TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Tuesday, March 13, 2018

The Use Of Big Data Analytics By The IRS

IRS Big DataKimberly Houser (Washington State), The Use of Big Data Analytics by the IRS: What Tax Practitioners Need to Know:

With the budget reductions and losses in staff over the past several years, the IRS has been forced to do more with less. In turn, the IRS has turned to big data analytics make up for its loss of personal and the impact of the budget reductions. In 2011, the IRS created the Office of Compliance Analytics in order to create analytics programs that could identify potential refund fraud, detect taxpayer identity theft, and become more efficient in handling noncompliance issues. The IRS uses a wide range of analytic methods to mine public and commercial data including social media sites such as Twitter, Facebook, and Instagram. The data collected from this mining is combined with IRS’s own proprietary information and analyzed using pattern recognition algorithms, which help to identify potential noncompliant taxpayers.

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March 13, 2018 in IRS News, Tax | Permalink | Comments (0)

Thursday, March 8, 2018

Treasury To Close Carried Interest Loophole

Wall Street Journal, Treasury Issues Tax Guidance Limiting Carried-Interest Provision:

The Treasury Department moved Thursday [Notice 2018-18] to limit a gap that could have let some investment-fund managers avoid higher taxes on their carried-interest income.

The formal move, previously announced by Treasury Secretary Steven Mnuchin, will be followed by regulations that will be retroactive to Jan. 1, the government said. ...

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March 8, 2018 in IRS News, Tax | Permalink | Comments (1)

Friday, March 2, 2018

President Trump To Name Michael Desmond IRS Chief Counsel

DesmondBNA is reporting that President Trump plans to appoint Michael J. Desmond IRS Chief Counsel and Treasury Department Assistant General Counsel:

After serving as a law clerk for a Federal judge in Los Angeles, Mike began his career in tax controversy as a Trial Attorney with the Attorney General’s Honors Program at the Tax Division of the U.S. Department of Justice. After the Justice Department, Mike worked at a boutique tax firm in Washington, D.C., where he was elected partner in 2004. In this capacity he represented clients ranging from Fortune 100 companies to partnerships and individuals. Mike returned to government in 2005, serving as Tax Legislative Counsel in the U.S. Department of Treasury through 2008. As Tax Legislative Counsel, Mike was the Department’s senior legal advisor on domestic tax issues, testifying before Congress and working with senior IRS officials including the IRS Commissioner and Chief Counsel on a broad range of tax policy, legislative and regulatory matters. Following his tenure at the Treasury Department, Mike spent several more years as a partner in a global law firm [Bingham McCutchen] before starting his own practice in January 2012.

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March 2, 2018 in IRS News, Tax | Permalink | Comments (0)

Olson Presents The State Of The IRS Today At Minnesota

Olson (2018)Nina Olson (National Taxpayer Advocate) presents The State of the IRS at Minnesota today as part of its Perspectives on Taxation Lecture Series hosted by Kristin Hickman:

Drawing from her 2017 Annual Report to Congress, Ms. Olson will talk about problems facing the IRS and the implications for tax compliance and enforcement, including:

  • IRS funding and personnel cuts
  • Declining audit rates
  • Flawed implementation of congressional mandates requiring the use of private debt collectors and the denial of passports to certain U.S. citizens with substantial tax debts

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March 2, 2018 in Colloquia, IRS News, Tax | Permalink | Comments (0)

Monday, February 26, 2018

Former Davis Polk Tax Partner Dana Trier Quits Position As Deputy Assistant Secretary For Tax Policy

Wall Street Journal, Treasury Official, Critical of Parts of Tax Law, Quits:

A Treasury Department official deeply involved in implementing the new tax law left the government unexpectedly this week.

Dana Trier, a retired New York attorney praised by fellow tax lawyers in both parties, was a deputy assistant secretary for tax policy, putting him near the center of administration decision-making about how to write the crucial and highly technical rules stemming from the new Tax Cuts and Jobs Act.

Accountants, tax lawyers and businesses have been watching his actions and speeches closely for clues on how the Trump Administration will enforce complex new deductions for pass-through businesses, restrictions on business interest deductions and other matters. ...

Tax-focused publications had previously written about some of Mr. Trier’s remarks that were critical of parts of the new tax law, including a speech earlier this month in San Diego at a conference sponsored by the American Bar Association’s Tax Section. ... In San Diego, Mr. Trier had said people looking at pieces of the new law sometimes asked him whether lawmakers could have reasonably meant to write it the way they did. “We’re going to have trouble with about half the legislation if we apply that standard,” said Mr. Trier, whose name rhymes with clear.

Late Friday, Mr. Trier, 69 years old, said he and Assistant Secretary David Kautter agreed that he should leave. “Between these public comments and the constant friction with the bureaucratic elements of the government, I really just think…it was time to go,” Mr. Trier said. “I have enough of a big ego to think that they’ve lost something when they’ve lost me, but I think they can do it.”

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February 26, 2018 in IRS News, Tax | Permalink | Comments (0)

Monday, February 19, 2018

Tax Reform And IRS Resistance

Wall Street Journal:  Tax Reform and IRS Resistance, by Kimberley A. Strassel:

With all the good news about the new Republican tax law, you may be surprised to learn that the fight isn’t over. Behind the scenes, reformers face a new challenge: Navigating the IRS swamp.

It’s a little-known fact that for 35 years the Internal Revenue Service has exempted itself from the most basic regulatory oversight. When the Labor Department or the Small Business Administration create “major” or “significant” rules or guidance, they are required to submit them for centralized review. That ensures regulations are consistent with the law and with White House priorities and that they’ve been analyzed for costs, benefits and flexibility.

But in 1983, the Treasury Department signed a memorandum with the Office of Management and Budget that largely exempted the IRS from submitting its rules to White House review via OIRA, the Office of Information and Regulatory Affairs. The memo still stands today. In the face of congressional attempts at oversight, the IRS issued a 1996 opinion claiming that tax statutes are in and of themselves responsible for any costs or inflexibility—that the IRS’s rules are, by definition, pure distillation of law. ...

[T]he IRS is already playing games with the GOP tax reform.

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February 19, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (2)

Saturday, February 17, 2018

Treasury Proposes Repeal Of 298 Tax Regulations

RegsTreasury Proposes Repeal of Nearly 300 Outdated Tax Regulations:

The U.S. Department of the Treasury today proposed repealing 298 tax regulations that are unnecessary, duplicative or obsolete and force taxpayers to navigate needlessly complex or confusing rules. President Trump issued an Executive Order on April 21, 2017, directing Treasury to review tax regulations to ensure a simple, fair, efficient, and pro-growth tax system. Today’s actions are a direct result of that review.

“We continue our work to ensure that our tax regulatory system promotes economic growth,” said Secretary Steven T. Mnuchin. “These 298 regulations serve no useful purpose to taxpayers and we have proposed eliminating them. I look forward to continuing to build on our efforts to make the regulatory system more efficient and effective.”

The regulations proposed to be repealed fall into three categories:

  1. Regulations interpreting provisions of the Code that have been repealed;
  2. Regulations interpreting provisions that have been significantly revised and the existing regulations do not account for these revisions; and
  3. Regulations that are no longer applicable.

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February 17, 2018 in IRS News, Tax | Permalink | Comments (2)

Thursday, February 15, 2018

Americans Who Owe > $50k In Back Taxes Will Lose Their Passports

Monday, February 12, 2018

The IRS Scandal, Day 1740: Former AG Eric Holder Says DOJ Should Not Have Apologized For IRS Targeting Of Tea Party Groups

IRS Logo 2Following up on my previous posts:

Washington Times, Eric Holder: DOJ Wrong to Apologize to Tea Party Groups For IRS Scandal:

Former Attorney General Eric H. Holder Jr. said the Trump administration was wrong to have apologized to tea party groups snared in the IRS’s targeting scandal, saying it was another example of the new team undercutting career people at the Justice Department who’d initially cleared the IRS of wrongdoing. “That apology was unnecessary, unfounded and inconsistent, it seems to me, with the responsibilities that somebody who would seek to lead the Justice Department should have done,” Mr. Holder said.

He’d ordered a criminal probe into the IRS’s handling of tea party applications after the 2013 revelation by an inspector general that the tax agency had subjected conservative groups to intrusive and inappropriate scrutiny when they applied for nonprofit status.

That probe eventually cleared the IRS, saying that while there was bungling, there was no ill intent. the probe specifically cleared former IRS senior executive Lois G. Lerner, saying rather than a problem, she was actually a hero, reporting bad practices when she spotted them.

The Justice Department reversed that finding, though, in settlements reached with tea party groups over the last year that singled Ms. Lerner out as having approved of the intrusive behavior and yet hidden the practices from her supervisors in Washington.

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February 12, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (8)

Wednesday, February 7, 2018

The IRS Scandal, Day 1735: The End Of IRS Targeting?

IRS Logo 2Wall Street Journal, The End of IRS Targeting?:

It can be hard to keep track of Obama-era targeting of the political opposition by federal administrative agencies. But this week brings fresh hope that such abuses will not be repeated.

The Journal reports:
President Donald Trump will nominate Charles Rettig, a California tax lawyer, to run the Internal Revenue Service, a person familiar with the matter said Monday.
If confirmed by the Senate, Mr. Rettig will take one of the most thankless jobs in Washington.

Of course in recent years it has been thankless for especially good reason. During the Obama administration, the tax agency targeted conservative organizations for exceptional scrutiny and even harassment. Last year the IRS settled lawsuits brought by organizations that had been mistreated simply because they advocated for limited Constitutional government. The government shelled out millions of dollars to settle one suit involving 428 organizations, according to an October report in the New York Times. In a separate case brought by different organizations, an apology for the IRS’s egregious conduct was enough to resolve the litigation.

Reported the Times:
The settlements were the conclusion of two legal battles that have dogged the I.R.S. since the initial lawsuits were filed after a 2013 treasury inspector general’s audit that found groups with “Tea Party” or “Patriot” in their names received more scrutiny over their applications for tax-exempt status. The revelations plunged the I.R.S. into a firestorm that ultimately led to the ouster of its acting commissioner and prompted accusations that the agency was being used as a political weapon by the Obama administration.

While Mr. Obama did force the resignation of the acting IRS commissioner in the wake of the scandal in 2013, he made no serious effort to reform the agency and proclaimed that the targeting had involved “not even a smidgen of corruption” long before his government had finished investigating.

Mr. Obama also placed John Koskinen atop the agency. Mr. Koskinen’s failures to comply with subpoenas and to report accurately to the Congress inspired an effort to impeach him in 2015. A Journal editorial at the time noted:
In February 2014 Congress instructed Mr. Koskinen to supply all emails related to Lois Lerner, who ran the IRS Exempt Organizations division during the targeting. We now know Mr. Koskinen made little or no effort to preserve or track these communications and that, only a few weeks after the subpoena, IRS employees in West Virginia erased 422 backup tapes, destroying up to 24,000 Lerner emails.

So the bar has been set very low. Can the new IRS chief clear it? ...

A man who has spent a career across the table from the IRS, sometimes clashing with the agency in court, would seem to possess some useful experience. Here’s hoping he chooses to be a reformer.

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February 7, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Friday, February 2, 2018

The IRS Scandal, Day 1730: Department Of Justice Settles Last Targeting Case; IRS Apologizes For Delaying Pro-Israel Group's Application For Tax Exempt Status For Seven Years

Z StreetDepartment of Justice Announces Settlement with Z Street Over Improper IRS Treatment:

The Department of Justice today announced that it has entered into a settlement with Z Street, a non-profit corporation dedicated to educating the public about various issues related to Israel and the Middle East, pending approval by the United States District Court for the District of Columbia.  Z Street alleged that the Internal Revenue Service (IRS) applied heightened scrutiny to applications for tax-exempt status received from organizations connected in any way to Israel, and applied this policy to Z Street’s application, resulting in delay.  The settlement agreement includes an apology from the IRS to Z Street for the delayed processing of the group’s application for tax-exempt status.

“Tax exemption eligibility should be based on whether an organization’s activities fulfill requirements of the law, not a group’s policy positions or the name chosen to reflect those views,” said Principal Deputy Assistant Attorney General Zuckerman. “The attorneys at the Department of Justice work hard to ensure that all Americans receive equal treatment under the law.  Today’s settlement further illustrates this commitment.”

This is the final settlement in a series of cases brought by groups alleging that their tax-exempt status was delayed by the IRS based on inappropriate criteria, including names and policy positions.  The United States District Court for the District of Columbia recently approved settlement agreements in Linchpins of Liberty v. United States and True the Vote v. IRS. In Norcal Tea Patriots v. IRS, the United States agreed to a settlement in this class action lawsuit which is currently pending approval in the United States District Court for the Southern District of Ohio.  In Freedom Path v. IRS, the United States entered into a settlement resolving a wrongful disclosure claim and dismissing other claims, including allegations of improper IRS targeting. A single regulatory challenge remains following the settlement. Freedom Path lost this challenge at the District Court and the issue is currently on appeal to the Fifth Circuit.

Announcement and quote from Attorney General Jeff Sessions in Linchpins of Liberty v. United States and Norcal Tea Patriots v. IRS can be found here.

Attorney General Jeff Sessions Announces Department of Justice has Settled with Plaintiff Groups Improperly Targeted by IRS:

Attorney General Jeff Sessions announced today that the Department of Justice has entered into settlements, pending approval by the district courts, in two cases brought by groups whose tax-exempt status was significantly delayed by the Internal Revenue Service based on inappropriate criteria. The first case, Linchpins of Liberty v. United States, comprised claims brought by 41 plaintiffs, and the second case, NorCal Tea Party Patriots v. Internal Revenue Service, was a class action suit that included 428 members. Attorney General Sessions released the following statement about the cases:

“Chief Justice John Marshall wrote 'that the power to tax involves the power to destroy … [is] not to be denied.' And it should also be without question that our First Amendment prohibits the federal government from treating groups differently based solely on their viewpoint or ideology.”

"But it is now clear that during the last Administration, the IRS began using inappropriate criteria to screen applications for 501(c) status. These criteria included names such as “Tea Party,” “Patriots,” or “9/12” or policy positions concerning government spending or taxes, education of the public to “make America a better place to live,” or statements criticizing how the country was being run. It is also clear these criteria disproportionately impacted conservative groups.”

“As a result of these criteria, the IRS transferred hundreds of applications to a specifically designated group of IRS agents for additional levels of review, questioning and delay. In many instances, the IRS then requested highly sensitive information from applicants, such as donor information, that was not needed to make a determination of tax-exempt status.”

"The IRS’s use of these criteria as a basis for heightened scrutiny was wrong and should never have occurred. It is improper for the IRS to single out groups for different treatment based on their names or ideological positions. Any entitlement to tax exemption should be based on the activities of the organization and whether they fulfill requirements of the law, not the policy positions adopted by members or the name chosen to reflect those views.”

“There is no excuse for this conduct. Hundreds of organizations were affected by these actions, and they deserve an apology from the IRS. We hope that today’s settlement makes clear that this abuse of power will not be tolerated.”

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February 2, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (11)

Thursday, February 1, 2018

Grewal, Hickman, Morse & Osofsky: How The IRS Communicates

Yale Notice & CommentSusan Morse (Texas) & Leigh Osofsky (Miami), How Agencies Communicate: Introduction and an Example, Yale J. on Reg.: Notice & Comment (2018):

Would you like to hear from the government? Many people might say no. Or at least, not usually.

But, of course we hear from the government all the time. Many times, this contact comes from administrative agencies. Agencies shape, among many other things, the air we breathe, the taxes we pay, and the question of who may cross our borders. This online symposium, How Agencies Communicate, considers how agencies do and should try to explain what they mean, and how we do and should listen to them.

Agencies can choose from a broad menu of communication strategies. They can make final regulations by following the structured and lengthy notice-and-comment process under the Administrative Procedure Act. In addition, agencies often communicate entirely outside this statutorily prescribed rulemaking process. Agencies communicate with advisories, letters, announcements and press releases. They post on social media. They tweet.

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February 1, 2018 in Conferences, IRS News, Scholarship, Tax | Permalink | Comments (1)

Saturday, January 27, 2018

Dennis Ventry Named Chair Of The IRS Advisory Council

VentryIR-2017-04, IRS Selects New Advisory Council Members (Jan. 11, 2018):

The Internal Revenue Service today announced the appointment of seven new members to the Internal Revenue Service Advisory Council (IRSAC).

The IRSAC, established in 1953, is an organized public forum for IRS officials and representatives of the public to discuss various issues in tax administration. The council provides the IRS Commissioner with relevant feedback, observations and recommendations. It will submit its annual report to the agency at a public meeting in November 2018.

The IRS strives to appoint members to the IRSAC who represent the taxpaying public, the tax professional community, small and large businesses, academia and the payroll community.

The 2018 IRSAC Chairman is Dr. Dennis Ventry, Jr., professor of law at the University of California-Davis, School of Law in Davis, Calif.

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January 27, 2018 in IRS News, Tax | Permalink | Comments (0)

Thursday, January 25, 2018

The IRS Scandal, Day 1722: The IRS Apologizes For Targeting Tea Party Group

Wednesday, January 24, 2018

The IRS Spent $20 Million On Private Debt Collection To Bring In $7 Million

Sam Brunson (Loyola-Chicago), Private IRS Debt Collection: A Surly Taxsplainer:

You may have heard that the IRS spent $20 million last year on private debt collection, and managed to raise … almost $7 million. So what’s up with that? A number of things.

Tax Vox, The IRS Private Debt Collection Program Once Again Looks Like A Failure:

What’s the old line about “fool me once?” When it comes to privatizing debt collections for the IRS, Congress has now tried to fool American taxpayers for the third time. According to a new report by the agency’s Taxpayer Advocate Service, the outcome is roughly the same as the last two episodes—the agency is spending far more on the program than the firms are collecting and remitting to the Treasury. This time, according to the TAS, the agency spent $20 million in fiscal years 2016-2017 on a program that generated $6.7 million in payments through last October.

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January 24, 2018 in IRS News, Tax | Permalink | Comments (1)

Monday, January 22, 2018

Lesson From The Tax Court: Treasury Regulations And The APA

Tax Court (2017)No doubt there is a lot of dirty bathwater in the Treasury Regulations, codified in title 26 of the Code of Federal Regulations (CFR). The upside of the current administration’s anti-regulation focus is that it is allows Treasury to prioritize scrubbing unneeded regulations. Treasury reported on its progress in October noting that “the IRS Office of Chief Counsel has already identified over 200 regulations for potential revocation, most of which have been outstanding for many years.”

To be sure, it’s a small upside. Some regulations become outdated because they are simply overtaken by statutory changes. For example, Treas. Reg. 1.217-2(b)(1) allows taxpayers to deduct the cost of meals when moving to start a new job. That was fine under the statute Congress originally enacted in 1969, but it became obsolete when Congress modified the statute in 1986 to specifically disallow meal expenses as a deductible item. And now, of course, Congress has repealed the moving expense deduction entirely, but the regulations will still be there.

Other regulations become outdated because of societal change. My favorite example is former Treas. Reg. 1.162-6 which started off this way: “A professional man may claim as deductions the cost of supplies used by him....” To modern eyes, that regulation obviously denied deductions to taxpayers not in the trade or business of being a “professional man” ...such as anyone who was only a man as a hobby and not as profession. Think Victor, Victoria. Treasury nuked that reg in 2011.

The scrubbing effort carries a small upside because outdated regulations generally do little harm. I tell my students that is why you have to read the actual statutory language first. In real life, of course, tax practitioners rely on the commercial services like BNA, CCH or RIA to summarize the rules and those services keep current. Taxpayers reporting their 2017 taxes are unlikely be blindsided by the moving regulations into trying to deduct meal expenses in a move. Likewise, taxpayers reporting their 2018 taxes are unlikely to try and deduct moving expenses at all, much less in reliance on the regulations.

But the focus on throwing out the bathwater presents an obvious danger to the baby. The ham-fisted 2-for-1 requirement of Executive Order 13711 is not just focused, it’s myopic. Another danger is posed by the myopic thinking that the word “regulation” has the same meaning for all agencies and that the Administrative Procedure Act (APA) applies in lock-step to all agencies. Both myopias ignore the vast difference in purpose of regulations issued by different agencies.

Last week’s Tax Court opinion in SIH Partners LLLP, et al. v. Commissioner, 150 T.C. No. 3, January nicely illustrates the purpose and use of tax regulations. In it, the taxpayer tried to invalidate a 45 year old regulation for failing to meet APA requirements. The Tax Court has a nice opinion applying the APA with sensitivity to the tax regulation process and suggests a clearer view of what makes tax regulations different from those of many other agencies.

More below the fold.

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January 22, 2018 in Bryan Camp, IRS News, New Cases, Tax, Tax Practice And Procedure | Permalink | Comments (2)

Friday, January 19, 2018

The Effect Of A Government Shutdown On The IRS: Not What You Think

Machines are cheap. Humans are expensive. The IRS depends upon both to administer the fiendishly complex tax code that Congress tirelessly re-scrambles every year. This year is, of course, much, much worse. And everyone seems at least aware that a government shutdown will hurt the IRS’s ability to implement the new law. Here’s a recent WaPo article on the subject.

But the effect of a government shutdown on IRS operations is worse than is being reported.  More below the fold.

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January 19, 2018 in Bryan Camp, IRS News, Miscellaneous, News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (6)

Saturday, January 13, 2018

NY Times: A Swiss Banker Helped Americans Dodge Taxes. Was It A Crime?

New York Times, A Swiss Banker Helped Americans Dodge Taxes. Was It a Crime?:

Diane Butrus, a business executive from St. Louis, wandered the streets of Zurich, looking for a bank that would help her keep $1.5 million hidden from America tax collectors.

One bank after another turned her down on that afternoon in 2009. They were worried about a United States crackdown on tax evasion and were no longer willing to shelter American money.

Finally, across the street from a city park, up a discreet elevator, seated in a luxurious conference room, Ms. Butrus found a banker ready to help. His name was Stefan Buck.

Mr. Buck said that his employer, Bank Frey, would be happy to take Ms. Butrus’s money, according to court documents and interviews with Mr. Buck and Ms. Butrus. He instructed her to wire the $1.5 million to Bank Frey. He told her that her name wouldn’t be attached to the new account. It would be known internally as Cardinal, an alias she chose in a nod to her favorite baseball team.

After that, Ms. Butrus contacted Mr. Buck via prepaid cellphones she picked up at a Walgreens drugstore. Every six months or so, she flew to Zurich to withdraw money directly from Mr. Buck. She would return to the United States secretly carrying just under $10,000 in cash — the cutoff for having to make a customs declaration.

The setup allowed Ms. Butrus to avoid paying tens of thousands of dollars in income taxes. And it wouldn’t have been possible without Mr. Buck and Bank Frey.

As much as chocolate and watches, Switzerland is known for bank secrecy. That made the country a destination for money that the wealthy wanted to hide. Last decade, it also made Swiss banks targets for an assault by the United States government, which was tired of Americans escaping taxes on money in offshore accounts.

Many banks came clean, divulging their clients to American authorities. Many Americans, including Ms. Butrus, searched for new places to park their money.

Bank Frey was among the very few to defy the legal onslaught. And Mr. Buck, a clean-cut and self-confident 28-year-old at the time he met Ms. Butrus, was the bank’s public face, responsible for landing and then managing American accounts.

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January 13, 2018 in IRS News, Scholarship, Tax | Permalink | Comments (0)

Friday, January 12, 2018

The IRS Scandal, Day 1709: Victims Of IRS's Tea Party Bias — And Taxpayers — Deserve To See Lois Lerner's Testimony

IRS Logo 2Forbes, Victims Of IRS's Tea Party Bias — And Taxpayers — Must See Lois Lerner's Testimony, Lawyer Says:

Lois Lerner, formerly of the Internal Revenue Service when it discriminated against applicants for tax exemptions based on their viewpoints, claims Americans have no right to read statements she made under oath about why she did it.

Lerner, the former director of the IRS’s Exempt Organizations Division, wants U. S. District Judge Michael Barrett to maintain under seal a deposition she gave in June for a civil suit that victims brought in 2013. Unsealing it would place her safety in jeopardy, she says.

Her former IRS colleague, Holly Paz, seeks the same after they targeted groups with “tea party” names and groups that didn’t like how the government was run.

Among those opposed are the very plaintiffs who sued the IRS in Barrett’s Ohio court. Attorney Edward Greim, who represents the Norcal Tea Party Patriots, says a pending settlement in their case shouldn’t create a reason for the depositions to stay secret. “Class members must know the content of their testimony to consider the fairness of the settlement, and the public must have access to help ensure that similar conduct never occurs again,” he wrote in November. ...

He’s not alone. It was the Cincinnati Enquirer that moved to unseal the depositions on Oct. 25, the same day a proposed settlement was announced to the court. The state of Ohio and the Judicial Watch group in Washington have also moved for leave to argue for unsealing as friends of the court. ...

Lerner and Paz have said the release of their depositions “would expose them and their families to harassment and threat of serious bodily injury or even death.”

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January 12, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Wednesday, January 10, 2018

National Taxpayer Advocate Delivers Annual Report To Congress; Discusses Tax Reform Implementation, Unveils 'Purple Book'

NTAIR-2018-03 (Jan. 10, 2018), National Taxpayer Advocate Delivers Annual Report to Congress; Discusses Tax Reform Implementation and Unveils “Purple Book”:

National Taxpayer Advocate Nina E. Olson today released her 2017 Annual Report to Congress, describing challenges the IRS will face as it implements the recently enacted tax reform legislation and unveiling a new publication, “The Purple Book,” that presents 50 legislative recommendations intended to strengthen taxpayer rights and improve tax administration.  The report also examines a wide range of other tax administration issues, including the IRS’s administration of the private debt collection program, the agency’s increasing emphasis on online taxpayer accounts, and its implementation of a recent law that would deny or revoke the passports of taxpayers with significant tax debts.

Implementation of Tax Reform Legislation
The National Taxpayer Advocate’s report says the reduction in IRS funding since FY 2010, approximately 20 percent in inflation-adjusted terms, has challenged the agency’s ability to perform the basic tasks of administering the tax system.  “As the National Taxpayer Advocate, I see daily the consequences of reduced funding of the IRS and the choices made by the agency in the face of these funding constraints,” Olson wrote in the preface to the report.  “These impacts are real and affect everything the IRS does.  Funding cuts have rendered the IRS unable to provide acceptable levels of taxpayer service, unable to update its technology to improve its efficiency and effectiveness, and unable to maintain compliance programs that both promote compliance and protect taxpayer rights.  ’Shortcuts’ have become the norm, and ‘shortcuts’ are incompatible with high-quality tax administration.” ...

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January 10, 2018 in IRS News, Tax | Permalink | Comments (4)

Tuesday, January 9, 2018

The IRS Scandal, Day 1706: Lois Lerner, Liberty, And Bureaucracy

IRS Logo 2Washington Times, Liberty Dies in Bureaucracy:

As Donald Trump finishes the first year of his presidency, the greatest political scandal story of the last generation is being mostly ignored.

In May 2013, then-IRS official Lois Lerner admitted the Internal Revenue Service had been targeting conservative groups in general, and Tea Party groups in particular. Mrs. Lerner was not trying to clear her conscience. The Treasury Department’s Inspector General was about to release a damning reporting on the politicization of the IRS and how that agency was targeting political opponents of the Obama regime.

Mrs. Lerner’s actions did not happen in a vacuum. Ninety-four percent of political contributions from IRS employees went to Hillary Clinton in the 2016 election. ...

If Republicans are serious about their commitment to liberty and freedom, there is only one option. The swamp must be drained. There must be a wholesale elimination of government departments and agencies. Civil service must be abolished and a lot of government workers need to be told to find other jobs.

If the Republican Party once again, haul up their freshly laundered white flag of surrender on the issue of a weaponized government that can be used against the enemies of the Democrats, America’s days as a free nation are over.

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January 9, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Monday, January 8, 2018

Whitney Houston's Estate Settles Dispute With IRS Over Valuation Of Right Of Publicity

WhitneyFollowing up on my previous post, How Will I Know? IRS Claims Whitney Houston's Estate Undervalued Her Right Of Publicity By $11.5 Million:  Jennifer E. Rothman, Whitney Houston Estate Settles with IRS over Right of Publicity Valuation:

The Whitney Houston estate and the IRS have settled their dispute over the value of the Grammy award-winner’s estate. The more than $11 million dollar disagreement in the amount of taxes owed centered on the valuation of Houston’s intellectual property rights, and particularly the value of her postmortem right of publicity. The estate had claimed that Houston’s right of publicity was worth just under $200,000, while the IRS claimed that it was worth more than $11.7 million. A staggering difference.

The IRS and the estate ultimately settled with the estate agreeing to pay $2 million. The IRS had initially sought more than $11 million in taxes and penalties from the estate. The stipulation entered on December 26th did not specify what Houston’s right of publicity was ultimately valued at.

The stipulation and settlement yet again avoided a court determination of whether the right of publicity should be part of the estate in the first place. Like the Michael Jackson estate, the Houston estate did not contest the inclusion of the right of publicity in the estate’s property―something I think estates should more actively start doing.

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January 8, 2018 in IRS News, New Cases, Tax | Permalink | Comments (1)

Former IRS Ethics Attorney (And Georgetown Tax Adjunct) Pleads Guilty To Conspiracy To Distribute 500 Grams Of Meth

Jack VitayanonNew York Law Journal, Former IRS Attorney Pleads Guilty to Drug Conspiracy:

A former attorney with the IRS’ Office of Professional Responsibility pleaded guilty in the U.S. District Court for the Eastern District of New York to conspiracy to distribute over 500 grams of methamphetamine, the U.S. Attorney’s Office announced Friday.

Jack Vitayanon was arrested in February in Washington, D.C., on charges he conspired with people in Arizona and Long Island to distribute meth over a number of years.

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January 8, 2018 in IRS News, Tax | Permalink | Comments (1)

Sunday, January 7, 2018

The IRS Scandal, Days 1601-1700

January 7, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, January 2, 2018

The IRS Scandal, Day 1699: Lois Lerner And Civil Service Reform

IRS Logo 2Wall Street Journal op-ed:  A Big, Beautiful Trump 2018 Issue, by Kimberley A. Strassel:

President Trump is on the hunt for a 2018 issue—a strong follow-up to his tax-cut victory that will motivate voters and gain bipartisan support. Democrats are pushing for an infrastructure bill, inviting the president to spend with them. House GOP leaders are mulling entitlement reform—a noble goal, if unlikely in a midterm cycle.

Fortunately for the president, there’s a better idea out there that’s already a Trump theme. It’s also a sure winner with the public, so Republicans ought to be able to pressure Democrats to join.

Let 2018 be the year of civil-service reform—a root-and-branch overhaul of the government itself. Call it Operation Drain the Swamp. ...

We live in an administrative state, run by a left-leaning, self-interested governing class that is actively hostile to any president with a deregulatory or reform agenda.

It’s Lois Lerner, the IRS official who used her powers to silence conservative nonprofits. ...

More broadly, it is a federal workforce whose pay and benefits are completely out of whack with the private sector. ...

Civil-service reform’s bipartisan appeal means it has a shot in the Senate. The Chuck Schumers and Elizabeth Warrens will fight for their federal union buddies. But will Democrats like Jon Tester, Claire McCaskill, Joe Manchin and Joe Donnelly —who represent conservative or right-to-work states—go to bat for the likes of Lois Lerner?

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January 2, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Monday, January 1, 2018

The IRS Scandal, Day 1698: Fallout From Tea Party Targeting Allegations Has Neutered IRS Oversight Of Nonprofits

IRS Logo 2Washington Post editorial, Scandal Has Overwhelmed the IRS:

Conservatives who long sought to restrain the Internal Revenue Service have managed to throw a wrench into an IRS division that is supposed to regulate tax-exempt nonprofits and charities, just at a time when these groups are becoming more partisan and complex.

In a Dec. 18 article in The Post, reporter Robert O’Harrow Jr. offered a disturbing picture of the besieged Exempt Organizations division of the IRS, which regulates charities and nonprofits such as those allowed under sections 501(c)(3) and 501(c)(4) of the tax code. The former may not directly or indirectly support a political candidate, but they are allowed to participate in educational debates about the issues; the latter are social-welfare groups that can be involved in politics only so long as it is not their primary activity. The number of applications from new charities has exploded in recent years, and the law is a bit of a gray zone — vaguely written and hard to enforce.

In recent years, overwhelmed by applications, the division and its then-leader, Lois Lerner, fell into the crosshairs of the conservative tea party movement for the slow pace of approvals of tea party groups, which they claimed was due to a conspiracy by the Obama administration to target them. Subsequent investigations found mismanagement — the IRS was taking shortcuts and using keywords to deal with the mountain of applications — but not deliberate targeting.

Still, the charges took a toll. The division seems to have lost its will to scrutinize charities. According to Mr. O’Harrow, last year the division rejected just 37 of the 79,582 applications on which it made a final determination. He reported that charities have now begun to recognize they face little or no chance of examination or sanction. The division’s budget has declined from a peak of $102 million in 2011 to $82 million last year. The number of division employees has fallen from 889 to 642. ...

There is more than enough blame to go around in this tale. The conservative groups, their allies in Congress and the IRS itself all bear responsibility. It is clear what the result will be. Voters will have less and less knowledge of who is paying for political activity in their democracy, even as many politicians hypocritically claim to favor transparency.

(Hat Tip: Bill Turnier.)

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January 1, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (9)

Sunday, December 31, 2017

The IRS Scandal, Day 1697: Budgetary Evisceration After Tea Party Targeting Allegations Has Left The IRS Incapable Of Implementing The New Tax Law

IRS Logo 2New York Times editorial, Don’t Cheer as the I.R.S. Grows Weaker:

[A]s it prepares to implement the most sweeping tax overhaul in 30 years, the I.R.S. is perhaps weaker than it has ever been. In 1986, the last time Congress passed major changes in the tax code, it included a budget increase for the agency, allowing it to hire 2,100 more employees to carry out the changes. Earlier this year, as the agency struggled to do its job with a decimated staff, a shrinking budget and decrepit computers, its commissioner pleaded with Congress to at least give it time to prepare for the big tax overhaul Republicans wanted.

That didn’t happen. Instead, Republicans rushed hastily written legislation larded with amendments through both chambers. Even before this hash hit their desks, I.R.S. officials were warning about the potential for a catastrophic breakdown that could imperil our tax system. Then, at its busiest time of year, the agency was given a week before the tax law goes into effect to translate hundreds of pages of conflicting provisions, potential loopholes and unintended consequences into coherent guidance for taxpayers. ...

Americans should reserve their rage for Republicans, who have spent years targeting the I.R.S. for political gain. Since 2010, Congress has cut the agency’s budget by nearly $1 billion, or 18 percent, adjusted for inflation, as the I.R.S. processes about 10 million more tax returns. Its work force has been whacked by 21,000, or nearly one-quarter; taxpayers who need help — often individuals preparing their own returns — have a hard time getting anyone to answer the phone. ...

There is no permanent commissioner leading the I.R.S. Its last one, John Koskinen, left in November at the expiration of his term. Mr. Koskinen had spent a big chunk of his time on Capitol Hill, being lambasted by Republicans over allegations that the Obama-era I.R.S. unfairly targeted conservative political groups seeking tax-exempt status. A report released in October by the Treasury Department’s inspector general found that the I.R.S. had also scoured left-leaning groups’ applications for tax-exempt status as part of its effort to identify groups focused on politics, not “social welfare,” as the rules for tax-exempt status require.

The agency apologized for its improper audits, and a Justice Department investigation found mismanagement but no evidence of a crime. Though the audits occurred before Mr. Koskinen came aboard, Republicans clamored for him to be impeached, an action not taken against an administration official besides the president since the 1870s. The dumb and unsuccessful effort was led by legislators like Jason Chaffetz, then a Republican congressman from Utah, who view the I.R.S. as symbolic of “big government” and think that killing it outright might be a good idea. ...

Pounding a perennial punching bag like the I.R.S. scores easy political points among Americans who associate the agency with an unpleasant April deadline. We get it. But if the agency that collects more than 90 percent of the government’s money stumbles, all Americans pay, and they can look to Congress, not just the I.R.S., in assigning the blame.

(Hat Tip: Bill Turnier.)

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December 31, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (17)

Friday, December 29, 2017

Confusion Reigns As People Race To Prepay (And Deduct) Property Taxes By Year-End

IR-2017-210, Prepaid Real Property Taxes May Be Deductible in 2017 if Assessed and Paid in 2017:

The Internal Revenue Service advised tax professionals and taxpayers today that pre-paying 2018 state and local real property taxes in 2017 may be tax deductible under certain circumstances.

The IRS has received a number of questions from the tax community concerning the deductibility of prepaid real property taxes. In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018.  A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017.  State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.

The following examples illustrate these points.

Example 1: Assume County A assesses property tax on July 1, 2017 for the period July 1, 2017 – June 30, 2018.  On July 31, 2017, County A sends notices to residents notifying them of the assessment and billing the property tax in two installments with the first installment due Sept. 30, 2017 and the second installment due Jan. 31, 2018.   Assuming taxpayer has paid the first installment in 2017, the taxpayer may choose to pay the second installment on Dec. 31, 2017, and may claim a deduction for this prepayment on the taxpayer’s 2017 return.

Example 2: County B also assesses and bills its residents for property taxes on July 1, 2017, for the period July 1, 2017 – June 30, 2018. County B intends to make the usual assessment in July 2018 for the period July 1, 2018 – June 30, 2019.  However, because county residents wish to prepay their 2018-2019 property taxes in 2017, County B has revised its computer systems to accept prepayment of property taxes for the 2018-2019 property tax year.  Taxpayers who prepay their 2018-2019 property taxes in 2017 will not be allowed to deduct the prepayment on their federal tax returns because the county will not assess the property tax for the 2018-2019 tax year until July 1, 2018.

Victor Thuronyi, Can You Prepay 2018 Property Tax in 2017?:

It turns out this question get[s] more complex by the day. ...

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December 29, 2017 in IRS News, Tax | Permalink | Comments (11)

Friday, December 22, 2017

The Farmer, The Pickup, And The Elephant: A Post-Modern Fable

Once upon a time in West Texas there lived a farmer. In addition to raising crops, he kept a collection of interesting animals as a hobby. Always keen to make some money, however, he used the output of the animals for compost and sold the excess to surrounding farms. More about that below the fold. But first I need to tell you about the farmer’s pickup truck, “Iris.”

The farmer’s dad had bought a fine Ford F250 in the early 2000’s. His dad was very fond of the truck and called it “Iris.” But the farmer did not like Iris and so he used it exclusively to haul the animal product to market. Of course that meant Iris stank. The stink offended people, who thought Iris was to blame for payload the farmer asked Iris to carry.

When the farmer took over farming operations from his dad in 2008 he began neglecting Iris by not putting in the money to make needed upkeep and repairs. For example, he used a really cheap motor oil because he liked its name “Liberty,” and he liked the pennies he saved. But that oil actually did the exact opposite of what oils are supposed to do: it exacerbated the wear on the engine Then the farmer started using an even cheaper lubricant: chicken grease. When the once proud 5.2L Voodoo V8 engine failed, the farmer replaced it with an 4-cylinder engine taken from a Ford Fiesta, ‘cause that was cheap. More pennies saved! As parts failed, Iris became increasingly unreliable.  Still, the farmer kept relying on Iris to carry the load for him.

And now, for the Elephant part, below the fold.

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December 22, 2017 in Bryan Camp, IRS News, Tax, Tax Policy in the Trump Administration, Tax Practice And Procedure | Permalink | Comments (3)

Monday, December 18, 2017

The IRS Scandal, Day 1684: Fallout From Allegations Of Tea Party Targeting Hampers IRS Oversight Of Nonprofits

IRS Logo 2Washington Post, Fallout From Allegations of Tea Party Targeting Hamper IRS Oversight of Nonprofits:

Years of conservative attacks on the Internal Revenue Service have greatly diminished the ability of agency regulators to oversee political activity by charities and other nonprofits, documents and interviews show.

The fall in oversight, a byproduct of repeated cuts to the IRS budget, comes at a time when the number of charities is reaching a historic high and they are becoming more partisan and financially complex.

It represents a success for conservatives who have long sought to scale back the IRS and shrink the federal government. They capitalized on revelations in 2013 that IRS officials focused inappropriately on tea party and other conservative groups based on their names and policy positions, rather than on their political activity, in assessing their applications for tax-exempt status. Among conservatives, the episode has come to be known as the “IRS targeting scandal.”

Under the federal tax code, charities may not directly or indirectly support a political candidate, but they are allowed to participate in educational debates about the issues. Other nonprofits known as social welfare groups may be involved in politics, but only as long as it is not their primary purpose.

The main part of government tasked with policing those lines, the IRS’s Exempt Organizations division, has seen its budget decline from a peak of $102 million in 2011 to $82 million last year. At the same time, division employees have fallen from 889 to 642.

The division now lacks expertise, resources and the will needed to effectively oversee more than 1.2 million charities and tens of thousands of social welfare groups, according to interviews with two dozen nonprofit specialists and current and former IRS officials.

“This completely neutered them,” said Philip Hackney, a tax law professor at Louisiana State University and former Exempt Organizations lawyer at the IRS. “The will is totally gone.” ...

Conservatives have likened the IRS’s extra scrutiny of the tea party groups to Watergate and called it a political witch hunt. Among the leading critics was Cleta Mitchell, a veteran Republican activist and nonprofit lawyer. In 2014, she told a House oversight panel that Congress ought to abolish the IRS, saying the agency “is so corrupt and so rotten to the core that it cannot be salvaged.”

But while investigations by Congress and federal agencies found that IRS officials selected tea party groups for added attention, the investigators concluded there was no proof of political intent, a liberal conspiracy or White House involvement. ...

More charities have now begun to recognize they face little chance of an examination or sanction, which can involve terminating a group’s tax-exempt status and the ability of its donors to deduct their contributions, specialists said. “More and more groups are going to discover that they get away with doing politics,” said Lloyd Hitoshi Mayer, a law professor at Notre Dame and a former nonprofit lawyer. ...

In interviews and an email exchange with The Post, Mitchell said the investigations failed to highlight the essence of IRS wrongdoing. She maintains the scandal was grounded in abusive, politically motivated targeting, as chronicled by the Issa report in 2014. “I have no intention of ‘schooling’ anyone on why the IRS / Obama / Democrats’ narrative is wrong,” she wrote. “I’m not going to get into an argument to try to convince you of why that narrative is wrong. It just is. You either believe it or you don’t and if you don’t think there was a Political targeting scandal, then you don’t need to talk to me.”

Miriam Galston, a law professor at George Washington University, said there’s growing evidence that many charities are “flagrantly violating” the expectation that they contribute to “the public good.” She said IRS regulators are not in a position to do anything about it. “They’ve been burned. They’ve been hammered. They’ve been bludgeoned,” said Galston, a specialist in state and federal nonprofit law. “They’re trying to survive.”

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December 18, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (8)

Friday, December 15, 2017

The IRS Scandal, Day 1681: Robert Mueller And Lois Lerner

IRS Logo 2Wall Street Journal op-ed:  Let Mueller Keep Digging, by William McGurn:

At a moment when the special counsel’s team is busy calling its own fairness and impartiality into question, why would Donald Trump even think of firing Robert Mueller?

When the special counsel picked his team, almost half the lawyers he selected had donated to Hillary Clinton. Legally that may not be disqualifying. It was, however, highly imprudent for a man presiding over the nation’s most sensitive investigation. Not a single Mueller prosecutor had contributed to Mr. Trump.

Those donations now provide the context for more recent revelations about the partisan preferences of Team Mueller. ...

These developments, alas, have encouraged two horrible responses from Republicans. The first is the call for Mr. Trump to sack Mr. Mueller, an idea news reports say is gaining traction inside the White House. The other is for a new special counsel to investigate the existing special counsel.

Either would make a bad situation worse. ...

Then there’s Congress, which has been rightly frustrated to find the Trump Justice Department as obstructionist as the Obama Justice Department. In testimony last week, FBI Director Christopher Wray advanced the extraordinary claim he can hold back information from the elected representatives of the American people on the grounds that it is classified or that he’s waiting for an inspector general’s report and so, presumably, should they.

The message for Congress is this: Why should an FBI director take you seriously when you don’t take yourselves seriously? During the IRS scandal, Lois Lerner rode off into the sunset without testifying because Congress allowed the Obama Justice Department to determine her fate. Ditto for John Koskinen, the IRS commissioner who happily served out his time when Congress should have impeached him for his falsehoods and obstructionism.

n its 1821 decision affirming the right of the House to hold people in contempt and jail them, the Supreme Court noted that depriving Congress of this authority would mean “the total annihilation of the power of the House of Representatives” to prevent people from just flipping it the bird. Isn’t that just what government officials from Ms. Lerner to Mr. Wray have been doing?

If executive branch officials continue to play games with subpoenas, Congress needs to give them a taste of the legislature’s powers, whether by cutting agency budgets, impeaching directors or holding uncooperative officials in contempt. In this regard it’s good to know Devin Nunes, chairman of the House Intelligence Committee, is still pursuing contempt citations for Mr. Wray and Deputy Attorney General Rod Rosenstein. A contempt vote by the full House would of course depend on Speaker Paul Ryan, who complained in October about FBI “stonewalling.”

So forget firings and new special prosecutors. Let the president use his executive authority to make public the evidence that would tell the American people what really happened. And let Congress start acting like the coequal branch of government the Founders intended—and get to the bottom of a story that involves the legitimacy of the presidency, the 2016 election and our federal institutions.

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December 15, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Thursday, December 14, 2017

WaPo: How The IRS Values Art

I try to tell my students that where the rubber hits the road for many tax issues is in valuation.  Here's a great story about one aspect of valuation disputes from the Washington Post Magazine:  "The Secretive Panel of Art Experts That Tell the IRS How Much Art is Worth"

Each year, bequests and donations of art generate tens of millions of dollars in potential tax revenue. But to be accurately taxed, an artwork needs to be accurately valued, and the owner who has to pay the tax can’t be expected to provide the last word. When an artwork is sold outright, the Internal Revenue Service needs no help in determining how much to tax; it has the purchase price and the sale price and it knows how to subtract. (The maximum federal tax rate on profits from the sale of art and collectibles is 28 percent, higher than the 15 to 20 percent for stocks.) Things get trickier, however, when an artwork passes to an heir or is given to a museum. The agency still needs to know, as of the date of death or donation, how much the art is worth, but without a current sale price that figure can be debatable.

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December 14, 2017 in Bryan Camp, IRS News, Tax | Permalink | Comments (1)

Wednesday, December 6, 2017

The IRS Scandal, Day 1672: Ohio Attorney General Asks Federal Court To Release Lois Lerner's Deposition In Tea Party Targeting Case

IRS Logo 2Cincinnati Enquirer, Ohio AG DeWine Wants Lois Lerner's IRS Testimony Unsealed in Tea Party Case:

Ohio Attorney General Mike DeWine has thrown his support behind efforts to unseal testimony by two former IRS officials at the center of the tea party scandal of 2013.

A federal judge previously sealed the depositions of former IRS divisional director Lois Lerner and her immediate subordinate after their personal lawyers said the two were receiving threats.

The Enquirer has since requested the documents be unsealed by U.S. District Court as the case has been tentatively settled. That request has been backed by the U.S. Justice Department and the lawyers suing the government. The two women's lawyers still oppose it.

DeWine joined in on The Enquirer's side last week by filing an amicus brief. The case "involves matters of profound public concern and ... the public’s right of access to documents filed in the litigation,” lawyers with DeWine's office wrote.

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December 6, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Tuesday, December 5, 2017

The IRS Scandal, Day 1671: Lois Lerner’s Secrets

IRS Logo 2Wall Street Journal editorial, Lois Lerner’s Secrets: The Former IRS Official Wants a Court to Seal Her Testimony:

If only the National Security Agency were as good at keeping secrets as Lois Lerner. When news that the IRS had targeted conservative groups led to congressional hearings, the former director of the Exempt Organizations division declared her innocence and then clammed up. Now she and her former IRS associate, Holly Paz, are asking a federal judge to seal forever their depositions in a lawsuit that the IRS settled last month for $3.5 million.

Ms. Lerner and Ms. Paz say they or their families have endured harassment or death threats. But Edward Greim, the attorney for the roughly 400 tea-party clients who sued, notes in reply that the last threat Ms. Lerner and Ms. Paz cited was from early 2014.

Leave aside that the usual way of dealing with threats or harassment is to notify police or the FBI—not to keep information about an abuse of power by public officials from the public. Every other party is united for disclosure: the defense (i.e., the government, which has admitted wrongdoing and apologized); the plaintiffs; and the Cincinnati Enquirer, which has filed a motion to lift the seal. ...

American taxpayers who will fork out $3.5 million for Ms. Lerner’s actions have a right to hear how she justified what she did at the IRS.

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December 5, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Tuesday, November 21, 2017

The IRS Scandal, Day 1657: Lois Lerner Fears Retaliation If Her Tea Party Targeting Deposition Is Made Public 

IRS Logo 2Wall Street Journal, Lois Lerner Doesn’t Trust You: “You Can’t Handle the Truth,” the Former IRS Official Tells the American People:

In his courtroom apologia in the film “A Few Good Men,” Jack Nicholson’s Col. Nathan Jessup made the words famous. Now, in her bid to keep her testimony in a recently settled tea-party lawsuit against the IRS secret, Lois Lerner has picked up the Jessup argument: “You can’t handle the truth!”

They used different words but the meaning is the same. Here’s how lawyers for Ms. Lerner and her former IRS deputy, Holly Paz, put it in a filing aimed at persuading a judge to keep their testimony from becoming public: “Public dissemination of their deposition testimony would expose them and their families to harassment and a credible risk of violence and physical harm.” They’re not just thinking of themselves, they add. Young children, family members, might be hurt too.

That’s quite an argument. So enraged would the American public become upon learning what Ms. Lerner and Ms. Paz said that they and those around them would be in physical peril. Which probably makes most people wonder what the heck must the two have said that would get everyone so agitated? ...

[W]hat a crippling precedent it would be if government officials from powerful agencies such as the IRS were permitted to keep their abuses secret on grounds they fear that the people whom they are supposed to serve might be upset if they found out.

There can be good reasons to keep a deposition sealed, from ensuring the privacy of the innocent to protecting the life of a mafia informant. But Ms. Lerner is no innocent. Indeed, given all the falsehoods that have been spread in an effort to whitewash what the IRS had done, the case for transparency becomes even more compelling here. ...

[I]n this case the plaintiffs, the government and a newspaper all say they are for disclosure. Is a judge really going to buy Ms. Lerner’s argument that the American people can’t handle the truth?

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November 21, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (8)

Friday, November 17, 2017

National Taxpayer Advocate Blog: Caring About “Sharing” — The IRS Should Do More For Participants In The Gig Economy

Taxpayer Advocate (2016)NTA Blog, Caring about “Sharing” – The IRS Should Do More for Participants in the Gig Economy:

In this blog post, I will discuss how the IRS has been dealing with a growing sector of our economy called the “sharing” economy (also known as the gig economy). Proponents of the sharing economy believe it promotes marketplace efficiency by enabling individuals to generate revenue from assets while the assets are not being used personally. For example, a vacation home owner may rent out her home while she is not using it. Airbnb (short-term home rentals) and Uber (shared car services) are two of the more prominent companies that facilitate a sharing economy.

Nearly a quarter of the U.S. population earns money from the sharing economy. Although it may be growing at a healthy rate, I want to make clear that not all sharing economy participants are finding it to be a very lucrative endeavor. On the contrary, data show that the vast majority – 85 percent – earn less than $500 per month from their gigs.

Furthermore, many of the service providers are simply unfamiliar with the tax filing and recordkeeping requirements. Service providers in the sharing economy may not fit the mold of the traditional employee who works “9 to 5” and receives a Form W-2 from one employer. Rather, a service provider in the sharing economy may have to take on multiple gigs to help make ends meet, making it difficult to track and allocate expenses among the various gigs. The majority of them do not receive any tax information from the sharing economy platform they use to earn their income. This demonstrates both the need for guidance from the IRS and the opportunity to create a culture of tax compliance among participants in the sharing economy from the outset. Establishing the tax compliance norms for this emerging industry in its infancy will assist the IRS as this segment of taxpayers grows. 

This leads us to the question, “What can the IRS do to help sharing economy participants comply with their tax obligations?” First, when looking at noncompliance, it is important to distinguish between the various types of noncompliance the IRS encounters. Not all noncompliant taxpayers are willfully noncompliant; many of them are tripped up by “unknowing” or “lazy” noncompliance. That is, some taxpayers are simply unaware of their tax compliance obligations. Many sharing-economy entrepreneurs and merchants have never operated a small business and need to understand certain basic tax obligations (i.e., making required quarterly estimated payments throughout the year to avoid penalties).

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November 17, 2017 in Gov't Reports, IRS News, News, Shuyi Oei, Tax | Permalink | Comments (0)

Monday, November 13, 2017

Frances Regan Receives Award For Her Work In Leadership Training In IRS Office Of Chief Counsel

ReganFederal News Radio, Would-be Pharmacist Turned IRS Lawyer Honored For Her Leadership Skills:

Growing up in a family of pharmacists, there was no question Frances Regan would end up working in healthcare, but as fate would have it, law school was the right prescription for Regan.

Three decades after graduating from St. John’s University School of Law, Regan works as the area counsel for the IRS’ Small Business Self Employed Division for Office of Chief Counsel, and her work hasn’t gone unnoticed.

Regan was one of two federal employees honored with the Roger W. Jones Award from the American University School of Public Affairs, for her leadership and “commitment to effective continuity of government.”

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November 13, 2017 in IRS News, Tax | Permalink | Comments (0)

Sunday, November 12, 2017

Facebook Sues IRS Seeking Access To Internal Agency Appeal

Facebook (2016), Facebook Sues IRS Seeking Access to Internal Agency Appeal:

Facebook Inc. has sued the Internal Revenue Service seeking access to an internal IRS appeal process regarding a decision related to the social media giant’s tax bill.

In a 12-page complaint filed in U.S. District Court for the Northern District of California on Wednesday, Facebook claims that IRS counsel have stymied the company’s request to pursue an internal IRS appeal by citing a new and so far seldom-used rule that allows IRS exam teams to deny access to internal appeals when they determine such an appeal would not be in the interest of “sound tax administration.”

Facebook wants a finding that the IRS violated the Administrative Procedure Act by issuing the new rule — Revenue Procedure 2016-22, 2016-15 I.R.B. 1 — and by denying Facebook’s request for an internal appeal.

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November 12, 2017 in IRS News, Tax | Permalink | Comments (4)

Friday, November 3, 2017

$6.8 Billion Hedge Fund Tax Dispute Moves to IRS Appeals Office

RenaissanceFollowing up on my previous post, Senate Report Criticizes Hedge Funds' Use of Basket Options Tax Strategy:  Bloomberg, Mercer Hedge Fund Tax Dispute Moves to IRS Appeals Office:

A tax dispute involving Renaissance Technologies, the hedge fund firm whose co-chief executive officer is a prominent backer of President Donald Trump, is advancing to a new phase.

Members of the Internal Revenue Service’s Office of Appeals are scheduled to meet with lawyers for Renaissance in New York on Nov. 7, according to a person with knowledge of the matter. The meeting kicks off a review by an independent branch of the tax agency and suggests a resolution may be years away.

Although the dollar amount at issue has never been made public, Senate investigators estimated that Renaissance employees may have pocketed about $6.8 billion through what a bipartisan panel in 2014 called an “abusive” tax shelter. Renaissance executives maintain the transactions at issue were within the law and weren’t driven by tax savings.

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November 3, 2017 in IRS News, New Cases, Tax | Permalink | Comments (0)

Tuesday, October 31, 2017

Davis: Morrissey And The IRS's Hostility To Reproductive Choice

Following up on my previous posts:

Tessa Davis (South Carolina), Morrissey v. U.S. and the IRS's Hostility to Reproductive Choice:

I’ll begin with what the court of appeals got right. First, the court did not read a “disease” requirement into the “structure or function” route to a medical expense deduction. Second, the court did not summarily reason that ARTs are unrelated to a “function of the body.” The court of appeals thus avoided two errors that plagued the earlier Magdalin v. Comm’r  case (a Tax Court memorandum opinion summarily affirmed by the First Circuit, and which I’ve written about here).

Unfortunately, the court of appeals got just about everything else wrong.

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October 31, 2017 in IRS News, New Cases, Tax | Permalink | Comments (2)

Some Positive News About The IRS

IRS Logo 2The IRS does not have an easy job.  Remember, it's NOT the "IRS Code" because the IRS is just the agency stuck with the task of carrying out the will of Congress.   And the IRS must do this job all while being a political soccer ball — and since the mid-1990's the Republican team has hogged that ball, kicking with more enthusiasm than enlightenment.  So it was nice to see a positive story about tax administration picked up by USA Today, especially because USA stories also appear in little town newspapers, like the one I read here in Lubbock, Texas (the Lubbock Avalanche-Journal:  IRS: Public-private Crackdown Slashes Identity Theft, Tax Refund Fraud, the story comes from a press release by the IRS that explained:

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October 31, 2017 in Bryan Camp, IRS News, Tax, Tax Practice And Procedure | Permalink | Comments (1)

Friday, October 27, 2017

Trump Names Assistant Secretary Of The Treasury For Tax Policy David Kautter Acting IRS Commissioner, Effective Nov. 12

KautterFollowing up on previous posts (links below): President Trump has named David Kautter, Assistant Secretary of the Treasury for Tax Policy. to be the Acting Commissioner of the IRS when John Koskinen's term ends November 12.

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October 27, 2017 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1632: Department Of Justice Settles Tea Party Targeting Cases For Millions And An Apology

IRS Logo 2Wall Street Journal, Administration Agrees to Settle Tea-Party Suits Against IRS:

The Trump administration on Thursday said it has agreed to pay between $1 million and $10 million to settle lawsuits against the Internal Revenue Service for targeting tea-party groups in the Obama era, saying in court documents that the IRS “admits that its treatment...was wrong.”

The Justice Department entered into proposed settlements with groups that alleged in 2013 they had been subject to discriminatory treatment in applying for tax-exempt status. The move largely puts an end to a saga that had engulfed the IRS for years.

In a settlement filed in federal court in Washington, which still must be approved by a judge, the Justice Department said the IRS “expresses its sincere apology” and was “fully committed” to not subjecting groups for additional review “solely on the name or policy positions of such entity.”

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October 27, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (12)

Wednesday, October 25, 2017

The IRS Scandal, Day 1630: The Real Scandal Is The IRS's Budget

IRS Logo 2Philip Hackney (LSU), The IRS Targeting Scandal Was Fake, but IRS Budget Woes Are a Real Problem:

Conservatives have been seething since 2013 over what they say was an unfair and imbalanced effort by the IRS to scrutinize right-leaning organizations more closely than other groups seeking nonprofit status.

As a new report from the Treasury Department’s inspector general for tax administration shows, the IRS did flag some conservative groups out of concern that they might be problematic. But it also paid the same kind of extra attention to liberal organizations with words like “occupy” and “progressive” in their names between 2004 and 2013.

So it’s now official. There was extra scrutiny but there was no liberal bias among the federal employees who determine whether new organizations that want to operate as nonprofits are legitimate – and therefore eligible for the tax-exempt status that goes with that designation.

As a former IRS lawyer who now researches nonprofit regulation, I am relieved to see the claim that the government exclusively targeted conservative organizations officially debunked. I believe this new report ought to usher in a serious discussion about a very real problem: The IRS is too cash-strapped to conduct its oversight of nonprofits of all kinds. ...

The Government Accountability Office, a nonpartisan congressional agency, recognized in 2014 that the tax agency’s budget and staff were too small to handle its nonprofit oversight responsibilities. The situation has only deteriorated since then.

The overall IRS budget fell by about 18 percent in inflation-adjusted terms from 2010 to 2017, from US$14 billion to roughly $11.5 billion. Today, the agency employs fewer people than it did in 2010. The number of its employees dedicated to auditing and vetting the nonprofit sector fell about 5 percent from 2010 to 2013, the GAO found.

This long-term trend, which began two decades ago, has eroded oversight. The number of aspiring nonprofits gaining tax-exempt status rose over the past decade as rejections fell. The number of denials plummeted from 1,607 in 2007 to merely 37 in 2016.


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October 25, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (10)

Monday, October 16, 2017

Head Of Tax Practice At BigLaw Firm Sentenced To 24 Months In Federal Prison For Tax Evasion: 'Everyone — Including Tax Lawyers — Must Be Truthful In Reporting Their Income'

LevineNew York Law Journal, Judge Hands Two-Year Sentence to Ex-Herrick Tax Head:

Four months after pleading guilty to tax charges, former Herrick Feinstein partner Harold Levine in New York was sentenced Wednesday to 24 months in federal prison for his role in a scheme to defraud the IRS.

U.S. District Judge Jed Rakoff of the Southern District of New York in Manhattan handed down the sentence against Levine, who was indicted a year ago this month on wire fraud and tax evasion charges.

U.S. Attorney’s Office for the Southern District of New York Press Release, Manhattan Tax Attorney Sentenced To Two Years In Prison For Participation In Multimillion-Dollar Tax Evasion Scheme And Lying To The IRS:

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October 16, 2017 in IRS News, Tax | Permalink | Comments (0)

Tuesday, October 10, 2017

Treasury Rolls Back Eight Tax Regulations

TreasuryTreasury Department, Second Report to the President on Identifying and Reducing Tax Regulatory Burdens (Executive Order 13789) (Oct. 2, 2017) (press release):

This Second Report recommends actions to eliminate, and in other cases mitigate, consistent with law, the burdens imposed on taxpayers by eight regulations that the Department of the Treasury (Treasury) has identified for review under Executive Order 13789. As stated in the order, it is the policy of the President that tax regulations provide clarity and useful guidance. Recent regulations, however, have increased tax burdens and impeded economic growth. The order therefore calls for immediate action to reduce tax regulatory burdens and provide useful and simplified tax guidance.

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October 10, 2017 in Gov't Reports, IRS News, Tax | Permalink | Comments (3)

Saturday, October 7, 2017

The IRS Scandal, Day 1612: Inspector General Debunks Ideological Targeting Of Conservative Groups By The IRS

IRS Logo 2New York Times, In Targeting Political Groups, I.R.S. Crossed Party Lines:

A federal watchdog investigating whether the Internal Revenue Service unfairly targeted conservative political groups seeking tax-exempt status said that the agency also scrutinized organizations associated with liberal causes from 2004 to 2013.

The findings by the Treasury Department’s inspector general mark the end of a political firestorm that embroiled the I.R.S. in controversy, led to the ouster of its commissioner and prompted accusations the tax collection agency was being used as a political weapon by the Obama administration.

The exhaustive report, which examined nine years worth of applications for tax-exempt status, comes after a similar audit in 2013 found that groups with conservative names like “Tea Party,” “patriot” or “9/12” were unfairly targeted for further review.

The new report found that the I.R.S. was also inappropriately targeting progressive-leaning groups. While the investigation does not specify the political affiliations of the groups, names that were flagged included the words “Progressive,” “Occupy,” “Green Energy,” and Acorn — the acronym for the now defunct Association of Community Organizations for Reform Now. ...

Ahead of the 2014 midterm elections, Republicans regularly used the scandal to bludgeon Democrats and paint the Obama administration as corrupt. But now it appears that the I.R.S. was an equal offender. “This report shows the I.R.S. deep scrutiny of political groups is in fact bipartisan, it is liberal and conservative groups that the I.R.S. has been targeting,” said Craig Holman, a government affairs lobbyist for the consumer advocacy group Public Citizen.

Rather than condemn the I.R.S. actions, Democrats on Thursday celebrated the findings as evidence that Republicans were wrong to claim bias at the I.R.S. Democrats had previously been critical of the 2013 Treasury report since it only looked at two years of applications. “After years of baseless claims and false accusations it is my hope Republicans will finally put an end to this witch hunt and admit that their attacks on the I.R.S. were nothing but political grandstanding on behalf of special interests at the expense of American taxpayers,” said Senator Ron Wyden of Oregon, the ranking Democrat on the Senate Finance Committee.

Republicans, however, are not prepared to let the I.R.S. off the hook and seized on the report as evidence that the agency must be reformed. “This report reinforces what government watchdogs and congressional investigators have confirmed time and time again: Bureaucrats at the I.R.S., such as Lois Lerner, arbitrarily and haphazardly administered the tax code and targeted taxpayers based on political ideology,” said Representative Kevin Brady of Texas, the Republican chairman of the Ways and Means Committee. “It’s no wonder the American people have lost faith in the I.R.S.”

The controversy over political targeting at the I.R.S. was the genesis of many congressional hearings and probes, and it has continued to haunt its current commissioner, John Koskinen, whom Mr. Obama tapped to stabilize the agency. As recently as April, House members called for the firing of Mr. Koskinen for the “gross mishandling” of its investigation into the targeting of political groups. Despite the uproar from Republicans, President Trump has not taken any steps to fire Mr. Koskinen, whose term ends next month.

Washington Post, Four Years Later, the IRS Tea Party Scandal Looks Very Different. It May Not Even Be a Scandal:

It all seemed to add up. At least it did then.

The Internal Revenue Service, according to outraged Republicans and many media accounts at the time, targeted tea party organizations and other conservative nonprofit groups that were seeking tax-exempt status between 2010 and 2012. Critics said the tax agency had subjected the targeted groups to extra scrutiny, questioning and long delays, largely because their names suggested they would be political opponents of the Obama administration and the Democratic Party.

The allegations formed one of the best-known scandals of former president Barack Obama’s administration and led to months of congressional hearings, official investigations and damning news coverage.

Now, it seems, it wasn’t so simple. ...

The new finding suggests Republicans and the media provided an incomplete or even misleading account of what the IRS was up to when it was reviewing political organizations that sought tax-exempt status. While not of the order of the news media’s credulous (and flawed) reporting about supposed weapons of mass destruction in Iraq before the U.S. invasion in 2003, the report offers a check on the prevailing narrative of the time.

It may also offer a measure of vindication to Obama, at least according to one of his senior advisers. “The Obama administration was often accused of Nixonian wrongdoing,” Eric Schultz, the former president’s spokesman and a deputy White House press secretary under him, said Thursday. “At some point, I lost track of how many Watergates we had. But we live in an environment where the more hyperbolic your allegation is, the more likely it will get headlines, no matter its veracity. This report substantiates our argument that our White House did not politicize the IRS, but those allegations, A1 material at the time, have lived online for four years and now that the public has moved on, they’re proven false.” ...

The issue might have become part of what Dartmouth political scientist Brendan Nyhan has called the “scandal attention cycle” — the rapid surge of attention as reporters race to cover an issue followed by a similar decline as the news media loses interest. “The problem is that it often takes time for the full set of facts to come out,” Nyhan has written. “By that time, the story is old news and the more complex or ambiguous details that often emerge are buried or ignored.”

Philip Hackney (LSU), IRS ‘Targeted’ Liberal Organizations and After All These Years TIGTA is Still Wrong:

The Treasury Inspector General for Tax Administration (TIGTA) just issued a new report four years and five months after rebuking the IRS for using “inappropriate” criteria to select applications for tax exempt status for scrutiny. In the first report, TIGTA rebuked the IRS for pulling the applications of conservative leaning organizations for greater scrutiny.

This time it considers the fact that the IRS over a period of 10 years used liberal leaning names such as ACORN, Emerge, and Progressive as criteria for pulling applications for greater scrutiny. This resulted in the IRS applying greater scrutiny to these organizations. Some might say the IRS targeted these organizations. Those organizations appear to have faced long wait times as well, and sometimes some questions of limited merit.

I write this piece to make two points: (1) had this information been in the initial report, I don’t think we would have had the “scandal” that shook the IRS and the political world of the time; and (2) the TIGTA report built its primary claim on a garbled faux legal postulate. The original report did terrible damage to the IRS and individuals by failing on both of these fronts.

Leandra Lederman (Indiana), The Real IRS Scandal:

[T]he new TIGTA report “identified 146 cases in which the IRS examined groups for suspicion of engaging in disallowed political activity using those criteria.” This finding is not a surprise. The fact that IRS employees were using keywords to identify progressive as well as conservative organizations doing too much political activity to qualify under 501(c)(4) should have been clear to anyone who dug into the public documents. But it wasn’t the message that the House Oversight Committee — and thus many media stories — disseminated. The real scandal was the d amage the resulting witch hunt did to the IRS. I wrote about that in [IRS Reform: Politics As Usual?, 7 Colum. J. Tax L. 36 (2016)] and in a related, short article I published in Tax Notes, The IRS, Politics, and Income Inequality, [150 Tax Notes 1329 (Mar. 14, 2016),] focused in part on IRS underfunding. I hope that TIGTA’s new report helps set the record straight.

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October 7, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, October 6, 2017

The IRS Scandal, Day 1611: TIGTA Report, Review Of Selected Criteria Used To Identify Tax-Exempt Applications For Review

IRS Logo 2Treasury Inspector General for Tax Administration, Agency Statement On Audit Report: “Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review”:

In May 2013, the Treasury Inspector General for Tax Administration (TIGTA) published an audit report in which we reported that between May 2010 and May 2012, the Internal Revenue Service (IRS) used inappropriate criteria to identify for review organizations’ applications for tax-exempt status. TIGTA’s 2013 audit found that the IRS inappropriately selected organizations for scrutiny based on their names or policy positions, instead of indications of significant potential political campaign intervention. Further, TIGTA found that the IRS made requests for unnecessary information and delayed, in some cases for years, making decisions on the organizations’ applications.

This audit was initiated based on bipartisan interest expressed by Members of Congress regarding the IRS’s use of other criteria to select tax-exempt applications for further review. Today, we are releasing a 115-page audit report that provides a historical account of the IRS’s use of 17 additional selection criteria going back as far as 2004. These 17 selection criteria were chosen based on bipartisan input from congressional committees of jurisdiction over the IRS, input from the IRS, and training materials that were not provided to TIGTA during the 2013 audit.

TIGTA found that, between 2004 and 2013, the IRS potentially used more than 250 criteria to identify for further review the applications of organizations seeking tax-exempt status. In our 2013 audit, we found that the process for review of applications for potential political advocacy from May 2010 to May 2012 involved the IRS’s use of a tracking sheet identifying the potential political cases selected for further review; however, the IRS was unable to identify what specific cases, if any, were selected for further review under 16 of the 17 criteria in our current report. Without case selection tracking sheets for the 16 criteria, TIGTA used various other sources to identify 146 cases related to the 17 criteria with indications of political activity, and confirmed that 83 of them were selected for review based on the 17 criteria.

This report is divided into 17 sections, one for each of the 17 criteria. Due to the unique nature of the 17 criteria, it is difficult to compare the criteria to each other, or to compare in aggregate to the criteria reviewed in the 2013 audit. However, TIGTA did find that, while the number of organizations impacted is significantly less than the number detailed in the 2013 report, some organizations in the current report also experienced significant delays and received requests for unnecessary information. In addition, in the 2013 report the majority of cases we reviewed were from organizations applying for I.R.C. § 501 (c)(4) status. In contrast, the majority of the 146 cases in the current report were organizations applying for I.R.C. § 501 (c)(3) status.

Our 2013 report made several recommendations for process improvements and all of them were implemented by the IRS, which we verified in a follow-up audit in 2015. As a result of our 2013 report, the IRS completely revamped the process for reviewing tax-exempt applications, including the elimination of criteria listings, known as “Be On the Lookout” listings, in June 2013. According to the IRS, the revamped process has totally eliminated the backlog of applications and reduced processing cycle times for cases. Since the review process in place when the 17 criteria were potentially used by the IRS is no longer in effect, TIGTA did not make any recommendations for improvement in this audit report.

Treasury Inspector General for Tax Administration, Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review (2017-10-054) (Sept. 28, 2017):

In a prior audit, TIGTA determined that the IRS used inappropriate criteria to select tax‑exempt applications for further review. Moreover, ineffective management resulted in substantial delays in processing certain applications and allowed unnecessary information requests to be issued. It is critical that tax laws are administered in a fair and impartial manner.

In the prior review, TIGTA audited criteria that the IRS stated it used to select potential political cases for additional review from May 2010 through May 2012. The overall objective of this audit was to provide a historical account of the IRS’s development and use of 17 select criteria from 259 criteria used to identify tax‑exempt applications for review. The 17 criteria discussed in this report were selected based on input from staff of various congressional committees of jurisdiction and the IRS as well as from training documents that were not provided to TIGTA in the prior audit.

TIGTA found that, from August 2004 through June 2013, the IRS potentially used 259 criteria to identify tax-exempt applications for further review. Most of these criteria involved issues besides political campaign intervention, such as potential fraud, abuse, and links to terrorism.

In the prior audit, TIGTA found that the IRS used a tracking sheet to show which potential political cases were selected for further review; however, IRS management stated that case listings such as the one provided in the prior audit were not required. Due to the lack of case listings for all but one of the 17 criteria, TIGTA used various sources to identify more than 900 cases that could potentially have been selected for review based on the 17 criteria. However, TIGTA could not verify whether all relevant cases were identified.

Based on TIGTA’s review of case documentation, 181 of the more than 900 cases had evidence of political activities or indications of significant potential political campaign intervention (the subject of the prior audit). Thirty-five of these cases were not processed while the applicable criteria were in use and did not appear to be processed based on the criteria. For the remaining 146 cases, TIGTA determined that 83 were processed based upon the criteria and 63 were processed while the criteria were in use, but TIGTA could not confirm these 63 cases were selected based upon the criteria. Analysis of the 146 cases is shown in each of the 17 sections of the report with information for each of these unique criteria.

Figure 4

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October 6, 2017 in Gov't Reports, IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, October 5, 2017

Hickman: Chamber of Commerce v. IRS — The Post-Mayo Shake Out Continues

Hickman (2017)Following up on Monday's post, U.S. District Court Strikes Down Obama-Era Anti-Inversion Regulation, Limiting IRS's Power To Make Rules That Skirt The APA:

TaxProf Blog op-ed:  Chamber of Commerce v. IRS:  The Post-Mayo Shake Out Continues, by Kristin Hickman (Minnesota):

Here we go again.  In 2011, the Supreme Court in the Mayo Foundation case declared that it was “not inclined to carve out an approach to administrative review good for tax law only.”  Since then, courts and scholars have been engaged in an ongoing enterprise of debating just how far to take that suggestion.  Last week, in Chamber of Commerce v. IRS, a federal district court in Texas offered up the latest installment in the ongoing post-Mayo shake out when it invalidated a set of Treasury regulations —this time, Temp. Treas. Reg. 1.7874-8T regarding inversion transactions — on Administrative Procedure Act (APA) grounds.  The court’s opinion addressed several issues concerning the relationship between the IRC and general administrative law principles.  And, as with Cohen, Home Concrete, Altera, and other cases in this line, the Chamber of Commerce decision has inspired cheers from some, hand wringing by others, and a great deal of curiosity as tax specialists and administrative law generalists again try to understand one another.

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October 5, 2017 in IRS News, New Cases, Tax | Permalink | Comments (0)

The IRS Scandal, Day 1610: Inspector General Says IRS Gave Extra Scrutiny To Liberal Groups, Undermining GOP Claims Of Ideological Targeting Of Conservative Groups By IRS

IRS Logo 2Washington Post, Liberal Groups Got IRS Scrutiny, Too, Inspector General Suggests:

A federal watchdog has identified scores of cases in which the Internal Revenue Service may have targeted liberal-leaning groups for extra scrutiny based on their names or political leanings, a finding that could undermine claims that conservatives were unfairly targeted under President Barack Obama.

The Treasury Inspector General for Tax Administration (TIGTA) reviewed cases between 2004 and 2013, which includes the period TIGTA previously examined in a 2013 report that faulted the IRS for using inappropriate political criteria to select groups for heightened scrutiny.

That earlier report found that 96 groups with names referencing “Tea Party,” “Patriot” or “9/12” were selected for intensive review between May 2010 and May 2012, and the House Ways and Means Committee later identified another 152 right-leaning groups that were subjected to scrutiny. Those findings fueled accusations by Republican lawmakers that the Obama administration engaged in politically motivated targeting of conservatives.

But Democrats have long challenged those claims, arguing that liberal-leaning groups were given close scrutiny alongside the conservative groups. The 2013 TIGTA report, they argued, was based on selective criteria that omitted numerous nonconservative groups that were also subjected to close IRS review.

The new report examines a broader range of criteria used by the IRS. It does not characterize the politics of the groups that were selected for scrutiny, a TIGTA spokeswoman emphasized Wednesday. But many of the 17 criteria the report examined had obvious political overtones — including affiliation with the now-defunct Association of Community Organizations for Reform Now (ACORN), as well as names referencing “Progressive,” “Green Energy,” “Medical Marijuana,” and “Occupy.”

Together, the watchdog identified 146 cases in which the IRS examined groups for suspicion of engaging in disallowed political activity using those criteria. Eighty-three of those were definitively chosen for scrutiny because of the selection criteria, the inspector general found; the report could not definitively determine how the other cases were chosen.

The Washington Post reviewed a version of the TIGTA report dated Sept. 28 that has been circulated to various lawmakers and committees on Capitol Hill. The full report is set to be released to the public Thursday.

The new report reiterates the inspector general’s earlier criticism of the IRS review process at the time, calling it “inappropriate” to target groups for scrutiny based on their names rather than on actual evidence of illicit political activity that would leave them ineligible for tax exemptions.

Groups that were selected for review waited months — years, in some cases — for their applications to be reviewed and were subjected to onerous and, in some cases, improper requests for information on their donors and activities. ...

Brady said in a statement Wednesday that the new TIGTA report “reinforces what government watchdogs and congressional investigators have confirmed time and time again: bureaucrats at the IRS, such as Lois Lerner, arbitrarily and haphazardly administered the tax code and targeted taxpayers based on political ideology.” He pledged to “continue holding the IRS accountable for their actions.”

Rep. Sander M. Levin (D-Mich.), who served as the top Democrat on the Ways and Means Committee during the height of the IRS scandal, said Wednesday that the report confirmed “political manipulation by the Republicans.” “They were trying to squeeze whatever political juice they could out of this,” he said. “Incompetence is different than a political witch hunt. There never was one, at least one that anybody could identify.”



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October 5, 2017 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)