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.
Allowing tax fraud by the rich and powerful to go unchecked and unpunished was how Greece ended up in such trouble. But then, perhaps that’s the plan: “Gee, we can’t continue to allow tax cheats to continue to defraud the government and still afford to feed the poor – I guess the poor must starve and die in the streets.”
Too bad Carl Levin is retiring. He’s been good on the SFC.
Thank God Baucus is (more) safely stashed in China.
Tax fraud is committed mainly by the rich because they generally have self-employment or schedule c/k-1 income, and those forms contain the most fraud. It’s generally not deductions that are the fraud, it’s the under reporting of income. The w-2 employee has a difficult time underreprting income.
The W-2 employee has a hard time underreporting W-2 income. The independent snow-shoveling service, flea-market booth or “street tobacconist”, on the other hand, may regrettably miss some of those nickel-and-dime transactions.
I’ve read that 1/3 of taxes owed go uncollected. I’ve been audited four times in the last 10 years, a target of a vindictive former ex-husband (it has yet to cause me anything but time, unfortunately, he can’t say the same). I make barely a working wench income. Surely in the time it takes to audit me four times and my ex (and this last time, his new ex calls me, guess what, yep, she’s being audited too…… seriously, they put with this shit.) I filed a harassment complaint the third time with the IRS, and pre-emptively filed every needed document the 4th time to be told no documents could be forwarded to the audit department, only the return. I was asked to resubmit them. Meanwhile, the investigator/auditor gave me lots of misinformation. I finally copied pages from the tax code, highlighted relevant passages and sent them to her also.
Rich people hire very expensive tax attorneys or CPA’s who make zillions of dollars every year to combat the IRS in audits. Very smart people. The IRS hires people like Michele Bachmann. Poor working folk represent themselves or bring in H&R Block, none of whom are likely to understand AGI or declaring dependents vs. exemptions, and are relieved if they don’t have to go to prison. If you want to collect any taxes at all this year, who would YOU want to see Bachmann going up against?
I wouldn’t hold my breath with the Senate Finance Committee. The IRS has been having its budget slashed by Congress like every other agency. In particular, Congress has been slashing the number of IRS investigators, even though each employee brings in many multiples of their annual compensation in tax revenues. This is a Congress that prefers not to pursue tax revenues.
In my experience, it is not unusual that a small number of people in a workplace often carry the mass of the work. When a manager assigns projects, the work often goes to the most efficient and hardest workers. The ones that you know are going to get the job done well and on time. Not to say there can’t be other reasons, as in the complaint, for assigning heavy workloads to specific individuals. It can also be done to force failure and kick someone out of an office but again in my experience, forcing out is fairly rare. Much more common the heavy workload goes to the one who wants the work and is capable of handling the work.
I got caught up in the premature up-or-out at an injection molding shop after some PE came along and started to injection-mold the business, and know at least a couple of others that did.
I wonder if the very principle of division of labor, as conceived today, is inseparable from the manifestation of unearned privilege.
Underfunding of the IRS also happens in Holland, with the same results (though I don’t know of any whistleblowers coming forward to say they’re being discouraged from doing resource-intensive audits). They are also experimenting with “horizontal oversight” — trusting companies to fairly declare what they owe in taxes, and not checking their submissions — in the name of “democratization”. You can’t make this shit up.
As I’ve been saying for some time now as an ex-government contractor, I have seen the USG descend into hopeless corruption. I don’t believe reform is possible–as we always used to say “no good deep goes unpunished” and so it is and so it will be. I don’t blame “Washington” for this really–it is the culture that has become radically corrupt. The plus side of corruption is that eventually it all breaks down and become good manure for whatever will replace the current system.
Government operations have been corrupted on purpose. If I’m a congress person bought-and-paid-for by the defense lobby, then I will endorse policies that facilitate the looting of the public fisc by contractors. I can do this by pushing for “lean” government, privitization, “Reinventing Government”, etc.
Similarly, if I’m a congress person bought-and-paid-for by Wall Street interests, and if those interests have a keen interest in, say, dismantling Social Security disability programs, then I endorse starving the beast. Meaning fewer administrative law judges, more crowded field offices with shorter hours, a greater adjudication backlog, etc. Then I can point and say “look at what a mess – let’s privitize the whole thing and give it to Wall Street.” I can achieve this by endorsing budget cuts in operations – never mind that such cuts have a negligible effect on the deficit.
Crappify government operations, and then blame the crappification on government itself. The net result is enrichment by looting of the common enemies of humankind.
Why are you so sure it’s not Washington?
It is not at all surprising that over time a capitalist enabling government would produce people who become confused about the distinction between the good of the capitalist, of industry and of business, and the good of the country.
A government that simultaneously enables and regulates a capitalist economy is an inherently contradictory proposition. If people can’t handle that kind of contradiction, then don’t enable that kind of government.
Cronyism isn’t the distinctive mark of capitalist societies. It is the distinctive mark of corrupt governments. But if you like your kleptocracy, you can keep it.