By David Dayen, a lapsed blogger, now a freelance writer based in Los Angeles, CA. Follow him on Twitter @ddayen
The great David Cay Johnston has obtained a letter written by a veteran IRS lawyer to 10 members of the Senate Finance Committee, alleging not only a gaggle workplace conduct violations but favoritism toward well-connected tax filers and even document fraud.
Jane Kim, the whistleblower, worked in the Small Business/Self-Employed Division for 10 years in two offices in the New York City area. Much of the letter concerns mismanagement and labor law violations by supervising lawyers at the firm, who play favorites among staff and saddle employees they don’t like with heavy workloads. If the unlucky saps speak up they’re hit with retaliation in the form of even more work. Meanwhile a handful of teacher’s pets do nothing all day and get perfect ratings on their annual reports. The managers sound like terrible people, and senior management has a history of turning a blind eye to the abuses.
But several other things in Johnston’s report caught my eye. First:
In the Long Island office, where she wrote that a docket of 12 to 16 Tax Court cases per year is considered a full load for one attorney, at least two lawyers carry as many as 37 cases each, even though one of them works part time, according to Kim’s complaint. Many others in that office seem hardly to do any work, she wrote.
One Long Island manager, called “Wanda” in the complaints, routinely initials legal papers prepared by her subordinates without reviewing them, Kim wrote.
“Rather than reviewing material at her desk, [Wanda] stands outside her door, initials documents without review, and places them in our outbox,” according to Kim’s complaint. The lawyers who prepared these papers, and others who later had to work with them, have caught numerous mistakes that the supervisor missed, she wrote.
Emhpasis mine. This is no different than robo-signing. The documents initialed by “Wanda” presumably get submitted as evidence in tax court cases. I don’t know whether or not Wanda in any way legally attests that the underlying information in the legal documents is correct, but if errors routinely get found after the fact, some documents in all likelihood deliver false information to the court. No wonder nobody in Washington cared that much about robo-signing, I hadn’t entertained the possibility that it was official government policy.
More critically, the haphazard nature of the workplace environment has a definitive impact on audits and the success of tax evasion:
Lazy workers and poor management at the IRS mean tax evaders have an easier time escaping notice, Kim wrote. “Rather than fixing the situation by forcing the non-workers to actually work for their salaries, management[,] knowing that the working attorneys face an impossible workload, is advising us to give up cases worth millions of dollars,” she said.
She cites one example, in which a lawyer in Manhattan identified as “Grace” whom Kim considers hardworking was advised by an unnamed manager to drop a multi-million dollar case, even though Grace “knew that the IRS should and would prevail.”
Kim said Grace and a lawyer she called “Eric,” who works in M1’s group, worked a month straight with no days off, and that their “diligence resulted in a 75% concession from the other side, in a case that Management advised her to concede.”
Kim said management has also instructed lawyers that “with respect to certain cases, we would be taking a more ‘creative’ or ‘malleable’ stance towards settlement.” Those words are code for conceding “cases of arguably obvious tax cheats,” according to the complaint.
Now, Kim does not specifically say that only the costliest cases involving the wealthiest clients end up going to settlement; in fact, she insists that no groups and individuals were conspicuously targeted or left alone by the agency. But we can safely assume that helping the rich evade taxes would be the practical effect, regardless of the intention. Simply put, the biggest and most complex cases take up most of the time; otherwise they wouldn’t go to court at all. The routine error made by someone making $50,000 a year doesn’t cause a massive resource expenditure the way a multi-million dollar case of tax evasion would. And there’s precedent for this; a 2013 study by the Transactional Records Access Clearinghouse at Syracuse University showed that the IRS “plans to expend 18 percent less effort auditing businesses with assets of $10 million or more compared with just two years ago.”
Johnston points out later in the piece that Kim’s allegations line up with his long history of covering the IRS:
Many of Kim’s complaints are consistent with allegations that other IRS employees in New York and Long Island have shared with me over the last 15 years. In addition to favoritism, I have listened at length to complaints about pressure to go soft on, or quickly close, cases involving large corporations and some wealthy individuals […]
Seasoned investigators known for their skill at ferreting out subtle misconduct should be assigned to investigate the cases cited by Kim where the IRS missed deadlines, dropped the ball, or otherwise didn’t act in a timely fashion. To have credibility, those managing such an inquiry must issue clear orders that the chips will fall where they may given the deplorable favoritism shown by IRS managers in the San Francisco collections cases and the Chevron Indonesia oil cases detailed in my 2003 book, Perfectly Legal.
You can read about the San Francisco collections case in Perfectly Legal at Google Books. Basically, Peter Coons, a career IRS agent, was made chief tax collector for Northern California in 1995, started going after tax cheats from prominent Bay Area families, and was eventually railroaded out of the job. When he tried to seek whistleblower status over the favoritism he saw toward rich taxpayers, he was denied.
Johnston believes there’s plenty of documentary records available to confirm or rebut Kim’s statements, and calls for hearings. Carl Levin at the Senate Permanent Subcommittee on Investigations has been pretty diligent on overseas tax havens and the participation of the banking industry in shielding the wealthy from taxation; his hearing last month on Swiss bank accounts was a tour de force. But the Finance Committee under Max Baucus did basically nothing on this front. He’s in China now, so perhaps Ron Wyden will see this as a cause worthy of hearings. The real targeting from the IRS is not based on ideology but class; some attention to that fact would be a welcome corrective.