Embattled IRS Exempts Unit Leadership Changes May Be Tricky

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By Colleen Murphy

Nov. 29 — Recent switch-ups among top leadership in the IRS’s exempt organizations division could inflame issues in an already sensitive area, attorneys told Bloomberg BNA.

Although it isn’t uncommon for top-tier officials to move between areas of the Internal Revenue Service, the Tax-Exempt and Government Entities Division is unique within the agency. It encompasses complex areas of the tax code and deals with issues that are more sensitive than run-of-the-mill tax compliance. The division was also at the center of a scandal several years ago, when employees scrutinized organizations applying for tax exemptions.

Donna C. Hansberry, the division’s current deputy commissioner, is moving to IRS Appeals. The incoming deputy, David W. Horton comes from the Large Business and International Division, and hasn’t worked with exempt organizations previously. The IRS announced the changes in a memo released Nov. 28.

Because the issues the TE/GE division handles can be thorny, it is a particularly difficult space to jump into without prior experience, attorneys specializing in nonprofit law said Nov. 29.

“The problem is what makes exempt organizations sensitive is it impacts people’s religion, their health care, their education and their view of themselves,” said Marcus Owens, a partner at Loeb & Loeb LLP. Owens is a former director of the division.

‘A Natural Fit.’

Keeping officials in roles for about three years at a time is the agency’s ideal pace, John M. Dalrymple, deputy commissioner for services and enforcement, said in a Nov. 29 interview. Dalrymple, who oversees four divisions, will be leaving the IRS, but said he had no updates about his plans. Kirsten B. Wielobob will take his spot, according to the Nov. 28 memo.

The announcement came several weeks after Tamera Ripperda, director of exempt organizations, announced she was leaving the division. The TE/GE division has made progress since having no permanent executives in place three years ago, and Sunita B. Lough, the commissioner, will remain in her role and provide continuity, Dalrymple said. Margaret A. Von Lienen, the division’s acting director, also knows the area well, he said.

“I really don’t think there’s going to be a lot or much change at all,” he said.

Horton has been at the IRS since 1984, when he began as a revenue agent in St. Louis. He is currently the assistant deputy commissioner of compliance integration in the LB&I Division, where he helps plan compliance programs. He has held several other positions in LB&I, according to the IRS memo.

Though the TE/GE division does handle different types of work than other areas of the IRS, Horton is “a very competent technician and has held many technical positions,” Dalrymple said. “In terms of the technical complexity of the work there, it’s no more complex than the work we do in our LB&I organization. That’s why I found such a natural fit for the people originally put into leadership positions there coming out of our LB&I organization.”

There isn’t a firm date for Horton to start his new position, because he is moving from Chicago. Hansberry will move into her role early next month, Dalrymple said.

Lack of Experience

The agency has been unable to fill positions across its divisions after staffers leave, and has had to institute hiring freezes because Congress has cut its budget by $900 million since 2010. The IRS has almost no employees younger than 30, and its inability to hire means knowledge isn’t being passed from the more senior employees—an “incredible concern,” Dalrymple said.

Until recently, the senior management across exempt organizations had “deep experience of the area,” but that changed after many left the division following the application targeting scandal, Owens said. Lois Lerner, the former official at the center of the controversy, retired in 2013.

The retirements of employees with extensive experience, and the absence of such experience in the management of exempt organizations “has been a problem for quite some time,” Suzanne Ross McDowell, a partner at Steptoe & Johnson LLP in Washington, said in an e-mail.

“No matter how talented a manager may be, lack of knowledge in the substantive law makes management challenging,” she said.

Experienced staffers can also help new officials adjust, attorneys said. Strong leadership at the top can mean better rulings and can help the “wheels move more smoothly” across the division, said Elizabeth J. Kingsley, an attorney at Harmon, Curran, Spielberg & Eisenberg LLP in Washington.

What to Expect

“You do get a little concerned when you’re losing a couple of the top people,” said James P. Joseph, a partner at Arnold & Porter LLP in Washington. “The hope is it won’t be too disruptive on an overall basis and that we won’t see a significant change between policy and direction or approach.”

Practitioners would particularly like guidance in tricky areas such as the definition of electioneering and what political activity is allowable for social welfare organizations, Joseph said. Congress has barred the agency from issuing guidance on tax code Section 501(c)(4) organizations in appropriations bills following fallout from the targeting.

Cleta Mitchell, a partner at Foley & Lardner LLP in Washington who has represented Tea Party groups in lawsuits against the IRS, said in an e-mail that Horton will ideally “follow the law, historic rulings and precedent established over many years” and won’t succumb to pressure to issue new rules or procedures.

“What I hope he will do is revert to the rule of law and stiff arm the left wingers seeking to use the Exempt Orgs unit as a political weapon against conservatives,” Mitchell said.

Dalrymple said he encourages all officials moving into new roles to take time to listen and talk with professionals before making broad changes, particularly in their first year.

“I like them to actually take stock of what’s going on,” he said.

To contact the reporter on this story: Colleen Murphy in Washington at cmurphy@bna.com

To contact the editor responsible for this story: Meg Shreve at mshreve@bna.com

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