The Post says that it is, or actually it allows Treasury Secretary Henry Paulson to tell readers that the Bush administration can't catch some small business owner in the Jersey suburbs who doesn't feel like paying the taxes he owes the government (and these guys are going to catch Osama?). Cracking down on tax evasion is not rocket science. As my friend Max Sawicky points out in his recent book, there are some very simple things that go a long way towards getting much of the missing money. First, we can have the IRS directly deduct taxes from bank interest, stock dividends and capital gains, and other form of capital income. This would make it much more difficult for people to evade taxes on capital income, which accounts for most of the income that escape taxation. (Those of us who work for living get our taxes deducted from our paychecks -- the IRS already has the money.) Another big part of the story is small businesses. Many small business owners feel they have a god given right to rip off the country. Rather than threatening mass audits, as Secretary Paulson did when testifying before Congress, we just need a few more audits of small business owners. Some additional auditing of large businesses could go far as well. As David Cay Johnson reported a month back (below). The contrast between the NYT and the Post on this issue really is incredible. While the NYT is showing exactly how the tax gap can be closed, the Post just repeats the administration's assertions that it can't be.
--Dean Baker March 20, 2007 I.R.S. Agents Feel Pressed To End Cases By DAVID CAY JOHNSTON The head of the Internal Revenue Service faces questions in Congress today about auditors' complaints that they are being forced to close corporate cases prematurely, allowing billions in tax dollars to go unpaid. In interviews, these revenue agents warned that unless they were free to pursue what their instincts tell them, their focus would end up being only on known abuses, and new ones created by the tax advice industry would go undetected. The agency countered that it had increased the number of companies whose tax returns it examined by a fourth since 2001, even though the number of auditors was virtually the same. Agency officials said this was accomplished by cutting back slightly on audits of the very largest companies, which produce more than 80 percent of all corporate profits, while increasing audits of those with assets of $10 million to $250 million. At the same time, the officials say, they have shortened the average time to complete an audit from almost two years in 2001 to less than 18 months last year. I.R.S. officials say the auditors who are complaining are mostly older agents unwilling to adopt new approaches. Mark W. Everson, the I.R.S. commissioner, is scheduled to testify this morning before the oversight subcommittee of the House Ways and Means Committee. The hearing, the subcommittee's annual examination of I.R.S. operations, will also look at the gap between the amount of taxes paid and the amount owed. The issue of the tax gap has taken on new urgency with the Democrats now in control of Congress and hoping to finance an ambitious agenda without raising taxes. House and Senate Democrats say the government could collect as much as $100 billion more a year. But the Treasury Department, which oversees the I.R.S., says it cannot realistically recover a tenth as much as Democrats suggest. Mr. Everson was gently questioned in the past. At this year's hearing, the new Democratic majority has asked Representative Lloyd Doggett of Texas, a Democrat who is not a member of the subcommittee, to join in questioning the commissioner. Mr. Doggett, a former justice of the Texas Supreme Court, is a longtime critic of what he sees as tax favors for the rich and corporate tax dodges. Deborah M. Nolan, the I.R.S. official in charge of auditing businesses with more than $10 million of assets, said that her auditors recommended payment of almost $27 billion in additional taxes last year, more than double the amount in 2001, but down 15 percent from 2005 when added taxes totaled almost $32 billion. She said these numbers vindicated the strategy of focusing on auditing more companies and focusing on large-dollar tax issues, not lesser ones. ''We need to use our scarce resources wisely, focusing on material issues of risk,'' while auditing more companies ''to improve compliance,'' she told her staff in January. Asked about data showing that additional taxes recommended for each audit are up, the agents who were interviewed all said that this showed only how pervasive tax cheating had become. The agents insisted on anonymity as a condition of being interviewed because of I.R.S. policies and a taxpayer privacy law that can subject them to felony prosecution if they inadvertently identify a company. One veteran agent of the largest corporate audits compared the I.R.S. to a crew that walks through an orchard instead of working from ladders. ''You can grab all the low-hanging fruit in a few highly productive hours, while leaving most of the harvest untouched,'' he said. In an interview last week, Ms. Nolan said she was aware of such complaints and had created a Web address for employees to tell her about their concerns. She also reiterated her position that the agency would ''do the right thing'' by keeping cases open past preset deadlines when evidence points to large amounts of tax due. All 21 agents interviewed over the last two months said that the I.R.S. paid lip service to its ''do the right thing'' policy. They provided e-mail messages and memos in which managers and executives made little or no mention of anything but closing files quickly. In one widely circulated directive, Cheryl P. Claybough, who oversees half the audits of communications, technology and media companies, alternately encouraged and chastised subordinates for not closing cases quickly enough, while making only passing references to the ''right thing'' policy. Ms. Nolan said that a quality assurance unit checked on audits and would discover any pattern of cases that were being closed prematurely. Agents say that when they are forced to close tax issues against their professional judgment, no report is required. The only way such cases are noticed, the agents and Ms. Nolan said, is by examining auditors' work papers, a time-consuming process. A Feb. 1 e-mail message from Kenneth L. Kates of the audit quality assurance operation orders nine subordinates to complete their reviews of audits without mentioning quality. ''We must have ten case apiece closed by 3-7-2007,'' Mr. Kates wrote. ''You must keep me informed and make me aware immediately if you will have any problems meeting this goal. The goal translates into two cases per week.'' All of the agents interviewed said they believed that the controlling factor in determining whether their superiors qualified for cash bonuses and promotions was their success at closing cases. ''How the managers get paid; that's the real policy,'' one auditor in Texas said. Only in cases of blatant fraud, agents said, are deadlines ignored. A few agents supplied e-mail messages and memos to support their statements. Two auditors described separate training sessions that began with a few words about the ''right thing'' policy, then focused entirely on closing cases by the preset deadlines. ''What message do you think employees get when almost an hour is spent on cycle time and overage, and doing the right thing gets a brief mention?'' one auditor said. One agent, who said he had worked on some of the largest I.R.S. cases, said he was admonished for resisting management pressure to close a case in which his team believed that vast sums were due. The agent said his team was forced to sign off on a closing agreement allowing the company to permanently underpay its taxes by hundreds of millions of dollars a year. When a taxpayer receives a formal closing agreement from the I.R.S. after the agency has explicitly examined a deduction or practice, the taxpayer may forever follow that practice, even if it violates the tax law. From clues on a return, the auditors say they can spot what may be a tax issue involving large sums of taxes due. But only after the audit is under way, they say, can they tell if the issues they negotiated with a company to look at are the most significant. When auditors discover that different issues are the most significant, one of the agents told a reporter, they do not have any information to show superiors ''that an issue would have resulted in a tax adjustment, which is true since the issue hadn't yet been factually developed.'' ''Hence the controversy -- how do you know an issue isn't there unless it is investigated fully?'' the agent said. This agent, like the others interviewed, said he would favor following ''the professional judgment of the case auditors in making these decisions.'' But, he said, ''in most cases management is making these decisions in order to drive case closure goals.''
