Photograph by David Brody/Bloomberg

Senator Max Baucus, a Democrat from Montana, right, greets Douglas Shulman, commissioner of the U.S. Internal Revenue Service, prior to a hearing about tax policies relating to Ponzi schemes before the Senate Finance Committee on Capitol Hill in Washington, D.C., on March 17, 2009.

Senator Max Baucus, chairman of the U.S. Senate Finance Committee, said a formal investigation by his panel will get to the bottom of who at the Internal Revenue Service selectively screened groups applying for tax-exempt status based in part on their ideology.

“We know that IRS officials in Washington tried to stop this behavior,” the Montana Democrat said as he opened the Senate’s first hearing on the work by the tax-exempt unit in Cincinnati. “But who in Cincinnati perpetuated this behavior?”

Former IRS Commissioner Douglas Shulman, who left the agency in November, will be speaking publicly for the first time since the matter became public May 10.

Shulman learned that small-government groups had been singled out last year. He never told Congress.

“Were they simply holding out until after the election?” said Senator Orrin Hatch of Utah, the top Republican on the Finance Committee.

Also testifying today are acting IRS commissioner Steven Miller, who is being forced out of his job, and Russell George, the inspector general who oversees the IRS. They had both testified May 17 before the House Ways and Means Committee.

Read the full story here.

Original post is Baucus: Senate Will Get to Bottom of IRS Case by Political Capital.

Photograph by Alex Wong/Getty Images

Treasury Inspector General for Tax Administration J. Russell George, left, and Former Acting Commissioner of the Internal Revenue Service Steve Miller testify during a hearing before the House Ways and Means Committee on May 17, 2013 on Capitol Hill in Washington, DC.

The Internal Revenue Service wrote and planted the question asked on May 10 that led to the IRS scandal, the questioner said in a statement today.

Celia Roady, a partner at Morgan, Lewis & Bockius LLP in Washington, said that she received a call May 9 from Lois Lerner, the mid-level IRS official in charge of tax-exempt organizations. Both were planning to attend a tax conference the next day in Washington.

Lerner “asked if I would pose a question to her after her remarks,” Roady said in a statement released today by her firm. “I agreed to do so, and she then gave me the question that I asked at the meeting the next day.”

According to Talking Points Memo, which got a recording of the event, the question came a few minutes after Lerner finished her prepared remarks. It was: “Lois, a few months ago there were some concerns about the IRS’s review of 501(c)(4) organizations, of applications from tea party organizations. I was just wondering if you could provide an update.”

In response, Lerner acknowledged that the agency used words such as “Tea Party” and “patriot” to decide which applications for tax-exempt status should get tougher scrutiny. Lerner apologized for the agency’s actions.

Roady said she didn’t know how Lerner would answer.

Steven Miller, the acting IRS commissioner who is being forced out, said today in testimony before the House Ways and Means Committee that the agency and Roady had talked in advance. He hadn’t said that the IRS had written the question.

Original post is IRS Planted the Question that Started Scandal by Political Capital.

Photograph by Andrew Harrer/Bloomberg

Steven Miller

Speaking of the truth vs. the whole truth, House Republicans did some selective editing of an inspector general’s report during today’s hearing on the Internal Revenue Service.

Steven Miller, the acting — and outgoing — commissioner of the Internal Revenue Service, denied today that the agency had targeted small-government groups for tougher scrutiny of their applications for tax-exempt status.

Republicans at a Ways and Means Committee hearing pushed back on that, noting that the inspector general’s report used the word “target” 16 times.

“It’s a common understanding of the word,” said Rep. Peter Roskam, an Illinois Republican. “And so I would just suggest that it’s a well-settled doctrine and we not waste a lot of time parsing on it.”

The count of 16 mentions is true — on a simple word search.

Each of those 16 references describes the allegations the inspector general researched, which themselves came from congressional Republicans.

None of the uses of the word “target” in the report describes the inspector general’s findings.

What did the report say? That the IRS used “inappropriate criteria” to screen applications.

Original post is IRS: Republicans’ Own Selective Examination: ‘Targets’ by Political Capital.

Photograph by Andrew Harrer/Bloomberg

The Internal Revenue Service (IRS) headquarters in Washington, D.C.

Written with Peter Cook

The scandal at the Internal Revenue Service is emboldening the chief congressional proponents for rewriting the tax code, they said in an interview with Bloomberg Television.

“This actually leads to new momentum for tax reform,” said Senate Finance Committee Chairman Max Baucus in a joint interview with House Ways and Means Committee Chairman Dave Camp.

The pair spoke in the Capitol today in an interview with BTV’s Peter Cook for the “Capital Gains” program airing May 19.

Camp, a Michigan Republican, will lead the first legislative hearing tomorrow into the IRS’s selective scrutiny applied to small-government groups applying for tax-exempt status.

Groups with “tea party” or “patriot” in their names got tougher questions and experienced longer delays than others in a practice that the IRS admitted May 10.

“Now we understand the fear the IRS can put into people,” Camp said.

Baucus, a Montana Democrat, will follow with a hearing May 21.

Steven Miller, acting commissioner of the IRS, resigned yesterday. Today, President Barack Obama named Danny Werfel, controller of the Office of Management and Budget, as acting commissioner.

Camp and Baucus have been working together on rewriting the tax code to broaden the tax base and lower marginal rates. They’re cooperating even though they disagree on whether a tax rewrite should generate more revenue. Baucus says some tax changes should pay for deficit reduction; Camp disagrees and wants rate reduction only.

Original post is IRS Scandal Good for Tax Reform: Baucus, Camp, in Interview by Political Capital.

Photograph by Tom Williams/CQ Roll Call/Getty Images

Danny Werfel, federal controller, Office of Management and Budget, testifies before a Senate Appropriations Committee hearing in Hart Building on the impacts of the sequestration on his agency.

Updated at 3:25 pm EDT

President Barack Obama has picked Danny Werfel, controller of the Office of Management and Budget, as acting commissioner of the Internal Revenue Service.

Werfel, 42, will replace Steven Miller, who was forced to resign yesterday amid revelations that the agency had targeted Tea Party-related groups for scrutiny of their tax exempt status. Werfel will start May 22 and serve through the end of the fiscal year, which ends Sept. 30, the White House announced today.

“Throughout his career working in both Democratic and Republican administrations, Danny has proven an effective leader who serves with professionalism, integrity and skill,” Obama said in a statement. “The American people deserve to have the utmost confidence and trust in their government, and as we work to get to the bottom of what happened and restore confidence in the IRS, Danny has the experience and management ability necessary to lead the agency at this important time.”

An acting commissioner doesn’t require Senate confirmation, though Werfel has been through that process before. He was confirmed by the Senate in October 2009 as controller at OMB.

At OMB, the White House says, he has been “responsible for coordinating OMB’s efforts to initiate government-wide improvements in all areas of financial management, including financial reporting, improper payments, real property management, financial accounting standards, grants management, and financial systems. More recently, Mr. Werfel has taken on an expanded role within OMB, leading the coordination of OMB’s efforts in the areas of Federal procurement, information technology, and personnel policy and performance management. ”

He has served as deputy controller, chief of the Financial Integrity and Analysis Branch, budget examiner in the Education Branch, and Policy Analyst in the Office of Information and Regulatory Affairs.  He also served as a trial attorney in the Department of Justice’s Civil Rights Division.

He holds a Masters Degree in Public Policy from Duke University, a law degree from the University of North Carolina at Chapel Hill, and a Bachelors Degree in Industrial and Labor Relations from Cornell.

Original post is Obama Naming Werfel for IRS by Political Capital.

Photograph by Alex Wong/Getty Images

The Oversight Subcommittee of the House Ways and Means Committee on Capitol Hill in Washington, DC.

That thud you just heard was a 568-page pile of tax policy hitting desks around Washington.

The nonpartisan congressional Joint Committee on Taxation released its summary today of the U.S. tax system (444 pages), various proposals to change it (45 pages) and comments submitted to bipartisan working groups of the House Ways and Means Committee (68 pages).

Lawmakers are planning to use the report as a guide as they try to rewrite the tax code this year and next. In a joint statement, Ways and Means Chairman Dave Camp and top Democrat Sander Levin called the report “an important and comprehensive overview” of the tax system.

“The committee will dig into its details over the coming weeks,” they said.

The report is mostly a compilation of previously released information on our complicated tax system. It’s chock full of minutiae, from the depreciation period for municipal wastewater treatment plants (15 years) to the maximum adoption credit ($12,970).

Happy reading!

Original post is Lawmakers Get 568 Pages of Tax Code Guidance by Political Capital.

Photograph by Andrew Harrer/Bloomberg

Senator Max Baucus, a Democrat from Montana, speaks to the media while leaving the Blair House after a bipartisan meeting on deficit reduction with congressional leaders in Washington, D.C.

Senate Finance Committee Chairman Max Baucus won’t seek re-election in 2014, ending a 36-year tenure capped by his authorship of the 2010 health care law.

Baucus, 71, has been the top Democrat on the Finance Committee since 2001, often frustrating members of his own party with his willingness to negotiate with Republicans at length and break with Democrats on gun control and the estate tax.

Baucus’ departure could make it easier for Republicans to win a Senate seat in a state that President Barack Obama lost last year by 14 percentage points. He is the sixth Democratic senator, and the third from a state that voted Republican for president in 2012, who’s announced plans to eschew re-election next year.

Michael Bennet of Colorado, chairman of the Senate Democrats’ campaign committee, said he expects to build on the ground operation the party built for Jon Tester’s successful re-election in 2012 and “compete and win.”

One possible candidate is Brian Schweitzer, the former governor. Baucus had previously said he was running for re-election.

Baucus indicated his decision to fellow lawmakers today, said Orrin Hatch of Utah, the top Republican on the committee.

“It’s a great loss as far as I’m concerned,” said Hatch.

Baucus plans to make an announcement later today, a Democratic aide said. Another Democratic aide, speaking on condition of anonymity, also said Baucus plans to retire.

Baucus’ departure and lack of a campaign could give him more time and political space to legislate on tax policy over the next two years. He has been working on a rewrite of the tax system.

After he leaves, the most senior Democrat on the Finance Committee will be Ron Wyden of Oregon, now chairman of the Energy and Natural Resources Committee. Wyden, long an advocate of tax simplification, declined to comment today on whether he would be interested in the Finance chairmanship.

Original post is Baucus’s 2014 Retirement: Sixth Senate Democrat to Go by Political Capital.

Photograph by Melina Mara/The Washington Post via Getty Images

Senate Majority Leader Harry Reid on Capitol Hill.

The online sales tax bill headed to the Senate floor this week took a very direct path there — right past the Finance Committee.

Senate Majority Leader Harry Reid, a Nevada Democrat, maneuvered the bill past Committee Chairman Max Baucus, a Montana Democrat. Baucus opposes the legislation in part because of the effect on his home state, which doesn’t impose a sales tax. The panel’s top Republican, Orrin Hatch of Utah, said last week that the bill  “just isn’t ready yet.”

In his tenure as majority leader, Reid has frequently bypassed committees to bring high-profile bills to the floor. That usually happens with the relevant chairman’s explicit or tacit approval and the chairman usually manages the bill on the floor.

This bill is different, because Senate leaders are using the rules to get around a chairman.

Reid’s more aggressive use of Senate procedure — Rule XIV, to be precise — is rare, says Sarah Binder, a political science professor at George Washington University in Washington who studies the Senate.

Reid’s predecessor, Bill Frist of Tennessee, threatened a similar move in 2006 on immigration to prod the Judiciary Committee to act.

“Ultimately, the broader lesson, I suppose, is that the exception proves the rule,” Binder said in an e-mail. “It’s hard to find direct precedent for what Reid is attempting on the online sales tax bill.”

Original post is Reid Ramrods Online Sales Tax Bill by Political Capital.

Photograph by Daniel Acker/Bloomberg

A copy of the U.S. Department of the Treasury Internal Revenue Service 1040 Individual Income Tax form for the 2011 tax year belonging to President Barack Obama and his wife, first lady Michelle Obama.

Talk about a circular transaction.

President Barack Obama could be able to claim a tax break for his decision to return 5 percent of his salary to the government.

Obama is giving back part of his $400,000 in salary in solidarity with federal workers facing furloughs because of budget cuts in the sequestration of federal funds.

Voluntary payments to reduce the public debt can be taken as deductions for charitable contributions, according to the Congressional Research Service.

At the 39.6 percent top federal tax rate — the one Obama insisted on last year – the $20,000 deduction for this returned pay would put $7,920 in tax relief back in his pocket.

If this happens, the government would pay Obama, who would pay the government, which would then pay Obama.

The White House didn’t responded immediately to a question about whether the president would claim the break on his 2013 tax return, which won’t be filed until early 2014.

Original post is Obama’s Pay Cut (Tax Break) by Political Capital.

Photograph by Paramount/Everett Collection

Star Trek

In the voyages of the Starship IRS, this was a malfunction.

The Internal Revenue Service said late today that a “Star Trek” parody video sought by congressional investigators “did not reflect the best stewardship of resources.”

Rep. Charles Boustany, a Louisiana Republican, sent the IRS a letter yesterday requesting a copy of the video and more information about its purpose.

In a statement, Michelle Eldridge, an IRS spokeswoman, said procedures now in place wouldn’t allow such a video, which she described as a “well-intentioned, light-hearted introduction to an important conference.”

The agency now requires more involvement from senior executives and an editorial review board.

The agency uses video to reach out to taxpayers and employees, and some uses are appropriate, she said. A Gilligan’s Island video saved  the IRS $1.5 million in comparison with in-person training, she said.

“This effort,” Eldridge said, “will make sure all videos reflect a tone and content appropriate for administering the nation’s tax system.”

No word on whether the executive review board is armed with phasers.

Original post is IRS Star Trek Video: Beam It Up by Political Capital.