Beware the IRS

Few things in life can blow one’s day more than receiving a notice from the Internal Revenue Service that your tax return is being examined or audited. 

Following a nearly decade-long dispute with the IRS over returns filed in 2013 and 2014, the United States Tax Court ultimately sided with LakePoint Land Group, a Georgia LLC, on Tuesday. The court determined that one of the IRS agents handling the case had backdated a penalty authorization document and failed to inform the court of this crucial action. (The details of the case can be viewed here.)

LakePoint filed a motion for sanctions against the IRS claiming the [IRS] general counsel’s “representations made to this Court were less than accurate and lacked candor and that RA Brooks’s Declaration was false.”

The court ruled that the IRS must reimburse LakePoint for the legal fees the company incurred, but struck down the rest of LakePoint’s proposed sanctions.

Clearly, if a taxpayer had backdated a document in an effort to mislead the IRS, and then failed to disclose that fact on a timely basis, he or she would be charged with criminal tax fraud and would likely end up in prison. 

Yet, the IRS will simply pay off the plaintiff’s legal fees with taxpayer dollars and move on to their next unlucky target. No one will be held responsible for the agent’s dishonesty. 

So, what, if anything, can be done to hold the IRS accountable to the taxpayers who fund it? How can we stop these abuses? I turned to former IRS attorney William Henck for some answers. 

History has shown that those who blow the whistle on Democrats rarely walk away unscathed. Before there was Gary Shapley, there was Henck. He was forced out of the IRS in November 2017 after 30 years of service for being a whistleblower. 

During his long career at the IRS, he reported the bullying of World War II veterans, evidence of a cover-up in the Lois Lerner (or Tea Party) case, and the improper giveaway of literally billions of dollars to taxpayers represented by sketchy Washington lobbyists.

Henck said he reported his concerns both internally and externally, to his supervisor, to upper management, to the Treasury Inspector General for Tax Administration (TIGTA), to the Office of Special Counsel (OSC), to Congress, to Trump political appointees in the Treasury Department, and to the media. And none of his detailed complaints of misconduct were ever investigated. Not a single one.

Still, Henck had some ideas on how to bring about accountability. First, he suggested eliminating the IRS’s ability to pay external whistleblowers to inform on other taxpayers.

“Currently,” he explained, “the IRS can pay large amounts to people who inform the agency of other taxpayers’ potential tax liability. Representing these informants is a lucrative practice area for Washington, D.C. attorneys. Since the IRS unlawfully targets its own internal whistleblowers, there is no reason to allow it to pay Americans to inform on their fellow citizens.” Indeed.

He recommended (via email):

Sharply reducing SES [Senior executive service] positions within the agency and severely cutting the budget for the IRS Office of Chief Counsel.

Many IRS issues are really IRS Office of Chief Counsel Issues. Chief Counsel has literally given away billions of dollars to Washington lobbyists and has repeatedly broken the law. Congress would get more bang for its buck by cutting the Chief Counsel budget.

Instead of focusing on the IRS executives who leave via the ‘revolving door’ and lobby the agency, reverse field and go after the IRS employees they lobby. Make it prohibitively risky and time consuming for IRS National Office employees to interact with former IRS executives and lobbyists in general.  

For various reasons, this would take some planning, but it can be done. This would serve to choke out the lobbyists rather than directly attack them, which has always failed in the past.”

Finally, remove the law enforcement privileges for TIGTA, the Praetorian Guard for IRS management. Even the threat of losing their badges and guns would probably cause TIGTA to seriously investigate IRS corruption, rather than the current system where TIGTA serves as Mr. Fix It for IRS management.

Even if these reforms were threatened, but never enacted, it would be a ‘come to Jesus’ moment for an arrogant and entitled IRS.  As it stands now, there is absolutely no mechanism for IRS accountability.  

Excellent ideas – all of them, but difficult in practice. The IRS has been weaponized for a long time. It was said that even President Richard Nixon used the IRS to investigate his political enemies. And I imagine he wasn’t the first president to do so.

And given that President Joe Biden signed the ludicrously named Inflation Reduction Act into law last August, a bill that dramatically expanded the scope and size of the IRS and added an army of new auditors to its ranks, it’s difficult to see how any of these recommendations can be implemented.

But Congress does have the power of the purse. And House Republicans must start using it to reduce funding to the agency.

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