The journalist and expert on nonprofit tax law talks to Michael E. Hartmann about his career, how the IRS has changed and the challenges it faces, and his journal.
Paul Streckfus is editor of the EO Tax Journal, a daily e-mail update of information, with commentary and analysis, for practitioners and scholars of exempt organizations (EO) tax law. It is thus a limited, but an important and influential, audience—especially to philanthropy and the nonprofit sector. In addition to being informative and insightful, the journal is itself important and influential, as well.
Streckfus began his career in the EO Division of the Internal Revenue Service (IRS), after which he’s covered EO and related issues as a journalist and analyst for decades since.
Below is the first of two parts of an edited transcript of a conversation that he was kind enough to have with me last week. In it, we discuss his career, the IRS and how it’s changed, the continuing and new challenges it faces, and his journal.
The conversation’s second part—in which we talk about Congressional interest in and public discourse about EO issues, limited-liability corporations (LLCs), donor-advised funds (DAFs), and watchdogs —is here.
Hartmann: So how does a nice guy like you end up becoming interested in and an expert on exempt organizations tax law?
Streckfus: Well, it was really by accident. I had started law school and after the first year, I was runningout of money. Fortunately, Georgetown Law School has an evening division, so I could transfer to that. But I needed a job during the day, so I put in my application with every federal agency in Washington, D.C.
The IRS called and said, would you like to work for us? I said yes and they said, well, you’ll be working in the Exempt Organizations Division. I had no idea what working there would involve, but it was a job and I said, sounds fine to me. That’s how I got into the exempt organizations area.
Hartmann: What year was that, Paul?
Streckfus: That was 1972.
Hartmann: Do you have an LL.M.?
Streckfus: No, I just have the J.D., but I took a lot of the LL.M. coursework once I knew I was interested in tax.
Hartmann: How long were you at the IRS?
Streckfus: Six years. I finished law school while working there and then spent a few more years, so I had a total of six years before I left in 1978.
Hartmann: How have things changed at the IRS in that particular division since you were there and over the decades since, in general?
Streckfus: I’m sorry to say that things have gotten worse in the division. When I was there, it was kind of “the Golden Age.” The Tax Reform Act of 1969 brought in the Chapter 42 foundation provisions and it also brought in more funding for the EO Division. Not long after, we had the Pension Protection Act of 1974 and that also brought more attention to the EO area.
But unfortunately, that was the high-water mark. By 1980, things were going downhill, let’s sayslowly for the next 20 years, but since 2000, it’s been a really rapid descent, unfortunately, in terms of resources, etc.
Hartmann: So when you say things have gotten worse, you just mean the budgetary wherewithal to do the job.
Streckfus: Since the so-called tea party scandal, the IRS has also retreated from enforcement so they have not only less money, but also less willingness to do the job. You put that combination together and basically not much is being done now.
Hartmann: What is one to make of this if you’re an observer of the nonprofit world in general? Why should I be concerned that there are less resources in the IRS if I care about charity and the “soul” of charity and the nonprofit sector? This might be a softball to you, but why should I care about the skittishness of the IRS to investigate what I’m going to generally term the politicization? What does this mean for the sector?
Streckfus: I think the biggest concern is scandal or abuses. [Former IRS EO Division director] Marc Owens has said it’s just a matter of time before there will be a scandal that will get people’s attention, as there have been in the past. Then there’s the abuse situations.
I think that’s the biggest problem, where money is siphoned out of the charitable stream. The EO area really doesn’t have an SEC [Securities and Exchange Commission] or other government agencies really looking at it. It’s rather unique, and I don’t think it’s good that the IRS is the federal regulator of the tax-exempt sector when the IRS’s business is collecting taxes.
Whenever I tell someone I’m in the tax-exempt tax area, they look at me like, well, what do you have to do all day in dealing with an agency that collects taxes and your groups are tax-exempt?
My biggest concern over the years is the various scandals that have periodically cropped up just because in running EOs, you have a fair degree of ability to manipulate where the money goes.
Hartmann: I assume someone’s proposed creating the equivalent of an SEC in the EO area.
Streckfus: I mentioned Marc Owens. He’s been one of the leaders, and I’ve certainly seconded that, as have others, mostly law professors. The thing with the IRS is the people who work at the IRS are mostly accountants and tax attorneys. What do they know about social welfare, etc.? Well, that’s what exempt organization are about, so you really need a whole different mindset.
That’s one of the first things that struck me when I joined the IRS. Some of my first cases involved civil-rights groups that were applying for exemption and at that time, the IRS was actually denying them. I and others were making the case that they deserved exemption, the same with environmental groups. Now few question that those groups qualify as exempt organizations. Yet when I think about that now, we were a bunch of accountants and attorneys making those kind of policy/social benefit decisions.
Hartmann: How does the IRS work with the FEC [Federal Elections Commission]?
Streckfus: Well, everything I hear is that the FEC doesn’t work. Therefore, there’s not much to work with, because the FEC is split. For political reasons, they apparently do nothing and therefore, the IRS is left without a partner when it comes to addressing political organizations.
Hartmann: Sounds like it’s “the Wild West” on a lot of fronts, then.
Streckfus: That’s a big part of the problem.
A journalistic niche
Hartmann: Let’s talk about the EO Tax Journal specifically. You’re doing that full-time, right, or do you have clients and cases?
Streckfus: I gave up having clients a long time ago. As a journalist, I don’t want to be seen as favoring a client. What I’m doing now is a full-time job. I’m happy to talk to people on the phone. That’s what journalists do, but I would never charge anybody. Any advice I give is pro bono. I’ll refer them to somebody if it’s not a simple question they have.
Hartmann: So why did you start the journal? Did you see a niche to be filled, a need for this kind of product?
Streckfus: It was more of a love affair. I didn’t know what I wanted to do when I went to law school. Tax was the last thing on my mind. At the IRS, I found exempt organizations interesting, but I didn’t really want to practice. I started working for Tax Analysts in various capacities and began begging the editor to let me write EO tax articles. I really enjoyed that and so I said, well, this is what I want to do. I love being independent, so starting my own publication made sense to me, and I’ve been doing that now for 25 years.
Hartmann: Has it always been in the current form of a daily e-mail? Was there a point at which you were faxing this out?
Streckfus: Originally, it was a monthly paper journal. We were just going into the Internet age back in the ’90s, so that’s how I started. The problem was between the cost of paper and postage, I wasmaking money for the printer and the Post Office, but not much left for me. Nowadays, some of the major firms will only buy electronic publications.
Somebody said to me, well, why don’t you go electronic? I thought, well, I’ll give it a try. It has worked out much better than I expected, and I don’t have to pay for paper or postage anymore, so thank God for the Internet.
Hartmann: Who is its audience? How big is it? How “inside-baseball”-y is the journal?
Streckfus: It’s definitely inside baseball. It’s a forum for tax attorneys and accountants who specialize in EO, so that’s a somewhat narrow niche. Over the years, I keep getting more institutions and foundations subscribing. They discovered they could get current information from me that their accountants and attorneys were charging them for at high hourly rates. Some firms now charge up to a thousand an hour.
Because I have individual and group subscriptions, I estimate that I have about 2,500 readers each day. We call ourselves EO tax nerds. A lot of them say they start their day with coffee and Streckfus, since I send out my e-mail update out around 5:30 a.m. each work day.
The conversation continues in Part 2 of 2 here.