Backpedaling at the IRS

[Gene C. Gerard]

The New York Times reported this week that the Bush
administration is eliminating almost half of the lawyers at
the Internal Revenue Service who audit the tax returns of the
wealthiest Americans. These lawyers specialize in auditing the
returns of those who are subject to gift and estate taxes.
Since taking office in 2001 President Bush has consistently
lobbied Congress to repeal the estate tax, but he hasn’t been
able to get Congress to go along with him. Instead, the Bush
administration has now decided to force the IRS to backpedal
and circumvent the tax laws. 

The IRS will cut 157 of the agency’s 345 estate tax lawyers
and 17 of the support staff personnel assigned to them. Six of
the IRS lawyers who are likely to be laid off acknowledged
that the cuts were simply the latest moves behind the scenes
at the IRS to protect people with political connections and
complex tax-avoidance schemes from detailed audits. Kevin
Brown, an IRS deputy commissioner, says the agency is auditing
enough returns to catch cheaters. But during the Clinton
administration, the IRS stated that cheating by affluent
Americans was one of its biggest problems. 

In April 2000 the IRS released the results of a study on gift
tax evasion. When an individual gives gifts exceeding $675,000
in their lifetime, a tax must be paid on each additional gift
worth more than $10,000 per person per year.  The study
determined that more than 80 percent of the 1999 gift tax
returns in excess of $1 million that were audited reported an
inaccurate value of the gift. On average, the gifts were
undervalued by $303,000, depriving the treasury of an
additional $167,000. This evasion cost the government $275
million in 1999.

The study also found that IRS lawyers, owing to staffing
shortages, only spent about 31 minutes auditing each gift tax
return, which typically consisted of dozens of pages. John
Dalrymple, then director of IRS operations, admitted that the
agency lacked the resources to identify those who were
falsifying the value of their gifts, or failing to file their
returns. Consequently, the IRS announced that it was hiring
three additional lawyers to audit gift tax returns. Yet now
the IRS says it has too many of these lawyers.

While auditing fewer gift tax returns will certainly help
those of Mr. Bush’s affluent ilk, auditing fewer fraudulent
estate tax returns will be the real bonus from the IRS
layoffs. Currently, only couples with an estate valued at more
than $4 million are subject to the estate tax, and the first
$4 million they pass on to their heirs is completely tax-free.
Mr. Bush has lobbied Congress for the last four years to spare
the 0.5 percent of Americans who are subject to the tax by
repealing it. But since the Republican-led Congress,
surprisingly enough, hasn’t been willing to go along with him,
the administration will now simply layoff estate tax lawyers.
After all, Deputy IRS Commissioner Brown says additional
audits aren’t worthwhile.   

But the agency had a very different opinion under President
Clinton. In December 2000 the IRS announced that a study found
that cheating on estate taxes was more common than cheating on
individual income taxes. And the biggest cheaters were the
very rich, those who left $20 million or more to their heirs.
The study determined that the actual value of the taxable
estates audited was on average 13 percent higher than what was
reported on tax returns. Consequently, the government was
being shorted $1.5 billion in taxes annually. 

Secretary of Health and Human Services Mike Leavitt is almost
certainly pleased that there will soon be fewer IRS estate
lawyers. He recently admitted that his family has received
millions of dollars in tax deductions through a so-called
charitable organization it founded. Mr. Leavitt’s parents
created the charity, worth $8 million, in 2000. But in 2002
and 2003 the charity donated only $100,000, a mere one percent
of its total value. Yet Secretary Leavitt has claimed $1.2
million in tax deductions from the charity. And the charity
loaned more than $300,000 to the family’s own real estate
investment firm, which gave an interest-free loan to Secretary
Leavitt in 2002 worth at least $250,000. 

Since President Bush has failed to coerce Congress to abolish
the estate tax, his administration is doing the next best
thing. It’s forcing the IRS to layoff the very lawyers
responsible for catching affluent Americans who cheat. But
according to the IRS’ own studies six years ago, this is a
widespread problem. Perhaps never before in American history
have we had a government so completely of the rich, by the
rich, and for the rich.   

_____________________________________________________________________________________________________
Gene C. Gerard has taught history, religion, and ethics for 14
years at several colleges in the Southwest and is a
contributing author to the forthcoming book “Americans at
War,” by Greenwood Press. He writes a political blog for the
progressive world news website OrbStandard at
http://orbstandard.com/GGerard/



  

[rzemanfl]

1. They can fudge these things and never get prosecuted. An

oil painting or a closely held business doesn't have a W-2 form.

[InternalDialogue]

2. Sort of an unwritten signing statement from George to his base:

"I know the law says you have to pay tax on your multi-million-dollar inheritance, but between you and me no one's going to make you do it."

[unhappycamper]

3. It's always interesting to watch these characters gut

meaningful regulation. They make the problem go away by making the monitors/auditors go away. It reminds me of the "No man, no problem" quote.

[The Wizard]

4. This should

surprise no one. The haves and the have mores have no responsibility to America. Their fearless leader is doing as much damage as possible before being deposed. Declare class warfare. Soak the rich. Money is like manure: when you spread it around it makes things grow, but when it piles up in one place it starts to stink. Embrace class warfare all the time.

[Lyric]

5. It never ceases to infuriate me

that the IRS turns a blind eye to corporations and the wealthy, when one of the largest departments in the IRS is dedicated to investigating people who claimed the EITC. A handful of rich people and/or corporations have the capacity to cheat the IRS of billions, but instead they focus on the relatively paltry sums that poor people might be getting undeservedly. It just makes me so angry! Ugh.

Full disclosure: I grew up in a *truly* poor family, and poverty is an issue very close to my life.

[PinkyisBlue]

6. "Entertainers" like Rush Limbaugh have always loved villifying the poor

and, in effect, promoting class warfare against the poor. They want people to direct their anger at those at the bottom of the economic ladder. When all the attention is focused on the poor, noone is looking up the ladder at the rich (like Rush). Unfortunately, the rhetoric has worked. When I talk to certain people, I hear how angry they are at people receiving free healthcare or government subsidies or welfare, but the same anger isn't expressed against people at the top.

I wish that more abuses by the rich were publicized. The Boston Globe used to occasionally have these spotlight reports that were real investigative reporting of corruption, usually by top government officials or those receiving lucrative government contracts. It seems this type of investigation has ceased, as I haven't noticed any of these spotlight reports for several years.

[Hawkowl]

7. A mere 2 year freebie....

Audits will happen after a new president is elected in 2008..and audits can go back 7 years. So let the rich skip on taxes for 2 years and then the free ride is OVER!