From the IRS: More Corporate Tax Breaks

So, say you can’t get a tax break enacted in the IRC, well not to worry you can change enforcement policy. And that is what has happened.

Here is the story from the NYTs:

January 12, 2007

Agents Say Fast Audits Hurt I.R.S.

By DAVID CAY JOHNSTON

Top officials at the Internal Revenue Service are pushing agents to prematurely close audits of big companies with agreements to have them pay only a fraction of the additional taxes that could be collected, according to dozens of I.R.S. employees who say that the policy is costing the government billions of dollars a year.

“It’s catch and release,” said Douglas R. Johnson, an I.R.S. auditor in Colorado for three decades who said he grew so frustrated at how large corporations were allowed to pay far less than what he thought they owed that he transferred to the agency’s small-business division.

With one exception, other working agents would talk about the issue only on condition they not be identified because they feared being fired. They said a policy intended to avoid delays in auditing corporations was being pushed so rigidly that it prevented them from pursuing numerous examples of questionable corporate tax deductions.

I.R.S. officials said the complaints were misguided. In an interview yesterday, Debbie Nolan, the I.R.S. executive in charge of auditing large and medium-size businesses, denied that audits were being closed over the objections of agents who had evidence that significant additional taxes were owed. Ms. Nolan said she had not heard any such complaints from auditors.

She noted that the amount of additional tax recommended for each hour auditors spend on large and medium-size companies more than doubled, to $5,195 in 2006 from $2,394 in 2002. And she said that internal reviews of corporate tax audits showed that their quality had improved.

“On the whole, we are moving in the right direction,” she said. “All of our indicators tell me that we are doing the right thing.”

But auditors said they were told to limit questioning only to those specific issues that the I.R.S. and the companies had agreed in advance to examine. When other questionable deductions emerged in the course of the audit, they said, additional taxes were ignored.

Rank-and-file auditors said that the sharp rise in tax dollars collected per hour of audit was not a sign of an improved auditing system but simply reflected the fact that abusive and illegal tax shelters had become so common that it was easy to find additional taxes due.

James Lynch, who retired 18 months ago after two decades auditing large corporations in the San Diego area, said that “of course dollars per hour are up, because they put in smaller teams and you just grab what you can and get out.”

Of roughly 50 auditors interviewed, only one said he agreed with the new policy, arguing that it was better to audit more companies lightly than a few thoroughly as a strategy to improve compliance with the tax laws. But even this agent agreed with the others that large companies were being allowed to pay far less than they owed.

Mr. Johnson and some of these agents also said that I.R.S. management reports indicate that the quality of audits was improving only because the agency did not accurately record these actions.

One longtime auditor in New York said that when ordered not to pursue an issue “you just write ‘closed per case manager’ to cover yourself.”

The auditor was asked why she did not file an official memo indicating that she disagreed and that she believed it was premature or improper to close the audit.

“Why would I do that?” the auditor replied. “So my manager will give me a bad performance review?” Others gave similar explanations.

Well folks, this is just an enlargement of the policy already in place that had the lower income folks, who claimed the Earned Income Credit, being more likely to be audited than the rich. Now everyone knows that the richer you are the more likely you are to be able to afford to pay less in taxes. Now some folks would say, “if that is so why doesn’t the IRS go after those that really have the resources and are underreporting their income?”

Good question, but the answer is obvious folks. If you can afford to have a professional prepare your taxes and figure out how to underreport or diminish your income, and the taxes to be paid on that income, you can probably afford to have a lawyer represent you against any claim that the IRS would make. However, if you are on the lower-income scale it is highly unlikely that you can afford the legal representation necessary for that kind of fight.

So, it would seem to me that the IRS would make the obvious decision to go after those in the taxpaying public who cannot afford to put up a defense. Crazy public policy on the one hand, but understandable on the other. It is much easier for the government to go up against folks without the resources to fight than those that can fight. It is called a plea agreement versus a full blown trial. Not as much bang for the buck, as they say, but there is still some buck.

So, now the IRS has just decided to not even go after the buck. I guess all those leftover bucks might just find their way into a political campaign or two.

Because it seems to me that corporate profits aren’t really big enough! Read it all and think about what our priorities are.

Just saying!