TaxProf Blog

Editor: Paul L. Caron
Pepperdine University School of Law

A Member of the Law Professor Blogs Network

Saturday, April 19, 2014

IRS Uses Private Company to Track Taxpayer License Plates

Bloomberg, IRS Among Agencies Using License Plate-Tracking Vendor:

IRSThe IRS and other U.S. agencies awarded about $415,000 in contracts to a license plate-tracking company before Homeland Security leaders dropped a plan for similar work amid privacy complaints. Federal offices such as the Forest Service and the U.S. Air Force’s Air Combat Command chose Livermore, California-based Vigilant Solutions to provide access to license plate databases or tools used to collect plate information, according to government procurement records compiled by Bloomberg.  ...

“Especially with the IRS, I don’t know why these agencies are getting access to this kind of information,” said Jennifer Lynch, a senior staff attorney with the Electronic Frontier Foundation, a San Francisco-based privacy-rights group. “These systems treat every single person in an area as if they’re under investigation for a crime -- that is not the way our criminal justice system was set up or the way things work in a democratic society.”

Continue reading

April 19, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 345

Friday, April 18, 2014

58,000 IRS Computers Are Still Running Windows XP; IRS Says It Is Paying Microsoft $9/Computer for Security Patches, 95% Less Than Cost to Others

Following up on my previous post, IRS Computers Are Still Running Windows XP, Confidential Taxpayer Data Is At Risk:  Computer World, IRS Misses XP deadline, Will Spend $30M to Upgrade Remaining PCs:

XPThe IRS acknowledged last week that it missed the April 8 cut-off for Windows XP support and will be paying Microsoft for an extra year of security patches. But the tax agency disputed an earlier estimate by Computerworld that put the cost of those patches in the millions, saying that it was paying Microsoft "less than $500,000" for the after-retirement support.

Microsoft terminated Windows XP support on Tuesday when it shipped the final public patches for the nearly-13-year-old operating system. Without patches for vulnerabilities discovered in the future, XP systems will be at risk from cyber criminals who hijack the machines and plant malware on them. ...

According to the IRS, it has approximately 110,000 Windows-powered desktops and notebooks. Of those, 52,000, or about 47%, have been upgraded to Windows 7. The remainder continue to run the now retired XP. ...

John Koskinen, the commissioner of the IRS, defended the unfinished migration at the hearing, saying that his agency had $300 million worth of IT improvements on hold because of budget issues. One of those was the XP-to-7 migration. ... But he stressed that the migration had to continue. "Windows XP will no longer be serviced, so we are very concerned if we don't complete that work we're going to have an unstable environment in terms of security," Koskinen said.

Koskinen concurred with Crenshaw's $30 million figure as the cost for upgrading the IRS's remaining Windows XP systems. The money will be taken from the agency's enforcement budget. Part of that $30 million will be payment to Microsoft for what the Redmond, Wash., developer calls "Custom Support," a program that provides patches for critical vulnerabilities in a retired operating system.

Earlier this year, analysts said Microsoft had dramatically raised prices for Custom Support. ... Microsoft negotiates each contract separately, asking for an average of $200 per PC for the first year of Custom Support, those analysts said. Using that average -- and the number of PCs the IRS admitted were still running XP -- Computerworld estimated that the IRS would pay Microsoft $11.6 million for one year of Custom Support. Late Friday, however, the IRS disputed that estimate. An agency source said that the IRS was paying Microsoft less than $500,000 for Custom Support on its remaining 58,000 Windows XP PCs, or about $9 each. According to the source, the exact figure will be disclosed at a later date.

April 18, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 344

IRS Logo 2Above the Law:  Should ‘Campaign For Liberty’ Have Called Itself ‘Campaign For Progress’ Instead?:

Campaign for Liberty, Ron Paul’s 501(c)(4) organization, announced this week that it’s actually pretty sure that its tax recent filings are incomplete, even if true and correct. (Two out of three ain’t bad?) According to C4L, the organization refused to divulge the names of its donors when it filed its IRS 990 forms. The IRS fined Campaign for Liberty just shy of $13,000, plus growing interest for each day the fine goes unpaid. ...

Megan Stiles, the communications director at Campaign for Liberty, told the Washington Examiner in an email on Tuesday:  There is no legitimate reason for the IRS to know who donates to Campaign for Liberty. The IRS technically requires donor information from 501(c)(4) organizations and is forbidden by law from releasing it to the public, yet despite this they have ‘mistakenly’ released the information repeatedly over the years. Often these leaks have been made to political opponents of the conservative groups whose information was leaked. Leaking the donor information is intended to harass and to intimidate those donors from donating to political causes. Campaign for Liberty has refused to provide donor information to the IRS to protect the privacy of our members. Now the IRS has demanded the information and fined Campaign for Liberty for protecting its members’ privacy. ...

[C]an you blame them for being skeptical of how the IRS will treat them and their donors? It’s been a year since the Treasury Inspector General for Tax Administration conceded that the IRS used “inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based on their names or policy positions instead of indications of potential political campaign intervention.” President Obama himself has in the past used donor lists to publicly chastise private citizens who oppose him politically.

The investigation by the House Oversight and Government Reform Committee crawls along with all the deliberate speed of a patient on Seconal. However, Judicial Watch released yesterday a new batch of internal IRS emails showing that former IRS official Lois Lerner communicated with the Department of Justice on strategies for targeting 501(c)(4) groups. Even as Lerner broke the news of the IRS scandal by blaming “low-level” employees in Cincinnati, Lerner was still consulting with the DOJ about how the targeted organizations could be prosecuted. There’s mounting evidence to support conservative concerns about the political nature of the IRS.

In November, the IRS proposed changes to the rules governing 501(c)(4) organizations. The changes would constrict the political activity of groups claiming this tax-exempt status and require them to disclose their donors. The proposal elicited a record-breaking 169,000 public comments. IRS Commissioner John Koskinen told USA Today on Monday that, given the extraordinary number of comments, “In all likelihood we will re-propose a redefined rule and ask for more public comment.” He predicted that the process would not be complete “until the end of the year and beyond.”

Conservatives like Senate Minority Leader Mitch McConnell (R-Ky.) have opposed these changes, unsurprisingly. However, even the ACLU has criticized the proposed rules as unduly burdensome on First Amendment rights. It’s not only conservatives who should be wary about not only what the IRS has done in the past, but also what it aims to do in the future.

Can you blame Campaign for Liberty for not wanting to expose its private-citizen donors to retribution, even if that means disregarding IRS demands? Perhaps we should just ask former Mozilla CEO Brendan Eichwhat the consequences of disclosure might be.

Continue reading

April 18, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Thursday, April 17, 2014

The IRS Scandal, Day 343

IRS Logo 2U.S. News & World Report: The IRS Scandal's Smoking Gun?:

The so-called “smoking gun” proving the Internal Revenue Service played politics with conservative groups seeking official non-profit, social welfare status over the last several years may finally have been found.

In a rash of documents provided under the Freedom of Information Act to Judicial Watch, a non-partisan public interest law group, is an April 2013 email written by David Fish, acting manager of IRS Exempt Organizations Technical Guidance and Quality Assurance and sent to, among others, former IRS Director of Exempt Organizations Lois Lerner. It was part of a thread discussing a recent U.S. Senate hearing on the potential for the abuse of the 501(c)(4) tax status by organizations intervening inappropriately or improperly in candidate elections.

Responding to a message “What can I say?” from Lerner, Fish responds, “Tell Ruth she needs to get on the stick and that the next election cycle is around the corner. This is obviously a wonderful idea (that’s why we suggested it). I think you told Greg all you can tell him, unless you want to tell him that we’re taking guidance plan suggestions.”

The email is dated April 15, 2013 – well after initial allegations that the IRS had “slow-walked” the applications of conservative groups had been made and, by the agency, denied.

The “Ruth” mentioned in the message refers to Ruth Madrigal, an official at the U.S. Treasury Department. The “Greg” mentioned in Fish’s message is apparently a San Francisco-based attorney named Gregory Colvin, who started this chain with an e-mail to Lerner and Madrigal letting them know he has just testified before the Senate Judiciary Subcommittee on Crime and Terrorism on the issue of whether officers of (c)(4) organizations who made false statements under penalty of perjury on tax returns “could be criminally prosecuted.”

The Obama administration has insisted from the beginning that conservative groups were not singled out and that electoral considerations did not factor into what clearly went on. They prefer to adhere to the fiction that anything untoward that occurred generated spontaneously in branch offices among low level staff and not at the direction of anyone in Washington.

The particular mention by Fish of the idea that “the next election cycle is around the corner” seems to any reasonable person to confirm or at least suggest higher-ups at the IRS including Lerner knew exactly what they were doing, had used their positions for partisan political purposes, and were continuing to do so even though the word about what they were doing had leaked out....

[C]ongressional investigators need to refocus, to cast a wider net and make sure all the documents they asked for were actually turned over. If they weren’t, then it would seem reasonable to conclude a cover-up had in fact occurred and may be a bigger thing than the underlying crime.

Rather than slow down its efforts and wind them up, congressional committees investigating what the IRS actually did and finding what other federal agencies – if any – it worked with to subvert the constitutionally protected rights to freedom of speech and association need to go into high gear. The upcoming summer recess would be the perfect time to focus on it since there will be nothing else going on in town.

Continue reading

April 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (7)

Wednesday, April 16, 2014

The Fluctuating Math Errors in Americans’ Tax Returns

538FiveThirtyEight:  The Fluctuating Math Errors in Americans’ Tax Returns:

Seeing as Tuesday night is the deadline for filing tax returns, and seeing as data is FiveThirtyEight’s raison d’être, I was excited to find a set of statistics titled “Math Errors on Individual Income Tax Returns, by Type of Error.” Even better, that data has been published for tax years from 2001 to 2012.

It’s unsurprising that some Americans make mistakes on their taxes; the 1040 form (the primary tax form) has 77 line items, as well as a 189-page appendix of instructions. But Internal Revenue Service data shows that math mistakes — potentially an indication of how confusing that form is — have changed a lot over time.

chalabi-math-errors

Why does the number of errors fluctuate so much? ...

Moving from facts to theory, the decrease in errors since 2009 might also partly be explained by the increase in use of TaxACT, TaxSlayer, TurboTax and other online filing services. That assumes that such providers are less prone to mistakes than alternative solutions, such as Americans calculating their own taxes or using traditional accountants. The National Taxpayers Union has claimed that is not a safe assumption.

(Hat Tip: David Herzig.)

April 16, 2014 in IRS News, Tax | Permalink | Comments (4)

The IRS Scandal, Day 342

Tuesday, April 15, 2014

The IRS Scandal, Day 341

Monday, April 14, 2014

The IRS Scandal, Day 340

IRS Logo 2National Review:  Woodward on IRS Scandal: ‘There’s Obviously Something Here’:

The Washington Post’s Bob Woodward knows a thing or two about investigating Washington scandals, and he believes the Internal Revenue Service’s targeting of conservative groups merits a deeper look.

“We should dig in to it — there should be answers,” he said on Fox News Sunday. “For the president to take that position is very, very unusual and say there’s not a ’smidgen of evidence here.’”

Woodward raised questions about the Republican House committees’ ability to properly and effectively carry out such an investigation. He laid out what his approach would be to dealing with stonewalling from Lois Lerner, as well as the administration, including speaking with others close to the situation rather than just the major players. But Woodward also warned of congressional Republicans’ crossing the line in their accusations of Lerner and others involved.

“There’s obviously something here,” he explained. “The question is, does this committee know how to investigate.”

(Click on YouTube button on bottom right to view video directly on YouTube to avoid interruption caused by blog's refresh rate.)

Continue reading

April 14, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Sunday, April 13, 2014

The IRS Scandal, Day 339

Saturday, April 12, 2014

IRS Debunks Tax Protester Arguments

IRS Logo 2The IRS yesterday released (IR-2014-51) its annual update of The Truth about Frivolous Tax Arguments:

This document describes and responds to some of the common frivolous arguments made by individuals and groups who oppose compliance with the federal tax laws. The first section groups these arguments under five general categories, with variations within each category. Each contention is briefly explained, followed by a discussion of the legal authority that rejects the contention.

A. The Voluntary Nature of the Federal Income Tax System

  1. Contention: The filing of a tax return is voluntary
  2. Contention: Payment of tax is voluntary
  3. Contention: Taxpayers can reduce their federal income tax liability by filing a “zero return”
  4. Contention: The IRS must prepare federal tax returns for a person who fails to file
  5. Contention: Compliance with an administrative summons issued by the IRS is voluntary

B. The Meaning of Income: Taxable Income and Gross Income

  1. Contention: Wages, tips, and other compensation received for personal services are not income
  2. Contention: Only foreign-source income is taxable
  3. Contention: Federal Reserve Notes are not income
  4. Contention: Military retirement pay does not constitute income

C. The Meaning of Certain Terms Used in the Internal Revenue Code

  1. Contention: Taxpayer is not a “citizen” of the United States, thus not subject to the federal income tax laws
  2. Contention: The “United States” consists only of the District of Columbia, federal territories, and federal enclaves
  3. Contention: Taxpayer is not a “person” as defined by the Internal Revenue Code, thus is not subject to the federal income tax laws
  4. Contention: The only “employees” subject to federal income tax are employees of the federal government

D. Constitutional Amendment Claims

  1. Contention: Taxpayers can refuse to pay income taxes on religious or moral grounds by invoking the First Amendment
  2. Contention: Federal income taxes constitute a “taking” of property without due process of law, violating the Fifth Amendment
  3. Contention: Taxpayers do not have to file returns or provide financial information because of the protection against self-incrimination found in the Fifth Amendment
  4. Contention: Compelled compliance with the federal income tax laws is a form of servitude in violation of the Thirteenth Amendment
  5. Contention: The Sixteenth Amendment to the United States Constitution was not properly ratified, thus the federal income tax laws are unconstitutional
  6. Contention: The Sixteenth Amendment does not authorize a direct nonapportioned federal income tax on United States citizens

E. Fictional Legal Bases

  1. Contention: The Internal Revenue Service is not an agency of the United States
  2. Contention: Taxpayers are not required to file a federal income tax return, because the instructions and regulations associated with the Form 1040 do not display an OMB control number as required by the Paperwork Reduction Act
  3. Contention: African Americans can claim a special tax credit as reparations for slavery and other oppressive treatment
  4. Contention: Taxpayers are entitled to a refund of the Social Security taxes paid over their lifetime
  5. Contention: An “untaxing” package or trust provides a way of legally and permanently avoiding the obligation to file federal income tax returns and pay federal income taxes
  6. Contention: A “corporation sole” can be established and used for the purpose of avoiding federal income taxes
  7. Contention: Taxpayers who did not purchase and use fuel for an off-highway business can claim the fuels tax credit
  8. Contention: A Form 1099-OID can be used as a debt payment option or the form or a purported financial instrument may be used to obtain money from the Treasury

The second section responds to some of the common frivolous arguments made in collection due process cases brought pursuant to sections 6320 and 6330. These arguments are grouped under ten general categories and contain a brief description of each contention followed by a discussion of the correct legal authority. A final section explains the penalties that the courts may impose on those who pursue tax cases on frivolous grounds. The court opinions cited as relevant legal authority illustrate how these arguments are treated by the IRS and the courts. Note that courts often decline “to refute [frivolous] arguments with somber reasoning and copious citation of precedent” for a variety of reasons. Wnuck v. Commissioner, 136 T.C. 498 (2011) (quoting Crain v. Commissioner, 737 F.2d 1417, 1417 (5th Cir. 1984)).

This document, including the relevant legal authorities cited, is not intended to provide an exhaustive list of frivolous tax arguments. Merely because a frivolous argument is not included in this document does not mean that it is not frivolous. Taxpayers may not rely on frivolous arguments to avoid or evade federal taxes. The government and courts are not precluded from penalizing taxpayers who raise a frivolous argument not addressed in this document.

April 12, 2014 in IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 338

IRS Logo 2Tax Analysts Blog: The Gift That Is Lois Lerner, by Christopher Bergin:

[W]hen you see all of what the Ways and Means Committee compiled about Lerner, it hardly paints a pretty picture of her. To me, it certainly shows that she did many stupid things and that she probably abused her power as a high-ranking IRS official. Did she break the law? I don’t know, but that is why I agree with Ways and Means Republicans that there should be a Justice Department investigation – although I thought one was already going on. ...

The bad behavior going on at the IRS – whether it is politically motivated or not – does not stop with Lerner. It has to go higher than that. How much higher, I do not know, but that’s yet another reason why we need an investigation – a real one.

And that is why I think the Ways and Means Republicans are doing the IRS – and, perhaps, the Obama administration – a huge favor. Making Lerner the scapegoat changes the conversation. It makes it about her. It’s not about her. It’s about the IRS. Something bad happened here. And however bad her behavior, the problem isn’t Lerner. The problem is a culture that allows what she did to continue and that probably allows behavior that’s much, much worse. That is what new IRS Commissioner John Koskinen must deal with.

And here is where I agree to some degree with Ways and Means Democrats. The GOP committee members have become so obsessed with the political dimensions of this scandal that they are forgetting their job -- a job they actually explain at the top of the letter to the DOJ. Their job is not to fix blame; it’s to fix the problem. Their job is not to destroy the IRS; it is to protect the rights of ALL American taxpayers. This scandal isn’t about Lerner; it’s about our tax system. If all of this goes to the White House, so be it. But it’s about getting to the truth, not getting to the president of the United States. You’d think the GOP would have learned that from Monica Lewinsky. Think what you want about that so-called scandal, but I think this so-called scandal poses a far bigger threat to the country.

Continue reading

April 12, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Friday, April 11, 2014

The IRS Scandal, Day 337

CNN:  Should Lois Lerner Be Held In Contempt?:

CNN Crossfire

Continue reading

April 11, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Thursday, April 10, 2014

The IRS Scandal, Day 336

Continue reading

April 10, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Wednesday, April 9, 2014

IRS Computers Are Still Running Windows XP, Confidential Taxpayer Data Is At Risk

Washington Post:  A Week Before Tax Day, IRS Misses Crucial Windows XP Deadline:

XPMicrosoft on Tuesday stopped providing free support and security updates for Windows XP. The long-planned expiration of the popular operating systems has sent millions of users scrambling to upgrade their computer systems.

Among who still that need to make the transition is the Internal Revenue Service, which has yet to complete its migration away from Windows XP, less than a week ahead of its own important deadline: Tax Day.

The agency is "struggling" to find $30 million dollars to complete its move to Windows 7, according to Rep. Ander Crenshaw (R. - Fla.), chairman of the financial services and general government subcommittee. During a hearing on IRS budget Monday, Crenshaw questioned why the agency had not prioritized the move "even though Microsoft announced in 2008 that it would stop supporting Windows XP past 2014."

IRS Commissioner John Koskinen defended the agency's efforts, noting that it has been operating amid budget uncertainty for years. The migration to Windows 7 was just one of nearly $300 million dollars worth of information technology projects that has not been completed due to funding shortfalls, he said.

"You're exactly right," Koskinen said of the timing. "It's been some time where people knew Windows XP was going to disappear." But testifying just a day before Microsoft ended support for the operating system, he conceded the agency was still trying to finish up the transition. "So we are very concerned that if we don't complete that work, we're going to have an unstable environment in terms -- in terms of security."

The GAO yesterday released IRS Needs to Address Control Weaknesses That Place Financial and Taxpayer Data at Risk (GAO-14-405):

GAOThe IRS continued to make progress in addressing information security control weaknesses and improving its internal control over financial reporting; however, weaknesses remain that could affect the confidentiality, integrity, and availability of financial and sensitive taxpayer data. During fiscal year 2013, IRS management devoted attention and resources to addressing information security controls, and resolved a number of the information security control deficiencies that were previously reported by GAO. However, significant risks remained. Specifically, the agency had not always (1) installed appropriate patches on all databases and servers to protect against known vulnerabilities, (2) sufficiently monitored database and mainframe controls, or (3) appropriately restricted access to its mainframe environment. In addition, IRS had allowed individuals to make changes to mainframe data processing without requiring them to follow established change control procedures to ensure changes were authorized, and did not configure all applications to use strong encryption for authentication, increasing the potential for unauthorized access.

An underlying reason for these weaknesses is that IRS has not effectively implemented portions of its information security program. The agency has established a comprehensive framework for the program, and continued to improve its controls; however, components of the program did not always function as intended. For example, IRS's testing procedures over financial reporting systems were not always thorough in that its testing methodology did not always determine whether required controls were operating effectively. In addition, IRS had not updated key mainframe policies and procedures to address issues such as users accessing files used by one processing environment from a different environment. Further, IRS did not include sufficient detail in its authorization procedures to ensure that access to systems was appropriate.

Until IRS takes additional steps to (1) more effectively implement its testing and monitoring capabilities, (2) ensure that policies and procedures are updated, and (3) address unresolved and newly identified control deficiencies, its financial and taxpayer data will remain vulnerable to inappropriate and undetected use, modification, or disclosure. These deficiencies, including shortcomings in the information security program, were the basis of our determination that IRS had a significant deficiency in its internal control over its financial reporting systems for fiscal year 2013.

April 9, 2014 in IRS News, Tax | Permalink | Comments (0)

IRS Offer in Compromise Acceptance Rate at All-Time High in 2013

The IRS Scandal, Day 335

Continue reading

April 9, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Tuesday, April 8, 2014

Cain & Herzig: Notice 2014-19 and the Application of Windsor to Qualified Retirement Plans

Cain HerzigPatricia A. Cain (Santa Clara) and David Herzig (Valparaiso) have written op-eds for TaxProf Blog on Notice 2014-19, Application of the Windsor Decision and Rev. Rul. 2013-17 to Qualified Retirement Plans:

The purpose of this notice is to provide guidance on the application (including the retroactive application) of the decision in United States v. Windsor, 570 U.S. ___, 133 S. Ct. 2675 (2013), and the holdings of Rev. Rul. 2013-17, 2013-38 I.R.B. 201 (Sept. 16, 2013), to retirement plans qualified under section 401(a) of the Internal Revenue Code (Code).

Continue reading

April 8, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 334

IRS Logo 2House Committee on Oversight and Government Reform, Debunking the Myth that the IRS Targeted Progressives: How the IRS and Congressional Democrats Misled America about Disparate Treatment (Apr. 7, 2014) (141 pages):

The Committee’s investigation demonstrates that the IRS engaged in disparate treatment of conservative-oriented tax-exempt applicants. Documents produced to the Committee show that initial applications transferred from Cincinnati to Washington were filed by Tea Party groups. Other documents and testimony show that the initial criteria used to identify and hold Tea Party applications captured conservative organizations. After the criteria were broadened in July 2012 to be cosmetically neutral, material provided to the Committee indicates that the IRS still intended to target only conservative applications.

The IRS’s independent watchdog, the Treasury Inspector General for Tax Administration (TIGTA), confirms that the IRS treated conservative applicants differently from liberal groups. The inspector general, J. Russell George, wrote that while TIGTA found indications that the IRS had improperly identified Tea Party groups, it “did not find evidence that the criteria [Democrats] identified, labeled ‘Progressives,’ were used by the IRS to select potential political cases during the 2010 to 2012 timeframe we audited.” He concluded that TIGTA “found no indication in any of these other materials that ‘Progressives’ was a term used to refer cases for scrutiny for political campaign intervention.”

An analysis performed by the House Committee on Ways and Means buttresses the Committee’s findings of disparate treatment. The Ways and Means Committee’s review of the confidential tax-exempt applications proves that the IRS systematically targeted conservative organizations. Although a small number of progressive and liberal groups were caught up in the application backlog, the Ways and Means Committee’s review shows that the backlog was 83 percent conservative and only 10 percent were liberal-oriented.9 Moreover, the IRS approved 70 percent of the liberal-leaning groups and only 45 percent of the conservative groups. The IRS approved every group with the word “progressive” in its name.

In addition, other publicly available information supports the analysis of the Ways and Means Committee. In September 2013, USA Today published an independent analysis of a list of about 160 applications in the IRS backlog. This analysis showed that 80 percent of the applications in the backlog were filed by conservative groups while less than seven percent were filed by liberal groups. A separate assessment from USA Today in May 2013 showed that for 27 months beginning in February 2010, the IRS did not approve a single tax-exempt application filed by a Tea Party group. During that same period, the IRS approved “perhaps dozens of applications from similar liberal and progressive groups.” ...

For months, the Administration and congressional Democrats have attempted to downplay the IRS’s misconduct. First, the Administration sought to minimize the fallout by preemptively acknowledging the misconduct in response to a planted question at an obscure Friday morning tax-law conference. When that strategy failed, the Administration shifted to blaming “rogue agents” and “line-level” employees for the targeting. When those assertions proved false, congressional Democrats baselessly attacked the character and integrity of the inspector general. Their attempt to allege bipartisan targeting is just another effort to distract from the fact that the Obama IRS systematically targeted and delayed conservative tax-exempt applicants.

Continue reading

April 8, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Monday, April 7, 2014

IRS Whistleblower Office Issues Annual Report to Congress

The IRS Scandal, Day 333

Pinocchio_3Washington Post Fact Checker:  IRS Chief: No ‘Targeting’ of Tea Party Groups, Just ‘Inappropriate Criteria’:

The inspector general found inappropriate criteria were used to select organizations for further review — he did not refer to it as targeting.

Yes, inappropriate criteria were used. I don’t think I used the word target, but I do acknowledge that applications were delayed unnecessarily and for too long.”

I have never said there was targeting.

 – IRS Commissioner John Koskinen, congressional testimony before the House Oversight and Government Reform Committee, March 26, 2014

What’s in a phrase?

House Republicans who have investigated the IRS’s handling of applications of conservative groups’ seeking tax-exempt status have referred to the practice as “targeting.” So have news organizations, including The Washington Post.

This effort at spin control took an odd turn recently when, during a congressional hearing, IRS Commissioner John Koskinen denied that the Treasury inspector general had used the term “targeting.” At another point in the hearing, Koskinen said that he had “never” used the phrase either.

What did the IG say and when did he say it? ...

[W]hat happened when [Inspector General] George actually spoke before Congress about his report?  Here are two examples from his testimony on May 22, 2013:

The three allegations considered during our review were proven true. The IRS targeted specific groups applying for tax-exempt status. It delayed the processing of these groups’ applications, and requested unnecessary information, as well as subjected these groups to special scrutiny.

The inappropriate criteria discussed in this audit were the IRS’s targeting for review Tea Party and other organizations based on their names or policy positions, a practice started in 2012, and which was not fully corrected until May 2012. Actually the practice was started in 2010 and not fully corrected until May of 2012.

Note that George said the three allegations were “proven true.” The allegations all concerned “targeting.” And then he actually used the word. He even said that the “inappropriate criteria” were defined as the “IRS’s targeting.”

Moreover, Koskinen himself uttered “targeting” before he arrived at the IRS, during his confirmation hearings in December, even though he told Congress in March that he had never used the phrase. ...

We understand the public relations concern about acknowledging that the IRS engaged in targeting of conservative groups. But the cat’s out of the bag, given an official IRS report has used the phrase and both George and Koskinen have used it in public testimony.

The IG’s report was carefully written, but at this point, it is silly and counterproductive for Koskinen to fall back on bureaucratese — or even deny that the phrase “targeting” had been used. While perhaps technically correct in terms of the report, this is a slender reed to hide behind. After all, George publicly said that all three allegations of “targeting” were proven, and that using “inappropriate criteria” was the equivalent of “targeting.” That demonstrates that the term “inappropriate criteria” is simply a euphemism. Accept that means “targeting,” and move on.

Three Pinocchios.  Significant factual error and/or obvious contradictions.

Continue reading

April 7, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Sunday, April 6, 2014

The IRS Scandal, Day 332

Saturday, April 5, 2014

The IRS Scandal, Day 331

IRS Logo 2PJ Media:  The Fascist Thugs Win One: Firefox CEO Steps Down (Update: IRS Role Exposed):

Brendan Eich committed a thoughtcrime. He supports the traditional definition of marriage. For that, he has now joined the ranks of the unemployed. ...

Update: Check this out. The IRS abuse scandal started the process that got Eich ousted.

Why, then, the ruckus? Amazingly enough, it is entirely due to the fact that Eich made a $1,000 donation to the campaign urging a ‘yes’ vote on California’s Proposition 8. When this fact first came to light in 2012, after the Internal Revenue Service leaked a copy of the National Organization for Marriage’s 2008 tax return to a gay-advocacy group, Eich, who was then CTO of Mozilla, published a post on his personal blog stating that his donation was not motivated by any sort of animosity towards gays or lesbians, and challenging those who did not believe this to cite any “incident where I displayed hatred, or ever treated someone less than respectfully because of group affinity or individual identity.”

To whom did the IRS leak NOM’s files? The Human Rights Campaign.

The HRC evidently engineered Eich’s ouster, in the name of equality and tolerance.

The IRS actions create a serious chilling effect. Your donations to any group can be leaked by a hostile operative within the government, to your enemies, for use against you — up to and now including costing you your job.

Reason:  No, the IRS Didn’t Leak Mozilla Ex-CEO’s Donation in Opposition to Gay Marriage:

Dear conservatives: Please don't make me have to write in defense of the Internal Revenue Service (IRS). I certainly don’t enjoy it.

As Nick Gillespie has noted, Brendan Eich stepped down yesterday as chief executive officer of Mozilla in the wake of the scandal that he donated $1,000 in support of California’s Proposition 8, the ballot initiative that forbid state recognition of same-sex marriage.

The outrage has now completely flipped to the opposite direction, with conservatives accusing those who railed against Mozilla of intolerance. Twitter has remained submerged beneath a sea of outrage and generalizations for the duration.

Two days ago, an anonymous tech industry worker wrote a piece about the outrage against Eich at First Things, a journal produced by nonprofit Institute on Religion and Public Life. The anonymous worker stated that Eich's donation came to light in 2012, "after the Internal Revenue Service leaked a copy of the National Organization for Marriage's 2008 tax return to a gay-advocacy group." This information is now being attached and included in coverage on other conservative blogs as well.

But it's not accurate. The names of donors in the Proposition 8 battle, for and against, have always been public information, even before the election. The Los Angeles Times has a searchable database here. Eich's name is on it (as is mine—I gave $100 in opposition and ultimately regretted it after seeing the horrible, useless ads they put together to fight Prop. 8). The information came from the California secretary of state's office, not some IRS leak. This database is not dated, but they were available and were online at some media outlets prior to the 2008 vote.

The possible IRS leak is a real thing, though. First Things didn't invent it, just misunderstood it. The IRS is accused of leaking the National Organization for Marriage's (NOM) tax records from 2008 to the Human Rights Campaign. The IRS has claimed the release of the records was "inadvertent." The records included names of donors to NOM, but while NOM was responsible for organizing and pushing forward Proposition 8, it's not the same list. Eich donated to Prop. 8, not to NOM. Eich's name and donation to Proposition 8 was always a public record and searchable even before the election. People were facing public criticism for their donations at their workplaces even at the time of the vote. Eich is not the first guy to deal with this sort of backlash, and it prompted debate over whether names of donors should be public.

We can blame a multitude of sins on the IRS and President Barack Obama, but the outrage over Eich is not one of them.

Continue reading

April 5, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, April 4, 2014

The IRS Scandal, Day 330

Thursday, April 3, 2014

The IRS Scandal, Day 329

IRS Logo 2IR-2014-42, Prepared Remarks of Commissioner of Internal Revenue Service John Koskinen Before the National Press Club:

In moving the IRS forward, one of the most important things we have to do is restore public trust in the agency, which was shaken by the management problems that came to light last year with regard to the determination process used for applicants to become tax exempt social welfare organizations under section 501(c)(4) of the IRS code. Organizations that have 501(c)(4) status can be everything from garden clubs to homeowners associations, but the focus for the last year has been on advocacy groups that spend part of their time and money on political campaigns.

As a result of the inappropriate use of an organization’s name alone as the criterion for setting its application aside for special treatment, doubt has been cast by some on the independence of the IRS. This is an important issue that deserves our attention.  But it is also important to put this issue into the proper perspective.  The IRS has about 800 employees in its Exempt Organizations Division, and only a small subset of those folks work on processing applications for tax-exempt status for social welfare organizations. Meanwhile, there about 89,000 other IRS employees in offices all across the country who are also doing critical work for our tax system and for the nation in other areas.

Nonetheless, taxpayers need to be confident that the IRS will treat them fairly. It doesn’t make any difference who they are, what organizations they belong to, or whom they voted for in the last election. None of that matters to us at the IRS. We will do about one million audits of individual taxpayers this year. Some who get audited may be Democrats, some may be Republicans, and others may be something else altogether. But they will all have one thing in common: They’re being contacted by us because there was something on their tax returns that needed follow up. Perhaps we just need a clarification. Maybe there was a mathematical error. Or there could be something seriously wrong with the return. But the return alone is the reason for our inquiry. And anyone else with the same issue would receive the same treatment from the IRS.

To make sure that this problem does not recur, we’ve done a number of things. We have accepted all nine of the recommendations from the Inspector General for Tax Administration. It was his report last May that found applications for 501(c)(4) status were being screened using inappropriate criteria in the determinations process. 

Since then, for the last several months the IRS has been cooperating with the investigations into this matter that were launched last summer. There are six ongoing investigations, four conducted by Congressional committees, one by the Department of Justice and one by the IG.

We were asked by members of Congress to quantify the work we’ve done and how much it has cost. The answer is that more than 250 IRS employees have spent over 100,000 hours working directly on complying with the investigations. This work has cost more than $14 million, which includes adding capacity for our computer systems to make sure we are protecting taxpayer information while processing and producing these materials.

In letters to Congressional Committees two weeks ago and in my testimony before the House Oversight and Government Reform Committee last week, I was pleased to report that we now have provided all the documents we have identified as being related to the determinations process – which was the focus of the IG’s report last May. We have provided the tax writing committees, our primary oversight committees, with almost 700,000 pages of documents.  We are still redacting taxpayer information from the last of those documents before they can be shared with the Committees that do not have authority to see taxpayer information.

As a result, my hope is that at least some of the six pending investigations will be concluded and reports issued in the near future. I have made it clear that we will respond appropriately to the facts and recommendations of those reports and move the agency forward.

Our production of materials has proceeded according to priorities set with all of the investigating committees and, as we have now completed our production of documents related to the determinations process, we are prepared to work with the committees on any new avenues they may want to pursue.

You may have noticed that, during my three-hour hearing last week before the House Oversight and Government Reform Committee, some members of the Committee expressed unhappiness with the rate at which we are producing redacted information for them. As I tried to make clear, we never indicated that we would not respond to the very broad subpoena for documents we received in mid-February. Indeed, we have produced documents responsive to each of the subpoena’s categories. In the private sector, a court would require these requests to be reduced to those relevant to the inquiry. Unfortunately, the subpoena contains no such limitations, so the volume of materials requested means we could be at this for a long time.

Another recommendation by the IG was that the Treasury Department and the IRS should provide clearer guidance on how to assess the permissibility of 501(c)(4) social welfare organizations’ activities. So last November, Treasury and the IRS issued proposed regulations that are designed to clarify the extent to which a 501(c)(4) organization can engage in political activity without endangering its tax-exempt status.

While I was not involved in the issuance of this draft proposal, because it happened before I was confirmed as Commissioner, I believe it is extremely important to make this area of regulation as clear as possible. Not only does that help the IRS properly enforce the law, but clearer regulations will also give a better roadmap to applicants, and will help those that already have 501(c)(4) status properly administer their organizations without unnecessary fears of losing their tax-exempt status.

During the comment period, which ended in February, we received more than 150,000 comments. That’s a record for an IRS rulemaking comment period. In fact, if you take all the comments on all Treasury and IRS draft proposals over the last seven years and double that number, you come close to the number of comments we are now beginning to review and analyze. It’s going to take us a while to sort through all those comments, hold a public hearing, possibly repropose a draft regulation and get more public comments. This means that it is unlikely we will be able to complete this process before the end of the year.

Before leaving this topic, I want to note one other thing. Last month, former IRS Commissioner Randolph Thrower passed away at the age of 100. Commissioner Thrower led the IRS from 1969 to 1971, during the early years of the Nixon Administration, which turned out to be a challenging time for the agency. Commissioner Thrower held firm against attempts being made at that time to politicize the agency. The White House eventually fired him for his principled stance.

I’m sure if Commissioner Thrower were here today, he would say he was only doing his job. But he was doing much more. His refusal to let politics compromise the IRS is an important reminder to all IRS Commissioners now and in the future of what our mission is. I intend to follow his example. I want to reassure everyone listening to me today that the IRS is an agency of career civil servants who are dedicated to serving the American taxpayer in a fair and impartial manner. That’s how it’s always been, and that’s how it will stay on my watch.

Continue reading

April 3, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Wednesday, April 2, 2014

The IRS Scandal, Day 328

IRS Logo 2 The Heritage Foundation:  IRS Targeting: Is the Obama Administration Conducting a Serious Investigation?, by Hans A. von Spakovsky:

A Jan. 8 letter from the Committee to Attorney General Holder outlined the Justice Department’s refusal to provide any information or updates on the status of the Department’s investigation. The letter notes that the FBI offered to meet with Rep. Jordan to do exactly that but later “rescinded” the offer “after [Justice] Department officials apparently interfered.”

It is certainly true that the FBI cannot disclose sensitive information during an ongoing criminal investigation, but an active investigation does not prevent the FBI and the Justice Department from giving Congress basic information regarding the status of an investigation that does not compromise their work.  ...

Yet lawyers representing dozens of the targeted conservative groups have recently testified before this Committee and have said that their clients have not been contacted or interviewed by any FBI agents. 

I find that simply incredible – that nine months after the Attorney General announced he was opening an investigation, neither the FBI nor the Justice Department has conducted basic interviews with the victims to gather information about their dealings with the IRS officials and employees who may have been involved in wrongdoing.

In addition to the unjustified refusal of the Department to provide this Committee with any information about its investigation, there is the troubling selection of a Civil Rights Division lawyer, Barbara Bosserman, as the lead lawyer in the investigation. This scandal involves the possibility of public corruption – misbehavior by federal employees in the IRS.  It is the Public Integrity Section of the Criminal Division – not the Civil Rights Division – that has long been responsible for investigating and prosecuting this type of public corruption. 

Bosserman works in the most politicized division within the entire Justice Department. ... The Justice Department’s pick of Barbara Bosserman to lead or be involved in making decisions about this investigation raises the appearance of a conflict of interest because of her extensive political donations to President Barack Obama, who recently said there was “not even a smidge of corruption” in the IRS scandal – even though the  investigation is supposedly not complete.

When this first became public, Justice Department spokeswoman Dena Iverson claimed that Bosserman could not be removed from the investigation because “[i]t is contrary to department policy and a prohibited personnel practice under federal law to consider the political affiliation of career employees or other non-merit factors in making personnel decisions." The problem with this claim is that it is not true.

Taking a lawyer off a particular case because of a possible conflict of interest or the appearance of such a conflict is not a “prohibited personnel practice” like firing, terminating, or changing the pay of someone for political reasons. Indeed, Justice Department regulations clearly state that DOJ lawyers must avoid even “an appearance of a conflict of interest likely to affect the public perception of the integrity” of an investigation or prosecution.

No one questions the right of career employees to make political donations. This is allowed under the Hatch Act and applicable DOJ regulations, as explained by the Justice Department’s Ethics Office. But Bosserman’s considerable campaign contributions certainly raises the appearance of a possible conflict of interest in terms of the public’s perception of her ability to make unbiased, objective decisions in an investigation that could prove very embarrassing to the president she supports – a president who has already signaled through his public statements what he thinks the outcome of the investigation ought to be. ...

Given the allegations in the IRS case, especially the suspicion that conservative organizations were specifically targeted by IRS officials to help dampen public opposition to President Obama’s reelection, the Justice Department should make every effort to conduct a thorough investigation and avoid any questions about the objectivity of the attorneys and investigators involved in the investigation. ...

The involvement of the Civil Rights Division and the appearance of possible bias by one of the supervising, if not lead, lawyers in this investigation is a very serious issue. When combined with the refusal of the Justice Department and the FBI to provide even basic information about the status of the investigation, as well as the seemingly unjustifiable delays in talking to key witnesses in the conservative organizations targeted by the IRS, it raises substantial questions about whether or not a serious, objective, unbiased investigation is being conducted.

This Committee should continue to attempt to get more information about the integrity of the government’s investigation and should pursue its oversight function vigorously.  Otherwise, what happened at the IRS will happen again, and federal employees will believe that they can engage in wrongdoing by targeting the political opposition of the administration without fear of any consequences.

Continue reading

April 2, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, March 31, 2014

The IRS Scandal, Day 326

IRS Logo 2Wall Street Daily:  Renegade Government Agency Silences Political Opponents, by Floyd Brown (President, Western Center for Journalism):

Congressman Darrell Issa, the Chairman of the House Oversight & Government Reform Committee, is hopping mad.

After months of waiting, the IRS still hasn’t provided his committee with the emails and documents that are necessary for Congress’ ongoing investigation.

Instead, the man Obama hired to clean up the IRS, John Koskinen, continues to stonewall the Committee. He answered questions during testimony and even had the chutzpah to say that providing the IRS documents and emails could take years. Several members were visibly angry.

The flash point was the issue of accessing Lois Lerner’s email. ... [T]he standoff continues. Lerner won’t testify, and the IRS won’t give Congress Lerner’s emails, which would reveal what she was doing and what she was telling the frontline IRS workers. It’s a shameful debacle.

Even more disheartening is that the man tasked with cleaning up the IRS has now turned into a cover-up artist. We expect the IRS to treat everyone the same, regardless of political views. The notion that certain people, like Catherine Engelbrecht, were targeted because of their political views is a frightening prospect.

Continue reading

March 31, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Sunday, March 30, 2014

The IRS Scandal, Day 325

IRS Logo 2Washington Examiner editorial:  Lois Lerner Could Go to Jail in Contempt Clash:

This may come as a shock to Lois Lerner, but the House of Representatives has the authority to jail her unless she changes her mind about refusing to answer questions about her role in the IRS scandal. Essentially, what is required for that to happen is for a House majority to vote for a motion holding her in contempt and House Speaker John Boehner to then direct the House sergeant at arms to arrest and confine her. Under the Constitution, the House can do that under its “inherent contempt” authority, which was initially exercised in 1795 during the First Congress and on multiple occasions thereafter. Lerner could be held until January 2015 when a new Congress is seated, which could issue another subpoena and throw her in the clink again if she still balks at testifying. 

According to a 2012 Congressional Research Service report, inherent contempt has the unique advantage that it doesn’t require “the cooperation or assistance of either the executive or judicial branches. The House or Senate can, on its own, conduct summary proceedings and cite the offender for contempt.” The prospect of an eight or nine month stretch in the congressional slammer might have a sobering effect on Lerner. On the other hand, neither the House nor the Senate has used this authority since 1935, according to the CRS report, because the process can be “unseemly” and time-consuming.

Plus, Lerner may be on solid ground in thinking Boehner and other House Republicans don't have the political spine to jail her. But just as the South's “massive resistance” in the 1950s to racial integration was doomed to fail because it could not be sustained over time, the Obama administration's comprehensive refusal since November 2010 to cooperate with legitimate congressional oversight by House committees may be sowing seeds of frustration that eventually undercut Lerner's calculation of how long she can keep silent. Chairman Darrell Issa of the House Committee on Oversight and Government Reform, and Rep. Jim Jordan, who heads that panel's oversight subcommittee, are patient individuals but perhaps not that patient.

Continue reading

March 30, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (9)

Saturday, March 29, 2014

The IRS Scandal, Day 324

Friday, March 28, 2014

The IRS Scandal, Day 323

Thursday, March 27, 2014

Fleischer & Blank: Bitcoin and Notice 2014-21

NY Times Dealbook (2013)Following up on Wedmesday's TaxProf Blog op-ed, Omri Marian (Florida): Bitcoin and Notice 2014-21:  New York Times DealBook:  Taxes Won’t Kill Bitcoin, but Tax Reporting Might, by Victor Fleischer (San Diego):

Bitcoin is a digital representation of value, not a real currency, according to the latest pronouncement from the IRS.  The IRS on Tuesday released guidance indicating that Bitcoins and other so-called virtual currencies that do not have the status of legal tender in any jurisdiction would be treated as property, not currency, for tax purposes. The guidance also indicates that Bitcoin transactions are subject to the same information reporting and withholding requirements as similar transactions in dollars.

There were “no real surprises” in the guidance, according to Omri Marian, a University of Florida law professor who has written about the potential for Bitcoin to be used to evade taxes. The I.R.S. guidance follows similar action by taxation authorities in Japan, Canada and Australia. ...

From a business perspective, the most important aspect of the guidance may be buried in the plumbing. Payments made using virtual currency are now clearly subject to the same information and backup withholding requirements as other property transactions. ...

To the extent that Bitcoin’s success depends on anonymity and on avoiding the burden of government regulation, this I.R.S. guidance is an unwelcome blow. Bitcoin users are not accustomed to telling their counterparties who they are, let alone what their Social Security number is.

While some people may choose to ignore the I.R.S. guidance, more established digital economy merchants (like Etsy and eBay vendors) and settlement systems (like PayPal) will tend to comply.

Bitcoin cannot thrive in the underground economy alone, and unless its users pay taxes like other grown-ups, the I.R.S. guidance virtually ensures that it will be a passing fad. 

Update:  Tax Vox Blog, You Could Owe Capital Gains Taxes When You Spend Bitcoin, by Steven Rosenthal

March 27, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 322

Continue reading

March 27, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Wednesday, March 26, 2014

Marian: Bitcoin and Notice 2014-21

BitcoinTaxProf Blog op-ed:  IRS Makes Sense of Bitcoin Taxation: Initial Reaction to Notice 2014-21, by Omri Marian (Florida):

Over the past few months, the IRS has been under tremendous pressure to issue guidance on the taxation of Bitcoin transactions. The National Taxpayer Advocate, the Government Accountability Office, elected officials and taxpayers have all pressed the IRS to explain the tax consequences of transactions involving the increasingly popular virtual currency. The IRS delivered yesterday – just in time for tax season – by issuing Notice 2014-21 (the “Notice”).

Continue reading

March 26, 2014 in IRS News, Tax | Permalink | Comments (2)

The IRS Scandal, Day 321

Tuesday, March 25, 2014

The IRS Scandal, Day 320

Monday, March 24, 2014

IRS Releases Winter 2014 SOI Bulletin

IRS Cover 2The IRS's Statistics of Income Division has released (IR-2014-33) the Winter 2014 SOI Bulletin (Vol. 33, No. 3), with these articles:

Press coverage:

March 24, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 319

Sunday, March 23, 2014

The IRS Scandal, Day 318

Saturday, March 22, 2014

IRS Releases FY 2013 Data Book

2013 Data BookIR-2014-34, IRS Releases FY 2013 Data Book :

The IRS today released the 2013 IRS Data Book (84-page pdf), a snapshot of agency activities for the fiscal year.

The report describes activities conducted by the IRS from Oct. 1, 2012, to Sept. 30, 2013, and includes information about returns filed, taxes collected, enforcement, taxpayer assistance and the IRS budget and workforce, among others.

During fiscal year 2013, the IRS collected almost $2.9 trillion in federal revenue and processed 240 million returns, of which 151 million were filed electronically. Out of the 146 million individual income tax returns filed, almost 83 percent were e-filed. More than 118 million individual income tax return filers received a tax refund, which totaled almost $312.8 billion. On average, the IRS spent 41 cents to collect $100 in tax revenue during the fiscal year, matching low-cost results for 2008 and 2001.

The IRS examined just under one percent of all tax returns filed and about one percent of all individual income tax returns during fiscal year 2013. Of the 1.4 million individual tax returns examined, over 39,000 resulted in additional refunds. The IRS provided taxpayer assistance through 456 million visits to IRS.gov and assisted almost 91 million taxpayers through its toll-free telephone helpline or at walk-in sites.

March 22, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 317

IRS Logo 2Legal Times:  House Republicans Press A.G. Holder About IRS Official:

Republican lawmakers on the House Oversight and Government Reform Committee are pressing Attorney General Eric Holder Jr. for details about whether former IRS official Lois Lerner waived her right against self-incrimination when she spoke to investigators.

Rep. Darrell Issa, R-Calif., the committee chairman, and Rep. Jim Jordan, R-Ohio, sent a letter to Holder on Thursday asking for information about Lerner, the former Internal Revenue Service director of exempt organizations who has refused to testify on Capitol Hill.

Issa is considering contempt proceedings against Lerner as part of the committee's investigation into accusations that the IRS unfairly targeted certain political groups that applied for tax-exempt status. The Justice Department is also investigating the accusations.

Citing a March 6 article in The Wall Street Journal, Issa said Lerner "gave a lengthy interview" with Justice Department lawyers without a grant of immunity. She has twice refused to testify before Congress under the advice of her attorney, William Taylor III of Zuckerman Spaeder.

Continue reading

March 22, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Friday, March 21, 2014

The IRS Scandal, Day 316

Thursday, March 20, 2014

The IRS Scandal, Day 315

Wednesday, March 19, 2014

Senior IRS Lawyer Charges Chief Counsel's New York Office With Waste and Abuse

Tax Analysys Logo (2013)David Cay Johnston (Syracuse), Attorney Details Mismanagement in IRS Chief Counsel's New York Offices, 2014 TNT 53-1 (Mar. 19, 2014):

A veteran IRS lawyer opened a window on the secretive operations of one of the biggest IRS field offices March 18, telling 10 senators in a letter that the Office of Chief Counsel ignores serious problems of waste and employee abuse in two New York offices.

Jane Kim, a 10-year veteran chief counsel attorney for the Small Business/Self-Employed Division, wrote that "a sustained pattern of abuse" by chief counsel's supervising lawyers in Manhattan and Long Island, has led to "gross waste of government resources, gross mismanagement, violation of labor laws, and active abuse and retaliation against employees."

The complaint depicts a workplace culture in which favored employees are given light workloads, while their colleagues who pick up the slack face discipline and retaliation if they chafe at unfair treatment. Meanwhile management turns a blind eye to the problems -- when it isn't actively making them worse.

As a result of that negligence, tax cheats often get away without paying, taxpayers needing help go unaided, and good employees suffer more stress in an agency already struggling to deal with budget cuts and public scorn. ...

Continue reading

March 19, 2014 in IRS News, Tax, Tax Analysts | Permalink | Comments (3)

Death of Former IRS Commissioner Randolph Thrower; Was Fired for Refusing President's Request to Audit His Enemies

ThrowerNew York Times, Randolph W. Thrower Dies at 100; Ran IRS Under Nixon:

Randolph W. Thrower, a Republican lawyer who headed the IRS under President Richard M. Nixon from 1969 to 1971 before losing his job for resisting White House efforts to punish its enemies through tax audits, died March 8 at his home in Atlanta. He was 100. ...

The end came in January 1971, after Mr. Thrower requested a meeting with the president, hoping to warn him personally about the pressure White House staff members had been placing on the IRS to audit the tax returns of certain individuals. Beginning with antiwar leaders and civil rights figures, the list had grown to include journalists and members of Congress, among them every Democratic senator up for re-election in 1970, Mr. Thrower told investigators years later. He was certain the president was unaware of this and would agree that “any suggestion of the introduction of political influence into the IRS” could damage his presidency, he said.

Mr. Thrower received two responses. The first was a memo from the president’s appointments secretary saying a meeting would not be possible; the second was a phone call from John D. Ehrlichman, the president’s domestic affairs adviser, telling him he was fired.

He agreed to stay on until a replacement could be found, did not voice his concerns publicly about the administration’s growing appetite for prosecuting its putative enemies, and never disputed the White House explanation for his departure — that he had resigned “for personal reasons.”

In White House tapes and memos released in later years, Nixon described the situation differently. “May I simply reiterate for the record that I wish Randolph Thrower, commissioner of the Internal Revenue Service, removed at the earliest feasible opportunity,” he wrote on Jan. 21, 1971, five days before the White House announced that Mr. Thrower was stepping down.

That May, as the administration continued to look for a successor to Mr. Thrower, Nixon made clear what kind of IRS commissioner he wanted. “I want to be sure he is a ruthless son of a bitch,” he was recorded as saying, “that he will do what he is told, that every income tax return I want to see I see” and “that he will go after our enemies and not go after our friends.”

Marietta Daily Journal, Thrower Set Example Refusing White House Bid to Abuse IRS Power:

Randolph Thrower, who died last week at age 100, had the rare courage to resist a sitting U.S. president, at the cost of his job.

Thrower was a topflight Atlanta lawyer with Sutherland, Asbill & Brennan, former FBI agent and Marine Corps veteran that Richard Nixon appointed commissioner of the IRS in 1969. For two years, Thrower did his job as fairly as he knew how — among other things — refusing tax-exempt status to private schools that practiced racial discrimination.

Then came the acid test. The Nixon White House wanted to use the IRS to go after its “enemies list” by auditing political opponents and tax-exempt organizations — a la the IRS under the Obama administration more recently targeting tea party and other conservative groups by denying or delaying tax exempt status.

Thrower’s response: “Sure, we’ll audit them — just like everyone else when their names come up through the regular audit selection process.”

March 19, 2014 in IRS News, Tax | Permalink | Comments (9)

IRS Worker Took Home Confidential Data on 20,000 Employees

IRS Statement on Data Security Employee Issue:

Flash DriveThe IRS informed employees today of a data security issue that has recently been discovered. The information at issue, which we presently believe dates back to 2007 or earlier, included IRS employee-related information and not general taxpayer information or records. The incident stems from an employee's use of an unencrypted thumb drive and does not involve a third-party breach of any of our systems. This was not a problem with our network or systems, but rather an isolated instance. We are working cooperatively with TIGTA, as it continues its review of this matter and will take appropriate action.

At this point, we have no direct evidence to indicate this personal information has been used for identity theft or other inappropriate uses. The IRS strongly believes this situation could not occur in today’s environment, because starting in 2008 we added automatic encryption for any external portable devices attached to our systems.

March 19, 2014 in IRS News, Tax | Permalink | Comments (0)

The IRS Scandal, Day 314

Tuesday, March 18, 2014

The IRS Scandal, Day 313

Monday, March 17, 2014

TIGTA: The IRS Does Not Follow Procedures in 48% of Taxpayer Bankruptcy Cases

TIGTA The Treasury Inspector General for Tax Administration has released Bankruptcy Procedures Designed to Protect Taxpayer Rights and the Government’s Interest Were Not Always Followed (2014-40-013):

Impact on Taxpayers
The bankruptcy automatic stay provision prohibits the IRS from taking certain collection actions against a debtor (taxpayer) as soon as it learns, or is notified by a U.S. bankruptcy court, that a bankruptcy petition has been filed. Similarly, the debtor may be granted a discharge, which remains after the case is closed and is a permanent injunction order prohibiting the IRS from taking any form of collection action against the debtor personally with respect to discharged debts. If the IRS does not observe the automatic stay or the discharge injunction, taxpayers’ rights could potentially be violated and the IRS could be sued for damages.

Why TIGTA Did the Audit
In Fiscal Year 2012, IRS data showed that the Field Insolvency function received 306,920 bankruptcy cases on taxpayers owing approximately $2.5 billion in taxes, penalties, and interest. This audit was initiated to determine whether the function has effective controls and procedures in place to take appropriate and timely actions to protect the Government’s interest and taxpayers’ rights during bankruptcy proceedings.

What TIGTA Found
Field Insolvency function specialists frequently did not follow required procedures when working bankruptcy cases. Although TIGTA did not identify any violations of taxpayers’ rights and/or failure to protect the Government’s interest during this review, there is a higher risk that this could occur when procedures are not followed.

TIGTA’s review of three random samples of closed bankruptcy cases showed that specialists did not always follow established procedures in 17 (57 percent) of 30 Chapter 7 cases, 15 (50 percent) of 30 Chapter 11 cases, and 13 (43 percent) of 30 Chapter 13 cases reviewed. Specifically, specialists did not always timely or properly conduct the initial case analysis, follow up on scheduled case actions within a reasonable time, or timely or properly close cases.

TIGTA also reviewed a random sample of 30 bankruptcy cases with Automated Proof of Claim flag conditions (errors that need to be resolved by a specialist). Specialists did not timely or properly resolve the flag conditions in 12 (40 percent) of 30 cases.

March 17, 2014 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

The IRS Scandal, Day 312

IRS Logo 2Lily Kahng (Seattle), The IRS Tea Party Controversy and Administrative Discretion, 99 Cornell L. Rev. Online 41 (2013):

The IRS Tea Party controversy erupted when the Treasury Inspector General issued a report finding that IRS employees in the Cincinnati office had targeted certain organizations’ applications for tax exempt status for heightened scrutiny, in particular singling out groups with “Tea Party” or “Patriot” in their names. A media firestorm ensued, with fevered speculation about a hidden political agenda extending all the way to the White House. A complete picture of the controversy has yet to emerge, but as of the writing of this Essay, it appears that the worst suspicions about political bias are unfounded. Nonetheless, the IRS has suffered reputational damage that undermines its legitimacy and impairs its ability to perform its central function.

Continue reading

March 17, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, March 16, 2014

The IRS Scandal, Day 311

IRS Logo 2Tax Analysts Blog:  It’s Not Just About Lois Lerner, by Christopher Bergin:

I have written a lot here about the IRS and the issues surrounding the way it treated certain groups applying for tax-exempt status as social welfare organizations. It’s certainly a hot issue – it even made its way into The Economist this week. And wherever you stand on Lois Lerner, I think we can all agree that she is a classic lightning rod. The whole debate about what happened is charged with political intrigue, abuse of power, and Washington melodrama. It’s juicy stuff. I’ve enjoyed the discussion that’s been generated here.

But we need to remind ourselves that there is a lot more potential abuse going on at the IRS than what’s been associated with Lois Lerner. Here are a few examples. I talk to many practitioners who (a) don’t want to be identified, probably for fear of retaliation, and (b) question the independence of the IRS Appeals Office. That is a big problem.

In 2012 a high-ranking IRS executive said in a speech that she believes the government has a higher duty than that of a private litigant. “The government,” the executive said, “represented by the tax administrator, should not pursue a particular outcome and then look for interpretations in the law that support it. The tax administrator should do nothing more or less than find the law and follow it, regardless of outcome. The separation of powers, a bedrock principle of our Constitution, demands it.”

I have a few questions. How many private tax litigators believe that’s actually how the IRS operates? If this noble statement is taken seriously by others in the IRS, why did Tax Analysts have to go to court to get training materials? And why is the IRS being questioned so strongly by Congress on its belief – or, more accurately, the lack thereof -- in the bedrock principle of the separation of powers?

Taxpayer service at the IRS has become a non-priority, if it’s even considered anymore. National Taxpayer Advocate Nina Olson, who is called the taxpayers’ voice at the IRS, has said that the agency is becoming dehumanized, caring more about numbers than taxpayers. In her annual report to Congress in January, she urged the IRS to implement a comprehensive, principle-based taxpayer bill of rights. ...

I’m sorry to say that there is more to worry about regarding what’s going on at the IRS – one of the most powerful agencies and one that affects all of us – than Lois Lerner. ...

Continue reading

March 16, 2014 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)