Why We Don't Catch Tax Cheats

by Noam Scheiber | June 20, 2012

Bloomberg has an absolutely infuriating story out today about a whistle-blower attempt to rein in an outfit called Alliantgroup, which helps companies score extremely aggressive (and, the whistle-blowers allege, illegal) tax credits. According to the piece:

The firm also helps companies sidestep taxes, two former employees alleged in July 2009. In a 32-page submission filed with the Internal Revenue Service, along with internal e-mails and documents, they claimed Alliantgroup’s clients could owe the U.S. Treasury as much as $712.5 million in refunds over wrongly claimed tax credits. The whistle-blowers stood to make more than $210 million, under a law that offers informers as much as 30 percent of what the government recovers from their tips. 
Twenty-one months later, the IRS rejected the claim, without its auditors ever talking to the whistle-blowers and even after a request by some agents to convene a grand jury, internal agency documents show.
The IRS whistle-blower program – created by Congress in 2006 to boost tax revenue by giving incentives to tipsters – has become the place where allegations of tax avoidance go to die. Over the past five years, more than 1,300 claims have been filed against almost 10,000 companies and individuals, alleging tax underpayments of at least $2 million apiece. 
Just three awards have been paid.

The piece goes on to reconstruct the whole bureaucratic quagmire that kill the case against Alliantgroup, and it’s well worth your time. By the end of it, you will no doubt come to agree with Senator Chuck Grassley’s view that the IRS is “demoralizing whistle-blowers.” 

But, let’s be honest. The bureaucratic madness on display here is only the proximate cause of the problem. The real problem is the political context in which the IRS operates. As the piece notes, “The IRS won’t aggressively pursue whistle-blower tips because of fears that will spur accusations from Congress of heavy-handed enforcement, said Bryan Skarlatos, a tax-litigation lawyer at Kostelanetz & Fink LLP.” And, while there are certainly individual defenders of aggressive IRS enforcement on both sides of the aisle, the political pressure we’re talking about overwhelmingly emanates from Grassley’s side. 

To see this, look no further than Iowa’s least sane Congressman, Steve King, who, after a kamikaze pilot killed an IRS official two years ago by flying a plane into his office building, proclaimed that he could empathize with the killer. King later elaborated: “I think if we had abolished the IRS back when I first advocated it, he wouldn’t have had a target for his airplane. ... It’s sad that the incident happened down in Texas, but by the same token, the IRS is an agency that’s unnecessary.”

Now, as I say, King doesn’t necessarily represent the GOP consensus when it comes to these things. But, then, his views aren’t exactly marginalized by the GOP either. And so while I’m glad there are Republicans like Grassley who’ve long made tax avoidance their hobbyhorse, I think his efforts would be far better spent changing attitudes among his own colleagues than shaming foot-draggers in the halls of the IRS. 

Follow me on twitter: @noamscheiber

(H/t: Ben White.)

Source URL: http://www.newrepublic.com//article/104166/why-we-dont-catch-tax-cheats