Nina Olson has served as the National Taxpayer Advocate for some time, and you can tell she is passionate about her work. She contributes a different perspective to the interaction between the IRS and taxpayers--an interaction that generally goes pretty well but that can from time to time become frustrating to taxpayers and Service alike.
As we all know, there has been much ado lately about the difficulty that Tea Party and other conservative (and progressive) groups have had getting recognized as 501(c)(4) "social welfare" organizations.
The threshold question at stake here is the IRS's early interpretation of the statute, which says social welfare groups must be operated "exclusively" for social welfare, to mean they just can't have politicking as their primary purpose. Back in the days when the IRS arrived at that facially silly interpretation, there was probably minimal risk of having political groups use C4 status to be able to hide their donors from the public. Of course, we live in a highly politicized world now, and there is no longer any question about this issue. Political groups have shown themselves willing to spend huge sums of money as secretly as possible to influence elections, and if they can use C4 status to do it, they will.
The IRS response to the brouhaha raised by the House Republicans has been something those GOPers will find to their liking but that we all should instead find appalling. Any group that will substantiate that it will spend less than 40% of its resources on campaigning can now be a C4 and keep its donors secret. That's wacky--but that's what happens when Congress browbeats federal employees and tries to manage a complex agency from the political "smoke-filled" room.
What should happen is that Congress legislates in this area to make clear that any group that spends any more than an inadvertent/accidental/de minimis amount of time engaging in politicking cannot be a C4 organization and must be a 527 that is required to disclose all donors other than those that give less than $200. This is in fact one of the alternatives supported by Olson, who says that Congress should legislate to create clarity about the rules governing politically oriented nonprofit groups. She says another option would be to make unlimited political activity fine. That's not a good idea--it would give the shady corporate donors attempting to 'own' elections the very control and secrecy they want.
The next question is--assuming there were some groups whose applications took too long to process and who were, in the typical clumsiness of large bureaucracies, required to engage in a lengthy process of questions and responses that some think went beyond what would have been appropriate, what, if any, redress would be appropriate?
The most appropriate response, it seems to me, is to process those applications expeditiously and make a decision one way or another.
Nina Olson wants a million a year to pay to taxpayers as "apology payments". She thinks that would help identify problems and make IRS employees more sensitive, while providing a "symbolic gesture" that the government recognizes its mistake.
This seems to me to be a very very bad idea. Creating payments for jobs not perfectly done implies a perfection that simply isn't achievable in large institutions with multi-faceted functions. Payments like this could even serve as an incentive for taxpayers to cause (as discreetly as possible) IRS employees to trip up . This is a slippery slope that slides all the way to the bottom. Every year there will be demand for more "apology payments" and cries for truly compensatory damages, and then for truly punitive damages. IRS employees will be evaluated on whether their actions led to an apology payment--and even the best employees will make mistakes sometimes, leading to an even higher level of reluctance to take on even the most egregious problems from taxpayers--especially those who are likely to be aggressive in seeking apology payments (ie, the deep-pocketed ones). It just doesn't do for the nation's tax collection agency to be in a position of cowardice vis-a-vis taxpayers. Sophisticated taxpayers already engage in sham transactions and fraudulently overstate their basis. They will be encouraged to redouble those efforts, because the message of the "symbolic" apology payments will be that the IRS is fair game for tomfoolery.