Bill Henck: Inside the IRS, part 2

William Henck has worked inside the IRS Office of the Chief Counsel as an attorney for over 26 years. We posted his personal account, including his testimony to a retaliatory audit conducted by the IRS against him, this past February in “Inside the IRS.” This post follows up on the matters discussed in that post. We submit it for the consideration of readers in the context of current controversies without further comment. Mr. Henck writes:

In February I posted an account on Power Line concerning misconduct and corruption I have observed in my 26 year career as an IRS attorney. Power Line has graciously agreed to allow me to post a follow-up.

After posting my initial account, I was contacted by Senator Coburn’s office and by Tax Notes, a tax publication. I was interviewed by two members of Senator Coburn’s staff, but they concluded that there was little they could do to investigate my assertions, since Senator Coburn is in the minority in the Senate. Bill Hoffman of Tax Notes wrote an excellent, detailed account earlier this month of the black liquor situation and the outrageous manner in which $2 billion was siphoned from the Treasury in a textbook case of crony capitalism.

Other than those two instances, there has been no reaction in Washington to my post, Bill Hoffman’s story, or the story by Steve Mufson of the Washington Post, which was also an excellent article detailing the black liquor giveaway.

I have contacted numerous senators and representatives of both parties as well as dozens of journalists in an effort to encourage interest in the black liquor giveaway as well as other abuses within the IRS. A handful of journalists responded, but told me that the black liquor story and my overall account of IRS abuse were not newsworthy. Whether or not they are newsworthy, I can substantiate every one of my assertions through documents and/or witnesses.

IRS executives are confident in their lack of accountability because the decision makers in Washington will not hold them accountable. Ordinary people understand that misconduct and corruption in the national tax collection agency are a critical problem. They also understand the difference between right and wrong. Ordinary people, however, are not running things.

I will expand upon one final matter regarding IRS corruption. There was in my opinion clearly a cover-up of the decision to allow well connected taxpayers to avoid reporting the black liquor tax credits as taxable income. As the attorney assisting an exam team with the black liquor issue, I was told by the taxpayer under exam to contact a high ranking Office of Chief Counsel executive (which is an issue in itself). I asked that executive to put in writing, even in an e-mail, the decision that the taxpayer in question did not have to report the credits as taxable income.

I made that request because the exam team was being asked to take a position that was contrary to the law and to published IRS guidance. I did not want my exam clients to be subsequently thrown under the bus. The executive stated to two exam employees and me that it had been decided at the “Chief Counsel level” to put nothing in writing regarding that decision. For a high ranking Chief Counsel executive, “Chief Counsel level” means the IRS Chief Counsel himself, a presidential appointee. To me, a presidential appointee deciding that nothing will be put in writing regarding an improper giveaway of $2 billion to well connected taxpayers sounds like a cover-up.

Furthermore, after that conversation with the high ranking IRS Chief Counsel executive, I stated my ethical concerns in writing regarding what amounts to secret law to my manager. She acknowledged my e-mail and stated that it would be sent up the line, but I never received a further response. Legal ethics (an oxymoron, to be sure) would seem to dictate that management respond to written ethical concerns raised by government attorneys.

Finally, the IRS violated Internal Revenue Code section 6110(d) by not disclosing that the IRS Office of Chief Counsel had consulted with the Treasury Department headquarters prior to issuing Chief Counsel Advice (CCA) 201342010 in October 2013. That Chief Counsel Advice was issued in response to the article [linked above] in the Washington Post in July 2013 about the black liquor situation.

Consistent with the dishonesty in the entire saga, the CCA actually addresses Internal Revenue Code subsection 6426(c), not the relevant code subsection 6426(e). This sleight of hand allows the Service to appear to answer the question of whether the black liquor credits are taxable income without technically doing so.

My guess is that they did this as a fallback measure to give them deniability if things got hot later on. Treasury Department officials probably did not want their fingerprints on the CCA and the black liquor issue in general, but in my opinion the IRS violated the law by not stating in the CCA itself that the Treasury Department headquarters had been consulted prior to the document’s release.

To me, at least, the facts stated above indicate that the decision to allow well connected taxpayers improperly to avoid reporting billions in taxable income was covered up by high level officials. In this entire episode, one bad act has led to another in a cascade of dishonesty.

My advice to the people running the IRS is to read When the Game is Over, It All Goes Back in the Box, by John Ortberg. It is a book about what is important in life and what is not important. Whatever titles or bonuses or future jobs people have gained or retained in this episode are ultimately not that important.

This completes my reporting of what I have observed with respect to IRS corruption. If people care about this stuff, fine. If they do not care, fine. The information is in the public domain and I’m done.

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