been recycled by the IRS. In a further coincidence, or not, a backup tape of agency emails made by the IRS was erased after 6 months.

Lerner, who resigned her position and refused to testify before the House Government Reform and Oversight Committee, apologized for targeting conservative tax-exempt applications on May 10, 2013, in a response to a planted question at the American Bar Association meeting.

Koskinen told members of the Committee on Monday that IRS staff are supposed to print out emails of importance and save them as official records, and that there was not necessarily any wrongdoing due to loss of emails-because all official records should have been preserved on paper. As Georgia Republican Rep. Doug Collins said, the story sounds more and more implausible.

Why should we care about missing emails from 2009 to 2011? As former Secretary of State Hillary Clinton said in a 2013 hearing about Benghazi, "What difference at this point does it make?"

It is not just that Americans' basic trust in the IRS is being called into question. Over the past five years the IRS has been concentrating its power, giving the agency increased opportunities to pick on people and groups it dislikes.

Sarah Hall Ingram, who was commissioner of the IRS's Tax-Exempt and Government Entities Division from 2009 to 2012 during the Lois Lerner scandal, now heads the IRS Affordable Care Act Office. Considering her background, it will be interesting to see how she deals with the four dozen new powers to implement the Affordable Care Act. If the IRS cannot handle financial data, is it competent enough to handle Americans' health data?

In March 2013 the Treasury's Inspector General for Tax Administration, J. Russell George, testified before the House Appropriations Committee, "It is unprecedented in recent history, the amount of responsibility the IRS is being given in an area that most people don't think of as an IRS function...This is going to lead to problems."

With its new healthcare powers, the IRS knows not just your income but your family's circumstances. Families earning under 400 percent of the poverty line, currently $94,000 for a family of four, get subsidized premiums on the health care exchanges. It is up to the IRS to allocate them accurately. In order to calculate subsidies, the IRS will need to know if you are divorced or separated, whether your health justifies a cost-sharing subsidy, what expensive drugs you might have used, whether you are self-employed, on salary, or run a business.

Those now enrolled in the exchanges did not have to provide income verification to justify subsidies. At some point the IRS will have to compare people's true income to the income they declared-and adjust their subsidies to reflect the changes. Those who made more will owe money to the IRS, and people who made less will be due a refund.

Do Americans trust the IRS to calculate these subsidies and refunds impartially?

The IRS already made a power grab in May 2012 by extending premium subsidies to the 34 states with federal exchanges. The text of the Affordable Care Act states that people who buy health insurance from state exchanges get subsidies if they earn under 400 percent of the poverty line. A different section of the Act allows the federal government to set up exchanges in states that have not done so. But nowhere does the law say that people on these federal exchanges can receive tax subsidies.

The IRS extended subsidies to those getting health insurance on the federal exchanges by defining an exchange as a "State Exchange, regional Exchange, subsidiary Exchange, and Federally-facilitated Exchange," even though this was contrary to the letter of the law. That gives the IRS control over healthcare in states with federal exchanges.

The IRS is being challenged in Halbig v. Sebelius, with a decision due any day from a three-judge panel at the D.C. Circuit Court of Appeals.

As if the IRS did not have enough to do with collecting taxes, approving tax-exempt status, and administering Obamacare, the IRS proposed regulations that would allow the agency to regulate the free speech of President Obama's political opponents, while leaving the political activities of his friends untouched.

New proposed IRS regulations were placed in the Federal Register last November, the day after Thanksgiving, and after substantial objection were withdrawn. Many people expect them to be reissued after the Lois Lerner scandal dies down.

The regulations were targeted at tax-exempt organizations that file under 501(c)(4) of the IRS code, the status of groups targeted by Ms. Lerner. Contributions to these groups are not tax-deductible. Under the new rules these groups would not be allowed to engage in voter education that mentions a candidate within two months of a general election or one month of a primary.

Left untouched by the proposed regulations were unions, which file under 501(c)(5) of the Internal Revenue Code. In the 2012 election cycle, according to the Center for Responsive Politics, unions gave $143 million to federal candidates, parties, and outside groups. When state races are included, the Service Employees International Union spent $58 million on federal and state elections; the AFL-CIO spent $20 million; and the American Federation of Teachers spent $63 million.

Also unaffected were 501(c)(3) organizations, which benefit from tax-deductible contributions as well as tax-exempt status. Many individuals and foundations give only to 501(c)(3)s. It is not unusual for some of these, such as the Sierra Club or Planned Parenthood, to educate the public about the preferred way to vote.

The Sierra Club, which accepts tax-deductible contributions, brags on its Web site about its campaign success: "By framing many of the state and federal races with environmental issues," the Club writes, "we not only won many of our battles, we facilitated a shift in power that will help us win the war against dirty energy and its effects on the planet."

How can the IRS regain the confidence of the American people? As the House Government Reform and Oversight Committee hearing continues on Tuesday, Koskinen should welcome a special prosecutor to ensure transparency and renewed trust.

Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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