I.R.S. Will Cut Tax Lawyers Who Audit The Richest
By DAVID CAY
JOHNSTON
The New York Times via Factiva
July 23, 2006
The federal government is moving to eliminate the jobs of nearly half of the
lawyers at the Internal Revenue Service who audit tax returns of some of
the wealthiest Americans, specifically those who are subject to gift and
estate taxes when they transfer parts of their fortunes to their children
and others.
The administration plans to cut the jobs of 157 of the agency’s 345 estate tax
lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an
I.R.S. deputy commissioner, confirmed the cuts after The New York Times
was given internal documents by people inside the I.R.S. who oppose them.
The Bush administration has passed measures that reduce the number of
Americans who are subject to the estate tax – which opponents refer to as
the ‘‘death tax’’ – but has failed in its efforts to eliminate the tax
entirely. Mr. Brown said in a telephone interview Friday that he had
ordered the staff cuts because far fewer people were obliged to pay estate
taxes under President Bush’s legislation.
But six I.R.S. estate tax lawyers whose jobs are likely to be eliminated said
in interviews that the cuts were just the latest moves behind the scenes
at the I.R.S. to shield people with political connections and complex
tax-avoidance devices from thorough audits.
Sharyn Phillips, a veteran I.R.S. estate tax lawyer in Manhattan, called the
cuts a ‘‘back-door way for the Bush administration to achieve what it
cannot get from Congress, which is repeal of the estate tax.’’
Mr. Brown dismissed as preposterous any suggestion that the I.R.S. was soft on
rich tax cheats. He said that the money saved by eliminating the estate
tax lawyers would be used to hire revenue agents to audit income tax
returns, especially those from people making over $1 million.
Mr. Brown said that civil service rules barred the estate tax lawyers from
moving over to audit income taxes. An I.R.S. spokesman said that the
agency had asked for permission to allow such transfers twice, but that
the Office of Personnel Management had not responded.
Estate tax lawyers are the most productive tax law enforcement personnel at
the I.R.S., according to Mr. Brown. For each hour they work, they find an
average of $2,200 of taxes that people owe the government.
Mr. Brown said that careful analysis showed that the I.R.S. was auditing
enough returns to catch cheats and that 10 percent of the estate audits
brought in 80 percent of the additional taxes. He said that auditing a
greater percentage of gift and estate tax returns would not be worthwhile
because ‘‘the next case is not a lucrative case’’ and likely to be of
relatively little value.
That is a change from six years ago, when the I.R.S. said that 85 percent of
large taxable gifts it audited shortchanged the government. The I.R.S.
said then that it would hire three more lawyers just to audit taxable
gifts of $1 million or more.
Over the last five years, officials at both the I.R.S. and the Treasury have
told Congress that cheating among the highest-income Americans is a major
and growing problem.
The six I.R.S. tax lawyers, some of whom were willing to be named, all said
that clear evidence of fraud was pursued vigorously by the agency, but
that when audits showed the use of complicated schemes to understate the
value of assets, the I.R.S. had become increasingly reluctant to pursue
cases.
The lawyers said that the risk analysis system the I.R.S. used to evaluate
whether to pursue such cases gave higher-level officials cover to not
pursue tax cheats and, in the process, emboldened the most aggressive tax
advisers to prepare gift and estate tax returns that shortchanged the
government.
‘‘This is not a game the poor will win, but the rich will,’’ said John Hruska,
another I.R.S. estate tax lawyer in New York who, like Ms. Phillips, is
active in the National Treasury Employees Union, which represents I.R.S.
workers.
Colleen M. Kelley, the national union president, said: ‘‘If these lawyers are
not there to audit the gift and estate tax returns, then a lot of taxes
that should be paid will go uncollected, and that impacts every taxpayer
who is paying their fair share.’’ Copyright 2006 The New York Times
Company. All Rights Reserved.