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Friday, January 12, 2007

"Catch and Release" at the IRS

Do you remember this change in the leadership at the IRS in January, 2003?:

Budget Official Is Bush's Choice to Lead an Embattled I.R.S., by Richard Stevenson, NY Times, January 14, 2003: President Bush today named Mark W. Everson, deputy director of the White House budget office, to run the Internal Revenue Service... Mr. Everson is an accountant and former corporate executive, but most of his government experience has been in managing large bureaucracies and applying technology to improving performance and cutting costs. The administration ... said that Mr. Everson's main task ... would be to make it operate more effectively...

Mr. Everson ... is little known among tax lawyers, accountants and lobbyists in Washington. His nomination left them unsure what changes he might bring to the I.R.S., which has been buffeted in recent years by criticisms that it has cracked down too hard on taxpayers...

Mr. Everson ... served for six years in a variety of positions in the Reagan administration ... [and] ... has been involved in the administration's efforts to contract out more government functions to the private sector. ...

So what has changed in the four years since Everson, who is often described as having "close ties to the White House," took the helm (his wife was the White House Ethics Officer for three years)? One change is to outsource tax collection to the private sector, a practice that has already come under fire (e.g. see I.R.S. Use of Private Debt Collectors Is Criticized or Tax Farmers, Mercenaries and Viceroys). Here's more on the agency's "cost cutting" efforts:

Agents Say Fast Audits Hurt I.R.S., by David Cay Johnston, NY Times: Top officials at the Internal Revenue Service are pushing agents to prematurely close audits of big companies with agreements to have them pay only a fraction of the additional taxes that could be collected, according to dozens of I.R.S. employees who say that the policy is costing the government billions of dollars a year.

“It’s catch and release,” said Douglas R. Johnson, an I.R.S. auditor in Colorado for three decades who said he grew so frustrated at how large corporations were allowed to pay far less than what he thought they owed that he transferred to the agency’s small-business division. ...

They said a policy intended to avoid delays in auditing corporations was being pushed so rigidly that it prevented them from pursuing numerous examples of questionable corporate tax deductions. ...

[A]uditors said they were told to limit questioning only to those specific issues that the I.R.S. and the companies had agreed in advance to examine. When other questionable deductions emerged in the course of the audit, they said, additional taxes were ignored. ...

One longtime auditor in New York said that when ordered not to pursue an issue “you just write ‘closed per case manager’ to cover yourself.” The auditor was asked why she did not file an official memo indicating that she disagreed and that she believed it was premature or improper to close the audit. “Why would I do that?” the auditor replied. “So my manager will give me a bad performance review?” Others gave similar explanations. ...

Ron McGinley said it was clear when the new policies went into effect in 2003 ... that tax law enforcement was being weakened. Mr. McGinley drew an analogy contrasting the I.R.S. approach to the way the government investigated John Gotti, the organized crime boss known as the Teflon Don. “The way they limit audits,” he said, “is like the FBI going to the Teflon Don and saying, ‘We’d like to look around, so what are you willing to let us see?’”...

Kay Rogers, the union president in Orange County, Calif., said ... supervisors receive cash bonuses, promotions and other benefits based on closing cases within the time allowed, not on the quality of audits or the dollars collected. “When a person is rewarded monetarily for keeping to the cycle time,” she said, they are going to close audits to get their reward.

Individual auditors ... told of case managers and higher supervisors ordering them to drop issues because it would prevent closing the audit by a predetermined date. ... “They are giving away the store,” one agent in New Jersey said.

Agents told of being refused access to specialists, including economists, engineers and historians, because if these specialists developed an issue the audit would have to continue past the deadline. ...

Mr. Lynch, the auditor who retired in California, and many others complained that the effect of the policy was to allow the Bush administration to achieve administratively a further easing of the corporate income tax burden far beyond what Congress has approved legislatively.

According to Melanie Fox, the only current auditor besides Mr. Johnson who agreed to be quoted by name, a large number of the most experienced corporate auditors plan to retire as quickly as they can because they feel their efforts are not respected. “A lot of audit experience is about to walk out the door,” Ms. Fox said. “And then what will happen?”

What will happen? We'll have yet another government agency that has been rendered less effective by the administration in its seemingly never ending attempt to confirm its anti-government ideology.

    Posted by on Friday, January 12, 2007 at 12:06 AM in Economics, Taxes | Permalink  TrackBack (0)  Comments (13)

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