TaxProf Blog

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

Friday, May 25, 2018

Hemel: Two Cheers For IRS Guidance On The New State & Local Tax Cap

Following up on yesterday's post, IRS Warns Taxpayers That Regs Will Prevent States From Circumventing $10k S&L Tax Cap With 'Charitable' Contributions:  Daniel Hemel (Chicago), Two Cheers for IRS Guidance on the New SALT Cap:

Yesterday’s notice by the Treasury Department and the IRS that they plan to propose regulations related to the state and local tax (SALT) and charitable contribution deductions has generated lots of news coverage. ...

Let’s start with what the notice did say. First, it revealed — and this is new news — that Treasury and the IRS “intend to propose regulations addressing the federal income tax treatment of certain payments made by taxpayers for which taxpayers receive a credit against their state and local taxes.” That’s apparently a reference to laws already enacted in New JerseyNew York, and Oregon that allow taxpayers to claim a state tax credit for charitable contributions to certain state-affiliated funds, as well as several similar proposals pending in other state legislatures. Interestingly, Treasury and the IRS signaled no intention to issue regulations addressing New York’s new “Employer Compensation Expense Program,” which allows employees to claim a state tax credit if their employer opts into a new payroll tax regime. Even those who are skeptical of the charitable credit arrangement acknowledge that the payroll tax shift “almost certainly” will pass muster under federal tax law, and nothing in yesterday’s notice suggests otherwise.

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May 25, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Thursday, May 24, 2018

IRS Warns Taxpayers That Regs Will Prevent States From Circumventing $10k S&L Tax Cap With 'Charitable' Contributions

Bloomberg:  IRS Warns Taxpayers About Tactics to Avoid Property Deduction Caps, by Lynnley Browning:

The Internal Revenue Service warned taxpayers to proceed with caution after states including New York and New Jersey approved workarounds involving charitable organizations to circumvent new federal limits on deductions for state and local taxes.

“Taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the agency said in a press release Wednesday [IR-2018-122], the first time it’s weighed in on the matter. The Treasury Department and IRS intend to propose regulations addressing measures that would allow homeowners to declare property taxes as charitable deductions, which are still unlimited, according to the IRS [Notice 2018-54, 2018-24 IRB ___ (June 11, 2018)].

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May 24, 2018 in IRS News, Tax | Permalink | Comments (9)

Wednesday, May 23, 2018

TIGTA: One-Third Of IRS Employees Who Participated In Public Transportation Subsidy Program Received Excessive Benefits

TIGTAThe Treasury Inspector General for Tax Administration yesterday released Review of the Internal Revenue Service’s Public Transportation Subsidy Program (2018-10-033):

The IRS’s Public Transportation Subsidy Program (PTSP) was created to encourage employees to use public transportation when commuting to and from work in order to improve air quality, reduce traffic congestion, and conserve energy by reducing the number of single occupancy vehicles on the road.  In Calendar Year 2016, more than 18,000 IRS employees received more than $17.5 million in public transportation benefits.  Controls in place over the program are important to ensure proper stewardship of taxpayer dollars.

WHY TIGTA DID THE AUDIT
The overall objective of this audit was to determine whether the IRS has effective controls in place to prevent, detect, and deter employee misuse of the PTSP.

WHAT TIGTA FOUND
Controls over the application process provided assurance that applications were complete and limited PTSP usage to only those who were approved for the program.  In addition, controls over PTSP benefits effectively limited participants to receiving benefits that were less than or equal to the statutory maximum of $255 per month.  Lastly, vendor blocks established by the Department of Transportation effectively prevented purchases from being made at non-transportation-related vendors.

However, the PTSP remained vulnerable to misuse by participants.  Based on the results of a statistical sample of program participants, TIGTA estimates that 6,449 participants used almost $1.6 million more in transportation benefits than necessary for commuting to work or used benefits while in a nonpay status, on leave, or while teleworking.  The IRS does not have effective controls in place to prevent employees from receiving PTSP benefits that are greater than the participant’s actual commuting cost.

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May 23, 2018 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Monday, May 21, 2018

IRS Seeks Grant Applications For Funding Low Income Taxpayer Clinics

LITC

The IRS has announced (IR-2018-121) that it is accepting grant applications through June 27 for Low Income Taxpayer Clinics for the 2019 grant cycle (Jan. 1 - Dec. 31, 2019):

The LITC program is a federal grant program administered by the Office of the Taxpayer Advocate at the IRS, led by the National Taxpayer Advocate, Nina E. Olson. Under the program, the IRS awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand or maintain an LITC. An LITC must provide services for free or for no more than a nominal fee.

For calendar year 2018, the IRS awarded just over $11.8 million in matching grants to 134 organizations across the country for the development, expansion or continuation of LITCs. A listing of the 2018 LITC grant recipients is available on IRS.gov.

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May 21, 2018 in IRS News, Tax | Permalink | Comments (0)

Saturday, May 19, 2018

The IRS Scandal, Day 1834: Why Are We Still Arguing Over The Facts?

IRS Logo 2Forbes:  Why Are We Still Arguing Over The Facts Of The IRS Scandal?, by David Herzig (Valparaiso):

There has been a politically charged debate in academic circles for a while now about events that happened in 2013 regarding IRS investigations into groups purportedly because of the use of the term "Tea Party" in their name.

Paul L. Caron on the TaxProf Blog has been running a mostly continuous post (up to around day 1830) about "The IRS Scandal." The blog series is controversial in academic circles because it frames the issue of alleged IRS targeting of a typology of groups as a definite scandal.  As Professor Philip Hackney wrote, "This so-called scandal over what conservatives saw as the persecution of right-leaning nonprofits erupted at a meeting of Washington tax lawyers in May of 2013."  To be sure, it would be true if there was a direct use of the IRS to harm opposition groups.  For example, it was a clear scandal when Nixon used the IRS to target his political enemies. Yet, as we saw over the weekend, the facts associated with this particular allegation are not so certain and open to debate even after many Congressional, internal IRS, and other investigations.

This weekend an interesting feud between Bradley A. Smith (and others) and David Cay Johnston (and others) percolated over the facts associated with Professor Smith's Wall Street Journal Op-ed. In a series of posts on the TaxProf Blog, Mr. Johnston, Professor Smith, and others, continued to debate and litigate the underlying facts related to the IRS investigations.

Professor Smith and others are of the belief that there was a clear scandal and targeting of right leaning groups.  Mr. Johnston, is of the belief that the issue is less opaque.  After all, the IRS did not just use right leaning terms to identify groups for targeting.  What is clear from the series of posts is that even armed with a series of documents, either side in the debate can find clarity in their position and fault in the opposition.

How one interprets the facts, seems to be based on the lens of one's glasses. But, missing in a dispute over the facts, is what they mean. Rather that continue the downward spiral of arguing over the facts of what happened, here I want to offer a more productive use of the spot-light. We should be focused on two important points.

May 19, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Wednesday, May 16, 2018

The IRS Scandal, Day 1831: Johnston Says Wyland Ignores Inconvenient Facts In The IRS 'Scandal'

IRS Logo 2TaxProf Blog op-ed:  Michael Wyland Ignores Inconvenient Facts In The IRS 'Scandal', by David Cay Johnston

I’m glad that Michael Wyland weighed in, though he begins with diversionary nonsense by asserting that I forgot that others would critique my critique. Then Wyland falsely asserts that I “persist in denying a scandal ever happened” when I explicitly state there was a scandal and, as a Tax Notes columnist back then, was the first person to call on Lois Lerner to resign.

Wyland also faults me for not addressing C3 application scrutiny. Professor Bradley Smith didn’t write about C3s, only C4s.

Let’s stick to the issue — did the Obama Administration target conservatives, exclusively or nearly so, in reviewing gratuitous C4 applications, blocking their engagement in the 2012 elections? Or is this scandal’s nature quite different?

Taxes are the core of our democracy and the very reason (along with the power to regulate commerce) that we live in the Second American Republic under our Constitution. I hope more people weigh in because our democracy will benefit from a full airing of the tax law enforcement issue at hand. My purpose is to show verifiable facts that reveal as false the meme that Rep. Daryl Issa, Smith and now Wyland perpetuate.

False memes damage our democracy. Facts matter.

Demolishing a key aspect of this meme is easy — the blocking part. No one needs IRS approval to open shop as a C4. Only after-the-fact filings are required. That means no one was blocked or could have been. When Smith and others state otherwise they are ill-informed or deceitful. Smith should know the law given his occupation.

There is, also, a larger issue about politics and money and what role Congress should define for the IRS, our federal tax police.

Those issues will be addressed in my next book, tentatively titled The Prosperity Tax, which proposes an entirely new and simplified tax system aligned with the 21st Century economy. My plan would shrink the IRS, use a privatized but licensed system to make cheating extremely difficult (and very painful), level the tax playing field and encourage much more savings and investment more wisely deployed. And is wipes away all the tax code filigree.

For now, let’s stick to the issue at hand.

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May 16, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Tuesday, May 15, 2018

The IRS Scandal, Day 1830: Johnston Says Smith Mischaracterizes The Record And Gets The Facts Of The IRS 'Scandal' Wrong

IRS Logo 2TaxProf Blog op-ed:  Smith Mischaracterizes The Record And Gets The Facts Of The IRS 'Scandal' Wrong, by David Cay Johnston

I’m glad that Professor Smith has responded, though he begins with a false assertion that “most” of my essay “consists of ad hominin attacks.” Noting Smith’s “failure to know the facts” is not ad hominem. And contrary to his assertion, I never questioned his intelligence or anyone else’s. But points for using a rhetorical device to divert attention from the issues.

My essay was rich with specific facts and circumstances which Smith fails to refute. Sadly, Smith presents as facts things he considers so obvious that they need no attribution (See Sunrise, from the East) but which under scrutiny turn out to be bogus.

Anyone who checks Smith’s sources will see that Smith mischaracterizes the record and, in some cases, gets the facts totally wrong.

Worse, Smith asserts that he knows things for which there is not a scintilla of evidence. His reiterated argument that the IRS did Obama’s bidding is nothing but conjecture, directly contradicted by the testimony of the IRS manager who volunteered that he is a conservative Republican. Smith relies on TIGTA, but its audits do not support him, they contradict him.

Smith refers to documents without quoting them. That may explain a reason Smith does not even come close to getting his facts straight, although that does not excuse his errors and falsehoods. When one has been shown the facts and repeats a falsehood it becomes a much more serious matter, a lie.  (See my pieces, for example, AG Eric Holder lying here, here and here.)

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May 15, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Monday, May 14, 2018

The IRS Scandal, Day 1829: Wyland Says Johnston's Op-Ed Contains 'A Number Of Breathtaking Distortions And Omissions'

IRS Logo 2TaxProf Blog op-ed:  David Cay Johnston's Op-Ed Contains 'A Number Of Breathtaking Distortions And Omissions,' by Michael L. Wyland (Sumption & Wyland, Sioux Falls, SD):

In his op-ed Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal', Pulitzer prize winning journalist and author David Cay Johnston has forgotten an old aphorism.  When one points an accusing finger at someone, three fingers of the same hand point back at oneself.  In short, Johnston’s response to Bradley Smith’s Wall Street Journal commemoration of the fifth anniversary of the IRS scandal contains a number of breathtaking distortions and omissions of its own.

I have written more than 25 articles and features for the Nonprofit Quarterly addressing aspects of the IRS scandal since it became public.  In addition, I presented a paper titled “Nonprofit Political Speech in a Post-Citizens United and IRS Scandal Environment” at the 2014 national ARNOVA conference in Denver.  In short, I have had an interest in this continuing saga since it became public.

To those who persist in denying a scandal ever happened, it’s important to remember that public acknowledgement of the existence of the scandal was initially made in an apology by Lois Lerner.  On May 10, 2013, Lerner spoke to a group of tax attorneys at an ABA meeting in Washington, D.C.  In response to a planted question, Lerner apologized for IRS actions to single out tax exemption applications from conservative-sounding organizations for additional scrutiny that resulted in long delays in processing.  [In fact, the last lawsuit filed against the IRS involving the affected nonprofits wasn’t settled until 2018.] 

The apology was made, in large part, to get the news out ahead of the U.S. Treasury’s Inspector General for Tax Administration’s report on the IRS’s practices from 2010 to 2013

There are three key findings in the report, listed on the “highlights” page. First, the IRS “allowed inappropriate criteria to be developed and stay in place for 18 months.” Second, the processes the IRS attempted to implement “caused significant delays in processing certain applications.” Third, the IRS “allowed unnecessary information requests to be issued.”

Johnston says that no targeting of conservative-sounding or leaning organization was performed.  He cites a “be on the lookout” memo, or BOLO, as evidence.  In fact, there were five BOLOs issued during the 2010-2013 period.  Each subsequent BOLO became progressively more all-encompassing in an attempt to correct the bias present in previous versions.  Further evidence of the political bias in the effort was summed up by internal IRS memoranda referring to the handling of “tea party cases.”

There was a 2017 TIGTA audit report that indicated IRS review of applications for tax exemption that included other types of suspected political activity besides conservative, but that report covered a time period that began in 2004, six years before the 2010 inception of the “tea party cases” activity by the IRS.  The Treasury press release (link above) identifies several of the problems associated with attempting to compare the 2017 TIGTA audit report with the seminal 2013 TIGTA audit report.

Those who point to the 2017 report conveniently ignore a prior 2014 TIGTA report issued in response to assertions by Democratic members of Congress who sought to document the ecumenical nature of the IRS activity.  That report confirmed that the overwhelming majority of the applications flagged were indeed from conservative-sounding organizations, and that the small minority of applications that were also flagged during that time appeared to be included in the group accidentally for reasons not related to their presumed political ideology or assumed activities.

Another error in Johnston’s piece is his implication that the scandal affected applications for exemption by 501(c)(4) groups only.  In fact, about a third of the applications from groups subjected to delays and inappropriate questioning came from organizations seeking exemption as 501(c)(3) public charities.  This widespread confusion, whether accidental or intentional, obscures the difficulties inherent in regulation of political activity by nonprofit groups seeking federal tax exemption.

The events of 2010-2018 related to the flagging of tax exemption applications, as well as the actions by the IRS, Congress, and the Obama administration after Lerner’s apology and the release of the first TIGTA report are of historical interest and should influence federal policymaking.  For history, I recommend the 223-page December 23, 2014 final staff report issued by U.S. Rep. Darrell Issa (R-CA), chair of the House Oversight and Government Reform Committee.  Although overreaching in a couple of places, the report’s chief virtue is its unrelenting reference to primary source material as it builds its case.  At this point, however, time, partisan overreach by both Republicans and Democrats as well as changes in both presidential administrations and key Congressional leaders indicate that planning for the future is more important that rehashing the past.

Bradley Smith’s solution to the issue is to house exclusive investigation of political activity by tax-exempt entities with the Federal Election Commission (FEC).  David Cay Johnston correctly points out that there have been instances of what appears to be impermissible political activity by both 501(c)(3) and 501(c)(4) groups for decades and chastises the IRS for doing nothing.

The IRS did attempt to address the issue in 2013 by issuing proposed regulations governing permissible and impermissible political activity by 501(c)(4) groups.  The proposal ignited a firestorm of opposition from all points of the political spectrum.  In fact, the Treasury Department received more comments on the proposed rule — almost all in opposition — than it had received for all rules in the preceding six years combined.  The proposed rule was never moved forward.

Regardless of the future of federal regulation – and how such regulation might be tested in the U.S. Supreme Court in a post-Citizens United, post-McCutcheon environment – it is crucial that policymakers have a broader awareness of the issues and history involved.  Johnston needs to take to his own heart the admonishment he gave to Smith and review the entire record rather than be selective in drawing his opinions and lessons.

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May 14, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, May 13, 2018

The IRS Scandal, Day 1828: Smith Responds To Johnston's 'Ad Hominem Attack' On His WSJ Op-Ed

IRS Logo 2TaxProf Blog op-ed:  David Cay Johnston's Ad Hominem Attack On My WSJ Op-Ed, by Bradley Smith (Capital University Law School; former Chair, Federal Election Commission):

David Cay Johnston claims that I have a “moral obligation” to address the claims of his op-ed, Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal'. Well, OK then.

In fact, most of Mr. Johnston’s reply consists of ad hominem attacks on the integrity, motives, and intelligence of me, the Treasury Inspector General for Tax Administration, the Chairman of the House Oversight and Government Reform Committee, the very groups that were singled out for harassment, and unnamed “lawyers and advisors to conservative groups.” But he does make a few claims that actually can be addressed.

First, Mr. Johnston begins by arguing that “The law Congress passed does not allow C4s to be engaged in political activity, but a 1959 IRS regulation does. Regulations should implement, not expand or contract the will of Congress.” Thus, he suggests that 501(c)(4) organizations should not be allowed to engage in any political activity at all, and that the IRS regulation permitting (c)(4) organizations to engage in political activity so long as that is not their primary activity (26 C.F.R. 1.501(c)(4)-1)) is ultra vires, because “[r]egulations should implement, not expand or contract the will of Congress.”

Now, first, it’s not clear that any of the harassed conservative groups were engaged in “political activity” as defined by the IRS. But let’s leave that trivial fact aside. The law originally passed by Congress (the Revenue Act of 1954) did indeed create section 501(c)(4) for “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” But it did not define “social welfare.” It is only because of IRS regulations that “social welfare” was defined to exclude “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.” One of the key points of my op-ed is that this definition is not required by statute, and is ill-conceived as a matter of policy—in a democracy, it is hard to understand how political engagement is not part of the “promotion of social welfare.”

In any case, what the IRS taketh away, the IRS giveth back—its regs go on to provide that a group qualifies as a “social welfare” organization so long as it is operated “primarily” for social welfare, thus allowing (c)(4) organizations to engage in other activities, including political activities. It is true that, taken in isolation, this language would seem to contradict the “exclusively” requirement of 26 U.S.C. 501(c)(4), but in fact the IRS could just have easily have written its original regulation to define “social welfare” to include political activity, entirely or in limited amounts, and that would have yielded the same result with no apparent conflict.

Further, some allowance for political activity by (c)(4) organizations is a necessity to make sense of the statute at all. Why? Because in the 1970s Congress added Section 527 to the code for “political organizations,” which are defined as organizations organized and operated “primarily” for “influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office … .” As 501(c)(3) organizations are prohibited from engaging in political campaigns, and 527 organizations must be primarily engaged in political activity, there must be some section of the tax code for organizations that engage in limited political activity. (Or perhaps Mr. Johnston agrees that they should simply exist outside the Internal Revenue Code, as they did before section 527 was added in the 1970s. That would functionally accomplish the same thing as my suggestion in the Journal, so I’m quite open to that, but I don’t think that’s what he has in mind). The IRS, in accordance with the statute, has placed such organizations in Section 501(c)(4). In practice, however, there is no meaningful differentiation in the tax treatment of (c)(4) and 527 organizations. Thus, the modest suggestion of my article is that Congress get the IRS out of trying to police political speech at all, and leave such determinations to the Federal Election Commission, which by statute has “exclusive jurisdiction with respect to the civil enforcement” of the Federal Election Campaign Act.

With that legal primer out of the way, let me respond to Mr. Johnston’s few substantive claims. First, he argues that “there was no “targeting” of right wing groups,” and that any “hassling” was limited to “dubious applicants.”

Of course, this is not the conclusion of TIGTA, which notes that the inappropriate IRS scrutiny began with organizations with the words “tea party” in their names, later expanded to include many other names, starting with “Patriot” and gradually expanding to include many others. (Here is how the U.S. Court of Appeals for the Sixth Circuit summed up the TIGTA Report: “Those findings include that the IRS used political criteria to round up applications for tax-exempt status filed by so-called tea-party groups; that the IRS often took four times as long to process tea-party applications as other applications; and that the IRS served tea-party applicants with crushing demands for what the Inspector General called ‘unnecessary information.’”)

Oddly, Mr. Johnston later admits that extra scrutiny was in fact applied based on nothing more than the names of applicants, and defends the use of the “Be On the Lookout (BOLO)” list as having eventually included many names likely to be associated with progressive organizations. But it really can’t be both, can it? That is, extra scrutiny could not have been limited to “dubious applicants,” if at the same time that extra scrutiny was triggered by nothing more than certain words in an organization’s name.

Mr. Johnston’s claim that there was no targeting is not the finding of the House Oversight and Government Reform Committee, and it is not the testimony of Lois Lerner, who stated flat out that agents in her division had targeted organizations with “tea party” and “patriot” in their names, and that "It was an error in judgment, and it was not appropriate, but that's what they did," before clamming up and invoking her 5th Amendment rights the rest of the way. (Mr. Johnston brushes aside Ms. Lerner’s 5th Amendment invocation on the grounds that “any competent lawyer” would have advised her to invoke the 5th. I’m all in favor of 5th Amendment rights, but in civil cases judges and juries are free to draw adverse inferences from their invocation. It strikes me as a curious defense of the legality of IRS targeting that “any competent lawyer” would have told her to take the Fifth.)

It is true that the IRS had eventually expanded the BOLO list to include other words, and that some liberal groups were also flagged. But just because a few liberal groups were snagged doesn’t wash away the stain, and the fact is, far more conservative groups were targeted. In fact, Judy Kindell of the IRS’s Exempt Organizations office wrote to Lerner in 2012 that “Of the 199 (c)(4) cases [to that time], approximately ¾ appear to be conservative leaning, while fewer than 10 appear to be liberal/progressive leaning groups.”  TIGTA, Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review (p. 102). As exempt organizations expert Barnaby Zall explains, there is simply no comparison between the treatment of conservative and liberal/progressive groups.

We might think of it a bit like we understand disparate impact in the race arena. If an employer adopts facially neutral criteria such as “no curly hair,” we know this will have a disparate impact on African Americans, and it is illegal. Similarly, as a campaign finance attorney, scholar, and regulator, I’ve long pointed out that it is easy to draw up campaign finance regulations that are facially neutral, but will mainly hit one’s political opponents. You just have to know how different groups are engaging in politics. That doesn’t mean your side will escape unscathed, only that the other side will bear the brunt of the rule. That’s how the BOLO list worked in practice, but all this is lost on Mr. Johnston.

Also lost on Mr. Johnston is the other point of my op-ed: that the IRS crisis was a natural response to partisan political pressure. Mr. Johnston argues that there was no involvement of the “White House or Obama operative[s].” Of course not, if by “involvement” you mean a direct order or specific approval. The very point I make in the WSJ editorial, and in numerous other publications over the years, is that there didn’t need to be. Instead, President Obama repeatedly and publicly denounced tea party and other new conservative groups as “a threat to democracy” and worse, and repeatedly claimed, sans evidence, that they were possibly funded by foreign operatives. Meanwhile, numerous Democratic Senators did the same, and indeed pressured and sometimes threatened the IRS in letters, committee hearings, and speeches, to deny applications from, or to prosecute, both conservative organizations generally and certain specific organizations. They also accused specific organizations of operating unlawfully (though presumably they hadn’t seen their filings).  See Congress Abetted the IRS Targeting of Conservatives, Wall St. J. op-ed, June 2, 2014. Indeed, in the congressional testimony that Mr. Johnston cites as justifying the use of BOLO lists, the IRS manager who first instigated the list specifically states that he did so because of “media attention” that had been focused on these groups, making them “high profile” cases. ). That’s my point.

Finally, we know from the TIGTA reports that after the lists were started and revealed, IRS higher ups simply sat on the issue rather than acting to end it. Why? Either they were blind to a major and obvious mismanagement problem dropped in their laps, or they decided that this was a desirable course of action. If the latter, again, why?

I will admit that I had never heard of Mr. Johnston before this, so I looked him up. I quickly learned that earlier this very week, he accused President Trump of being “in the cocaine trafficking business.”  That left me wondering if he was really the best guy to accuse me of a “breathtaking” “failure to rely on well-established facts.”

Readers of this blog can look back on Paul Caron’s extensive compilation of IRS coverage and decide for themselves, I guess.

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May 13, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Saturday, May 12, 2018

The IRS Scandal, Day 1827: Johnston Calls Smith's WSJ Op-Ed A 'Breathtaking' Distortion Of The Facts

IRS Logo 2TaxProf Blog op-ed:  Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal', by David Cay Johnston:

Bradley Smith’s WSJ op-ed is breathtaking in failure to rely on well-established facts regarding the IRS handling of gratuitous 501(c)(4) applications. Smith is entitled to his opinion, parts of which I agree with, but not to rely on falsehoods, as I will show from the public record that he clearly does.

Smith’s failure to know the facts is disturbing because we expect those who teach to care first and foremost about integrity. Smith has an academic and moral duty to deal in facts and to not premise his opinions on falsehoods. So, too, do the WSJ opinion page editors.

Smith’s op-ed is about an “unresolved” IRS issue. The resolution to that is simple and easy, I showed when I was a Tax Notes columnist. The law Congress passed does not allow C4s to be engaged in political activity, but a 1959 IRS regulation does. Regulations should implement, not expand or contract the will of Congress. The solution would also comport with Smith’s stated desire to remove burdensome regulations.

Now to the facts —

The record shows that there was no “targeting” of right wing groups and the “hassling” Smith writes about was against all dubious applicants.

Likewise, there was no favoritism for liberal or centrist or establishment or any other C4 organizations. Indeed, the only C4s who had their status revoked were two liberal organizations.

The record shows that the number of conservative groups whose applications were given extra scrutiny was larger than the number of centrist and liberal groups. That, however, tells us nothing about IRS bias, only about the competency and propriety of the applicants. I expect drunks in bars to misunderstand such issues, but not professors.

The record shows that the C4 applications set aside for scrutiny stated or indicated plans to engaged in prohibited activity. Among applications declaring such intent, the facts show, more were in the Tea Party zone of politics than centrist or liberal zones.

One obvious question this raises is whether there are lawyers and other advisers to conservative groups who simply did not understand the C4 law and, logically, saw nothing amiss in the applications they prepared. Was there bad advice circulating among conservative groups? That issue has, as best I can tell, never been investigated.

The Be On the Lookout (BOLO) directive for applications was even handed. It included “Tea Party” because many questionable applications used those two words, making it like some other terms shorthand for identifying which applications were most likely to be problematic.

The BOLO memo also cited “progressive,” “blue” and “medical marijuana.” Only the last of those might be affiliated with conservative groups, likely libertarian.

The BOLO directive came from a mid-level manager, a self-described conservative Republican who testified that he acted on hown authority. The record shows he did so with good reason.

Many C4 applications — on their face — stated or indicated the organization would engage in prohibited activity or strongly suggested that. The facts show that more of these flawed applications, came from right wing groups that the center or left. Had the IRS approved any or all of them without scrutiny THAT would have been a scandal.

The proper comparison would be to a building inspector reviewing plans for a structure so poorly designed that his or her training tells him that if built the structure would likely collapse. The building inspector orders further review, not denial. (See 1/ Wright, Frank Lloyd on 1937 stress load tests for S.C. Johnson & Sons Wax Co. headquarters in Racine and 2/ Watts Towers, 1959 stress load tests.)

The IRS sent all problematic applications for further review, regardless of political zone.

Without question the IRS asked more than it needed of groups whose C4 applications seemed on their face to be inappropriate. But all groups were asked exhaustive questions, not just conservative organizations.

Using my building inspector analogy, if most of the structural plans suspected of being deficient were for hotels instead of motels, would Smith promote the idea of a government bias against overnight accommodations with an elevator in the lobby versus exterior walk-ups? Or would he recognize that the problem was not with the building inspector, but with the deficient applicants being more from hotel owners than motel owners?

The record here shows not bias but IRS professionalism. Further, there was no White House or Obama operative involvement, which is a key falsehood perpetuated by Smith.

Also, C4 applications are gratuitous.

Not one C4 organization was blocked from getting underway in any election cycle. You can start a C4 tomorrow without advance IRS approval so long as you timely comply with subsequent reporting requirements, unlike the advance approval required for C3s. No one reading Smith’s op-ed would have a clue about this central fact. I wonder if Smith even knows that – which he should, given his academic position.

There is a robust public record on what actually took place, as opposed to the endlessly repeated distortions, fabrications and outright lies that Smith relies on.

You can read the relevant testimony, with minimal redactions, of the IRS manager in charge here. The full testimony is available here.

Why is Smith so badly misinformed? Why are so many other Americans? Why does this grotesque lie continue to infect our civic debate and degrade out understanding of law enforcement?

Understanding the conventions of journalism and how politicians exploit them provides the first clue. Anyone who can get a false story out cleanly has a chance of making it part of the zeitgeist, an enduring lie.

Mendacious conduct by Issa launched this episode in intentionally inflicting damage on our democracy. Not only did Issa seek a report that by its very nature distorted reality, but he later sought to keep the full record from the public. Such conduct by lawmakers of any stripe is despicable.

Issa asked for an inspector general report, but only about C4s applications by conservative groups. The initial news reports should have been all over this but were not. That aided Issa’s goal, which was not a search for truth, but to cherry pick facts and weaponize them. Instead, general assignment reporters not steeped in either tax law or administrative procedure accurately repeated what they were told by Issa and his flacks.

BTW, the IRS commissioner at the time was a George W. Bush appointee who continued in office under Obama. The IRS must be apolitical. The evidence shows it was, Smith notwithstanding.

The Treasury Inspector General for Tax Administration compiled a one-sided report just as Issa requested, ignoring IRS scrutiny of any groups not deemed conservative. It is relevant here to note that the IG is a former Republican political operative and that only when asked by the minority did he issue further audit findings that showed the C4 reviews were not aimed at groups because they were conservative, but rather at all organizations whose applications suggested a lack of qualification for C4 status. That gets lost, but it should not be forgotten or ignored.

For those who care about actual facts, here is a concise explainer from CBS News.  An excellent WSJ reporter looked at the nuances hereHere is FactCheck.org account of how both sides in Congress mishandled this issue: 

The FBI found no evidence of “enemy hunting” at the IRS and did not seek any prosecutions.

None of this excuses Lois Lerner's atrocious handling of the issue after Issa created a problem by seeking and then promoting only partial facts, not the whole truth.

I was the first person to call for Lerner to resign, ahead even of House Republicans. Her ring-and-run trick at a tax conference was appallingly bad judgment. What she did tarnished tax law enforcement needlessly. It was childish. But that has nothing to do with the underlying facts, only with her unprofessional approach to putting out the news.

Issa compounded the distortions by making it clear that if Lerner testified before his committee he would seek to prosecute her for any flaw in her testimony. Any competent lawyer would have advised Lerner to assert her Fifth Amendment rights. Issa’s conduct strikes me as a setup to make sure we did not hear from Lerner, who then could be excoriated without defense, not that this is a new tactic for lawmakers who put partisanship ahead of their oath of office.

We should all be appalled at Issa’s conduct.

Likewise, President Obama foolishly entered into this issue and embraced the false narrative inspired by Rep. Issa’s one-sided request that started this all off. Obama should have never allowed himself to be drawn into this, but especially not on the basis of falsehoods.

The IRS has long known that C3s and C4s have been improperly involved in political activity. There is an informing 2008 memo issued from Lerner’s office.

Overall, however, the IRS has done next to nothing about all sorts of abuses of exempt organization status going back decades. THAT is a bona fide scandal.

Way back in the mid-1970s, in the Detroit Free Press, I exposed illegal political campaign contributions by an exempt organization. The IRS did nothing. A few years ago, my local newspaper in Rochester, N.Y., revealed that an exempt organization created by local government officials made campaign contributions with public funds. Again, the IRS did nothing. Many more examples exist.

Smith’s piece also ignores the work of the estimable Professor Harvey Dale, who does research first to ensure that his writings have deep factual basis. Any professor should be expected to have familiarized himself with the public record, but Smith clearly has not (or else cares not).

Integrity is a foundational requirement for self-governance. It is mandatory for professors, lecturers and teachers and should be rigorously enforced by their academic superiors. We want to encourage the broadest range of opinions in the marketplace for ideas, but we also want to expose and remove from falsehoods and proven distortions of fact, which are as dangerous to democracy as botulism is to canned vegetables.

We all make mistakes. The test of character is whether we correct those mistakes promptly and forthrightly.

Smith now has the opportunity, and the moral obligation, to do the scholarship necessary to learn the facts and to correct the record promptly and forthrightly. He is entitled to his opinion, but that opinion needs to be grounded in facts, not the falsehoods he relied on and perpetuated in his WSJ op-ed.

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May 12, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, May 11, 2018

The IRS Scandal, Day 1826: The Five Year Anniversary

IRS Logo 2Wall Street Journal op-ed:  The Unresolved IRS Scandal, by Bradley Smith (Capital University Law School; former Chair, Federal Election Commission):

Imagine if liberal groups discovered that President Trump’s Internal Revenue Service was targeting them for heightened scrutiny or harassment. The media and Democrats would decry this assault on the First Amendment and declare the U.S. on the brink of autocracy. The scandal would dominate the midterms, and the legitimacy of the election would be called into question.

Strangely enough, the IRS did target organs of the opposition party during the last administration, but the episode has largely faded from public memory without resolution. May 10 marks the fifth anniversary of the revelation that President Obama’s IRS targeted conservative groups for more than two years prior to the 2012 presidential election.

While some of the faces at the IRS have changed, the law that enabled their misuse of power has not. Congress’s failure to address the problem leaves the U.S. democratic process vulnerable to further abuses. 

Lois Lerner, the career official at the center of the IRS scandal, retired on full pension after invoking her Fifth Amendment right against self-incrimination before Congress. John Koskinen, appointed IRS commissioner by Mr. Obama to lead the agency “in difficult times,” served his full term, spending the better part of four years stonewalling congressional requests for information. On his watch, the IRS destroyed evidence subject to subpoena.

The response from the political system showed early promise but quickly fizzled. ...

[M]any conservatives seem to think Washington has turned the page on IRS abuse. Meanwhile, too many Democrats seem to think that this could never happen to them. Both are wrong. The IRS scandal was not the result of a few rogue IRS employees; the problem is that the IRS is involved in regulating political activity. ...

The easy fix here would be for Congress simply to scrap restrictions on political activity by social-welfare organizations, thereby stripping the IRS of authority to decide which groups are “political committees” and which aren’t. In a democracy, political activity is part of social welfare. Such a change would not affect federal revenue, as contributions to social-welfare organizations are not tax-deductible. There would be no “subsidizing political activity.”

The Federal Election Commission—a bipartisan agency staffed by experts and created to oversee election-related activities—is the proper authority to determine whether an organization should be subject to regulation under campaign-finance laws. The IRS—an agency under control of the president, with no bipartisan checks, subject to congressional pressure, and tasked with collecting revenue—is not.

There is a long history of presidents from both parties using the IRS to harass political opponents. Democrats and Republicans alike should recognize that, fix the law, and get the IRS out of politics.

Update:  David Cay Johnston, Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal'

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

The IRS Scandal, Days 1701-1800

Friday, May 4, 2018

Third International Conference On Taxpayer Rights Concludes Today In The Netherlands

ThirdThe National Taxpayer Advocate hosts the Third International Conference on Taxpayer Rights today and tomorrow in The Netherlands hosted by the International Bureau of Fiscal Documentation. For a list of the panels and participants, see here.

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May 4, 2018 in Conferences, IRS News, Scholarship, Tax | Permalink | Comments (0)

Sunday, April 29, 2018

5,000 Pastors Rally To Defend Housing Tax Break Ruled Unconstitutional

Christianity Today, 5,000 Pastors Rally to Defend Housing Tax Break Ruled Unconstitutional; Appeal: Exemptions Do More Than Just Save Pastors $800 Million a Year:

When a pastor responds to late-night prayer request or invites congregants to his home for Bible study, is he just doing his job or going beyond the call of duty?

The lawsuit over the longstanding benefit, launched by the Freedom from Religion Foundation (FFRF) seven years ago, has entered another round of appeals. The Christian defendants, represented by Becket, filed their written appeal in the Seventh Circuit Court of Appeals late last week.

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April 29, 2018 in IRS News, New Cases, Tax | Permalink | Comments (3)

Tax Implications Of President Trump's Deregulatory Agenda

Treasury Department Logo (2017)Following up on my previous post, Treasury Proposes Repeal Of 298 Tax Regulations:  Press Release, Treasury Releases Report Highlighting Regulatory Reform Accomplishments:

The U.S. Treasury Department today released a report detailing its accomplishments in support of the President’s regulatory reform agenda. ... The Department’s regulatory reform accomplishments include:

  • Eliminating, reducing, or proposing to eliminate more than 300 regulations in total, including ineffective, unnecessary, or out-of-date “deadwood” regulations;
  • Reducing Treasury’s regulatory agenda by approximately 100 items, year-over-year, from Fall 2016 to Fall 2017;
  • More than 250 specific Treasury recommendations to reform and reduce the burdens of regulation in the U.S. domestic financial system;
  • Introducing zero new significant regulatory actions under Executive Order 13771.

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April 29, 2018 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Monday, April 23, 2018

The IRS Scandal, Day 1813: Did The IRS Buy Off The Tea-Party?

NorCal (2018)Stu Bassin (Former Tax Partner, Baker & Hostetler, Washington, D.C.; Former Senior Litigation Counsel, U.S. Department of Justice Tax Division), Did the IRS Just Buy Off the Tea-Party?:

You may have missed the small item in the tax press describing the latest embarrassment for the Service arising out of the agency’s handling of applications for tax exempt status submitted by “tea party” organizations. The taxpayers, their supporters in the press, and many in Congress have long contended that the IRS action was politically motivated and evidence of an agency running amok. Meanwhile, the Service bungled its response, adding fuel to the fire. While public discussion of the scandal has subsided in recent months, we learned last week that the Government had settled a class action brought by the Tea-Party organizations with a $3.5 million payment from the Treasury. NorCal Tea Party Patriots v. Internal Revenue Service, No. 13-cv-00341 (Order of April 4, 2018).

For any of you who do not know remember the back story, the underlying dispute began nearly a decade ago with filing of a spate of applications for tax-exempt status by organizations with political agendas, including many organizations associated with the Tea Party movement. The applications attempted to skirt the prohibition against political activities by tax-exempt organizations, although the political focus of the applicants was readily apparent. The exempt organizations specialists within the Service’s National Office, headed by Lois Lerner, eventually transferred the applications to a small office in the Cincinnati Service Center, where they largely languished in inaction. The motive for the Service’s action is a subject of dispute—many have contended that the Service was implementing the political agenda of the Obama administration. The official explanation of what happened provided by senior Service officials kept changing, Ms. Lerner refused to testify at Congressional hearings, the Service “lost” the data from Ms. Lerner’s computer, and IRS Commissioner Koskinen’s appearances before congressional committees only added to fears of political wrongdoing. Years later, several senior Service officials have left office with their reputations damaged, the public standing of the Service has declined even further following congressional hearings, and many of the complaining organizations have quietly received tax-exempt status.

Naturally, the scandal generated a substantial amount of litigation, little of which has gone well for the Government. The Nor-Cal case was brought as a class-action by one of the disappointed applicants for tax-exempt status. According to the plaintiffs, the Service gave increased scrutiny to applications submitted by the taxpayer and other politically conservative groups, delayed action on some of the applications and, in some cases, requested additional and unnecessary information from the applicants to delay review of their applications. Substantively, the plaintiffs’ legal claims asserted violations of the First Amendment and the Section 6103 prohibition against disclosure of taxpayer return information. ...

The settlement is remarkable in part because the taxpayers’ claims appear to have had massive legal and factual holes, even accepting the taxpayers’ allegations regarding the Service’s mis-handling of their exemption applications. ...

Under the circumstances, the Government’s willingness to settle the case by paying damages to the class is remarkable. This blogger’s experience has been that the procedures employed by the Government for reviewing settlement proposals of tax cases involving multi-million dollar payouts from the Treasury would have required formal written review by several officials in the Justice Department’s Tax Division, including the Acting Assistant General. Several Service employees would also have reviewed the proposal, with formal written approval given by someone acting on behalf of the current Acting Chief Counsel. Depending upon application of some nuances in the procedures governing settlements, a review by the Congressional Joint Committee on Taxation may have been required under Section 6405.

So, this blogger asks: What induced these officials to approve the settlement and the multi-million dollar payout? Did the Government’s evaluation of the litigating hazards (likelihood of success multiplied by potential damage award) justify a payment of $3.5 million to the class? Or, was the payment justified by other considerations (e.g., a desire to buy a quiet resolution to embarrassing litigation)? And, if so, is that a proper reason for the government to pay litigants? As much of that process was conducted internally within the government and is privileged, we will all be left to ponder the possibilities.

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April 23, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Sunday, April 22, 2018

When Is A Church Not A Church For Tax Purposes?

New York Times op-ed:  When Is a Church Not a Church?, by Katherine Stewart:

Now that tax day is upon us, consider that through the miracle of tax breaks some of your tax dollars will effectively be going to support groups that finance campaigns against same-sex marriage and gun safety. A number of these groups are also entitled to raise money from other sources for political purposes, without filing the disclosures that are required of other individuals and entities. Why? They’ve got God on their side.

Last fall, for example, according to forms filed with the Internal Revenue Service, Focus on the Family, a conservative Christian organization that promotes socially conservative views on matters of public and family policy, declared itself a church.

Focus on the Family doesn’t have a congregation, doesn’t host weddings or funerals and doesn’t hold services. What it does do, with its nearly $90 million annual budget, is deliver radio and other programming that is often political to an estimated audience of 38 million listeners in the United States and beyond. It has funded ads against state legislators who support bills intended to prevent discrimination against L.G.B.T. people and it leads programs to combat what it calls “gay activism” in public schools.

Why would such a group want to call itself a church? Short answer: money. Churches can raise tax-deductible contributions more easily, and with fewer restrictions, than other nonprofits can. They also enjoy additional tax shelters, such as property tax exemptions for clergy members — or was that conservative radio personalities? ...

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April 22, 2018 in IRS News, Tax | Permalink | Comments (0)

Wednesday, April 18, 2018

IRS Website Crashes On Tax Day; Millions Of Last-Minute Filers Told 'Come Back On Dec. 31, 9999'

IRSNew York Times, I.R.S. Website Crashes on Tax Day as Millions Tried to File Returns:

Millions of taxpayers who waited until Tuesday to file their 2017 tax returns and make payments through the Internal Revenue Service’s website were thwarted by a systemwide computer failure that advised last-minute filers to “come back on Dec. 31, 9999.”

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April 18, 2018 in IRS News, Tax | Permalink | Comments (2)

Monday, April 16, 2018

WSJ: Hedge-Fund Star John Paulson Owes $1 Billion In Taxes Tomorrow

Wall Street Journal, Worried About Your Tax Bill? Hedge-Fund Star John Paulson Owes $1 Billion:

John Paulson won fame after he made one of the greatest financial bets of all time. What comes next? One of the largest-ever personal tax bills.

By April 17, the hedge-fund manager must make federal and state tax payments of about $1 billion, on top of roughly $500 million in taxes he paid late last year, said people close to the firm. That sum is so big it dwarfs the maximum amount the Internal Revenue Service will allow any single taxpayer to pay with a single check. (That’s $99,999,999, in case you’re wondering.)

Mr. Paulson bet big against subprime mortgages ahead of last decade’s financial crisis, earning about $15 billion of profits for his funds and approximately $4 billion for himself. He deferred the bulk of the taxes on these profits, using a tax provision available at the time to hedge-fund managers, said the people close to the firm. Now the bill is due. ...

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April 16, 2018 in IRS News, Tax | Permalink | Comments (0)

Thursday, April 12, 2018

Wallace: Centralized Review Of Tax Regulations

Clint Wallace (South Carolina), Centralized Review of Tax Regulations, 70 Ala. L. Rev. __ (2018):

Centralized oversight of agency policymaking and spending by the President’s Office of Management and Budget is a hallmark of the modern administrative state. But tax regulations have almost never been subject to centralized review. Scholars and policymakers have provided various incomplete justifications for excepting tax policy from centralized review, including concerns about politicizing tax administration, resource constraints within OMB, and a perception that tax is somehow different from other types of regulatory policy in ways that matter for the desirability of centralized review.

This Article undertakes a holistic analysis of the advantages and disadvantages of centralized review of tax regulations, as well as the challenges arising from such review. I conclude that none of the reasons offered in the past for a default rule of no review is sufficient in light of the normative benefits of centralized review.

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April 12, 2018 in IRS News, Scholarship, Tax | Permalink | Comments (0)

Mulvaney, OMB Prevail Over Mnuchin, Treasury In Turf Battle Over Tax Regs; White House Reverses 35-Year Exemption From Cost-Benefit Review

OMBIRSFollowing up on my previous posts:

Politico, Mulvaney Prevails in Turf Battle Over Tax Regs:

White House budget director Mick Mulvaney won his fight to grab some regulatory power from the Treasury Department, with possibly major ramifications for the new tax law.

Treasury and OMB released a joint Memorandum of Agreement on Thursday that gives the budget office significant new authority to review tax regulations before they take effect. For instance, OMB's Office of Information and Regulatory Affairs will be able to review proposed regulations that affect the economy by $100 million or more, raise new legal or policy issues, or run counter to actions planned by another agency.

The agreement also bars Treasury from publishing in the Federal Register "or otherwise publicly" releasing "any tax regulatory action" covered by the memo, "unless OIRA notifies Treasury that it has waived or concluded its review." ...

Over the objections of Treasury Secretary Steven Mnuchin, Mulvaney pushed to scrap a 34-year agreement that gave Treasury a relatively free hand in writing tax rules and regulations.

Wall Street Journal, OMB Will Review More Tax Rules:

The Trump administration ended an internal dispute and the result will shape regulations under last year’s tax law, giving the Office of Management and Budget more involvement and authority in the process.

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April 12, 2018 in IRS News, Tax | Permalink | Comments (1)

Thursday, April 5, 2018

Tax Law Quirk Could Help Apple And Microsoft Lower Their Bills

Bloomberg, Tax Law Quirk Could Help Apple and Microsoft Lower Their Bills:

The Internal Revenue Service is providing some relief for companies facing looming tax bills after they stockpiled trillions of dollars offshore free of U.S. income tax.

A timing quirk in the tax overhaul seemed to give companies such as Apple, Microsoft and Cisco — all of which began their fiscal years before Jan. 1 — the chance to reduce the foreign cash they’ll accumulate this year and lower their taxes. A press release issued by the IRS on Monday indicates that “if done in the ordinary course of business,” the move won’t be considered as tax avoidance, according to Stephen Shay, a tax and business law professor at Harvard Law School.

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April 5, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (0)

Tuesday, April 3, 2018

IRS Releases 2017 Data Book

2017 Data BookIR-2018-77, IRS Releases 2017 Data Book:

The Internal Revenue Service today released the 2017 IRS Data Book, a snapshot of agency activities for the fiscal year.

The 2017 IRS Data Book describes activities conducted by the IRS from Oct. 1, 2016, to Sept. 30, 2017, and includes information about tax returns, refunds, examinations and appeals, illustrated with charts showing changes in IRS enforcement activities, taxpayer assistance levels, tax-exempt activities, legal support workload, and IRS budget and workforce levels when compared to fiscal year 2016. New to this edition is a section on taxpayer attitudes from a long-running opinion survey.

Highlights of this year's Data Book

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April 3, 2018 in IRS News, Tax | Permalink | Comments (0)

Monday, April 2, 2018

Low Income Taxpayer Clinic Annual Report

The IRS has released (IR-2018-75) Program Report and 2018 Publication 4134, Low Income Taxpayer Clinic List:

LITC

LITC Program Report
The Internal Revenue Service’s Low Income Taxpayer Clinic (LITC) Program Office has issued its annual program report, which details how LITCs have provided representation, education, and advocacy for taxpayers who are low income or speak English as a second language (ESL).

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

Saturday, March 31, 2018

The 'Official' IRS Audit Rate Is 0.7%, But The 'Real' Audit Rate Is 6.2%

IRS Logo 2Forbes:  IRS Official Audit Rate Down But The "Real" Audit Rate Is The Problem, by Ashlea Ebeling:

The Internal Revenue Service audited only 0.6% of 2016 individual income tax returns, according to its 2017 Data Book released today. That means your chance of an official audit was about 1 in 160.

The National Taxpayer Advocate, an IRS watchdog, begs to differ. The way it defines “audit,” your chance of hearing from the IRS is more like 1 out of 16.

For fiscal year 2016, when the official IRS audit rate for individual income tax returns was 0.7%, the Advocate’s office found that the “unreal” audit rate was 6.2%.

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March 31, 2018 in IRS News, Tax | Permalink | Comments (3)

Thursday, March 29, 2018

The IRS Scandal, Day 1788: Lois Lerner’s Last Laugh

Wall Street Journal:  Lois Lerner’s Last Laugh, by William McGurn:

Just after Labor Day 2016, when the U.S. presidential race was entering full swing, columnist George F. Will urged Congress to undertake a seemingly futile gesture: He wanted the House to impeach John Koskinen, commissioner of the Internal Revenue Service.

Mr. Koskinen had taken over as head of the IRS after it had been exposed for singling out for mistreatment conservative groups applying for tax-exempt status. He lied to Congress when he said he had produced all of Lois Lerner’s emails, allowed documents under subpoena to be destroyed, and generally behaved in a way that helped ensure there would be no hard consequences for the abuses. Though Mr. Koskinen had only a few months left on the job, Mr. Will argued that impeaching him might help Congress restore its much diminished standing as a coequal branch of government.

Not quite two years later, Congress continues to pay the price for letting Ms. Lerner and Mr. Koskinen ride freely into the sunset. Though the IRS and other federal agencies—including the State and Justice Departments, as well as the Federal Bureau of Investigation—are now headed by Trump rather than Obama appointees, they continue to spurn congressional oversight demands with near impunity. ...

Congress has its own ways of showing its displeasure, including cutting the budgets of recalcitrant agencies. Given budget rules, this would require the cooperation of some Democrats, who are unlikely to go along. Nevertheless, the power of the purse remains a tool Congress can use to make the executive branch pay a price for its actions.

Above all, there is impeachment. The constitutional power to remove officials from office for “treason, bribery or other high crimes and misdemeanors” is a writ far broader than anything a special counsel enjoys.

Then again, it’s not easy to impeach a federal official, and it shouldn’t be. As Mr. Will pointed out in his column calling for Mr. Koskinen’s impeachment, “no appointed official of the executive branch has been impeached in 140 years.” Mr. Koskinen was not impeached, and he and Ms. Lerner rode off into the sunset without having to answer for their actions and deceits.

Ask yourself this: Is it likely our federal agencies would be so haughty about Congress and its subpoenas if Mr. Koskinen had been impeached?

So instead of whingy calls for another special counsel, a Congress that behaved as a branch of government coequal to the presidency would use its own powers to force oversight on resisting federal officials. Even if this might ultimately include impeaching FBI Director Christopher Wray.

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March 29, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

Tuesday, March 27, 2018

Everyone Tries To Dodge The Tax Man, And It Keeps Getting Easier

538 (2015)FiveThirtyEight, Everyone Tries To Dodge The Tax Man, And It Keeps Getting Easier:

The bipartisan flirtation with avoiding taxes, through both legal and illegal means, threatens a tax system that is already bringing in historically low levels of revenue and that pays for everything from social security to military preparedness. Three foes in particular are enabling tax dodgers, making their ploys more common and more damaging: reduced support for the IRS, new incentives for people to become cheaters and widening partisan distrust.

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March 27, 2018 in IRS News, Tax | Permalink | Comments (3)

Sunday, March 25, 2018

After Retiring From The IRS At 58, Dorothy Steel Started Acting At 88 And Hit It Big At 92 In 'Black Panther'

SBPWashington Post, She Started Acting at 88. Four Years Later, She’s Recognized Everywhere for ‘Black Panther.’:

Dorothy Steel’s mind was made up. She had only been acting for three years and didn’t want to audition for some “comic strip” movie she had never heard of. At 91, Steel told herself there was no way she could learn how to speak with an African accent that the role required.

In late November 2016, Steel asked her agent to kindly decline the invitation, and went about her day.

When her 26-year-old grandson, Niles Wardell, called, Steel casually mentioned the offer. Wardell was stunned. This is not just comics, he told his grandmother, this is “Black Panther.” This is a big deal. When she still wasn’t convinced, he decided to turn the tables on the woman who has been his source of wisdom.

“My grandson said to me, ‘You’re always talking about stepping out on faith. I either want you to man up or shut up,’ ” Steel recalled, laughing at the memory.

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March 25, 2018 in IRS News, Tax | Permalink | Comments (0)

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)