Bill Henck: Inside the IRS, part 8

The IRS is at the center of the deepest scandals of the Obama administration. William Henck has given us a look from his perspective inside the IRS Office of the Chief Counsel, where he has worked as an attorney for over 26 years. Last year we posted his personal account of a retaliatory audit conducted by the IRS against him in “Inside the IRS.” We followed up with subsequent posts by Bill including, most recently, “Inside the IRS, part 7,” in which Bill outlined how a competent investigation of politically targeted IRS audits could be conducted. Bill now turns to another aspect of the IRS’s continuing misconduct:

The rule of law at the IRS died on June 1 following a lengthy illness. The immediate cause of death was IRS attorney executives giving themselves large bonuses and then illegally keeping those bonuses secret. The good news is that this gives Congress an opportunity to force some accountability on the IRS, which I will detail at the end of this post.

Tax Analysts, the publisher of Tax Notes, had filed a FOIA request at my suggestion to obtain the names of IRS Office of Chief Counsel executives and managers who received bonuses in recent years and the amounts of those bonuses. The IRS had complied with a similar FOIA request around 2005 or so. That is how we know that Sarah Hall Ingram of section 501(c)(3) fame received approximately $46,000 in bonuses in one year in the early 2000’s.

This time, however, after a lengthy delay, the IRS rejected Tax Analysts’ FOIA request in a passive-aggressive manner. In a letter, it declined to provide the requested information, which consists of simple payroll information for approximately 200 people, or give a future date for compliance, but threw in an obviously phony suggestion of possible compliance at some unspecified, hazy point in the future. Tax Analysts filed a lawsuit on June 23, but the process could take years.

Tax Analysts has posted William Hoffman’s report with helpful background on the lawsuit here. Asked for a comment on the lawsuit, an IRS spokesman said, “The IRS doesn’t comment on pending litigation.”

With the arrogance and lawless intransigence behind the rejection of Tax Analysts’ FOIA request, the IRS has hit rock bottom. IRS executives no longer even pretend to follow the law. After surviving the fallout from the Lois Lerner scandal, they have obviously concluded, with good reason, that they are bulletproof.

In the late 1990’s, the IRS was hit with a number of allegations, many of them unfounded. At that time, both political parties and the news media teed off on us. Even the Washington Post solicited IRS abuse stories from its readers. Now, however, when there is real corruption metastasizing in the IRS, the agency can count on support from the administration, a major political party, and much of the news media.

For those wondering what is the big deal about executives’ bonuses, I can think of at least four reasons why the bonuses and the Service keeping them secret is a big deal. First, as mentioned above, it conclusively shows a complete contempt for the law on the part of the IRS. Second, there are the budget concerns. The Commissioner is crying poverty at every opportunity, but how can he do that when the IRS is illegally keeping executives’ bonus amounts secret?

Third, executive goals in the IRS outweigh every other consideration, from taxpayer rights to following the law. Executive goals dictate how much in bonuses executives receive. The other side of that coin, which is the fourth reason that the bonus issue is important, is that executives use bonuses as part of the system of control within the IRS along with old-fashioned bullying. This system of control essentially eliminates accountability for IRS executives. If you follow the party line and “play ball,” you can get bonuses and advance in the agency. If you raise any questions or concerns, even internally, you will not receive bonuses and can probably count on retaliation.

I’m not the only one who has expressed concerns about bullying in the agency. In its December 2014 report, the House Government Oversight Committee stated that Lois Lerner bullied subordinates and that that bullying contributed to the subsequent abuse of taxpayers (see pages 131-140). If memory serves me correctly, Ms. Lerner received approximately $125,000 in bonuses over a period of several years.

Richard Skillman, who was acting IRS chief counsel around 2001 or so, admitted in a message or e-mail to chief counsel employees that he was aware of a number of incidents of managers bullying employees and that he would not tolerate it. He left the IRS soon thereafter and his message was of course ignored, but it shows that bullying is a long-standing issue.

The carrot-and-stick approach discussed above has real-world implications. In the black liquor situation, people in the IRS knew that the $2 billion giveaway was wrong, but they were scared to speak up, even internally. I stated my ethical concerns in writing, but those concerns were ignored and I was subjected to retaliation.

IRS trial attorneys handling the line of cases that have involved the bullying of elderly taxpayers know that there are fundamental flaws in the whole project, but they are scared to speak up. I stated my ethical concerns in writing, but those concerns were ignored and I was subjected to retaliation.

The IRS group assigned to implement Obamacare completely missed or ignored the state exchange issue that is the subject of the King v. Burwell case before the Supreme Court. People in that group were probably scared to speak up. There is a rumor that the group in the IRS Office of Chief Counsel responsible for complying with congressional subpoenas regarding the section 501(c)(3) scandal decided not to review all of Chief Counsel Wilkins’ e-mails in violation of the subpoenas. If true, people in that group were probably scared to speak up.

This culture or environment that causes a lack of accountability for IRS executives begins with the training for new IRS attorneys. They are taught a system called “Managing Up,” which stresses the comfort and well-being of the managers and executives up the chain of command. The training material for “Managing Up” contains such gems as “happy boss equals happy life.” New attorneys are ordered not to report “toxic” managers for misconduct, but rather are advised to obtain good evaluations from the toxic manager and transfer out of that group.

The circle of the total lack of accountability for IRS executives is completed by the Treasury Inspector General for Tax Administration (TIGTA). TIGTA does not investigate IRS managers for misconduct. Period.

The problems I have described above are well known to any veteran employee of the IRS. The issue is what to do about it. Bruce Hornsby has a song entitled “Circus on the Moon.” I think he wrote it about his kids or kids in general, but there is a line in the song that applies to the current state of the IRS: “getting about as much attention as a circus on the moon.” In other words, there is a lot going on, but it is out of sight and out of mind and no one really cares.

I think Congress is kind of overwhelmed and weary right now about the various IRS scandals and the static associated with those scandals. That is too bad, because congressional oversight is really the only way out of the fundamental problem, which is that the IRS has lost the moral authority to compel citizens to obey the internal revenue laws. We still have the legal authority to compel people to follow the law, but at some point “do as I say, not as I do,” becomes problematic in a tax system that relies on self-reporting.

The good news, however, is that Congress has the opportunity to compel accountability from the IRS with respect to executives’ bonuses. Since the IRS is illegally refusing to provide information regarding past executive bonuses, Congress, as part of the budget process, should block future IRS executive bonuses. Such an action will likely change the dynamics of behavior within the agency.

I’m hoping this is my swan song with respect to speaking up about IRS abuse and misconduct. I take no joy in any of this. Someone had to say something about what has occurred in the IRS, but I’m tired of the fighting and confrontation and anger. Hopefully the Tax Analysts lawsuit will lead to accountability and hopefully Congress will provide meaningful oversight of the IRS.

Along those lines, though, I have a favor to ask of Power Line readers. Please contact members of Congress and ask them to provide that meaningful oversight. I have not had much success in getting past the gatekeepers on Capitol Hill, but I’m hoping that there will be strength in numbers if enough of you contact Congress. Thank you.