The IRS Is Up to No Good

The IRS is abusing its authority once again by employing the help of a private law firm in its case against Microsoft.

  

Feb. 1, 2016, at 12:15 p.m  Time for housecleaning.  

If there is one federal agency that has clearly run amok during the Obama administration, it's the United States Internal Revenue Service. From the harassment of tea party groups applying for nonprofit status to the defiance of congressional subpoenas, it's an agency badly in need of a thorough housecleaning.

IRS Commissioner John Koskinen is already under threat of impeachment by the U.S. House of Representatives. That might be a good start, but removing him won't fix the problems any more than the ouster of his predecessor did. The problems run too deep. Congress needs to act, not just by stepping up oversight of the tax collectors but by jerking their chain and narrowing their authority.

From top to bottom the agency is engaged in a wholesale abuse of its authority – and is defying attempts to investigate what it has been doing. Groups on the right are still reportedly having their applications for tax-exempt status slow-walked through the process. Confidential data is still leaking out and the auditing process is out of control.

For example, the agency apparently presumes that U.S.-based corporations doing business overseas are not accurately reporting their U.S. taxable income or paying what the liberals like to refer to as "their fair share."

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There are companies that have a strong presence overseas – which is good for their bottom line but doesn't add much in the way of revenue to the U.S. Treasury. Under current law, corporate profits earned overseas and left overseas – where the corporate tax rate is uniformly lower than it is here – are not subject to taxation in America. It's only when those profits are brought home that they become subject to federal taxes. This means they're taxed twice, once in the country where they were earned and once again when they are brought home. So leaving them where they're earned is smart business.

The IRS and the other big spenders don't like this. To them it's hiding taxable income rather than effective management of corporate resources. The spending class wants this tax money and the penalties they think these companies should be paying in order, one assumes, to narrow the gap between income and spending and to have money to spend on expanding existing programs and to create new ones.

One company that has had to deal with this is Microsoft, which for some time has been fighting with the IRS over a previous filing. The agency refuses to affix a dollar amount to what it believes the company owes but has instead gone on a fishing expedition, taking numerous and lengthy depositions from company executives, subpoenaing reams of documents and, in something that should be of concern to all, bringing in outside counsel to assist them with the project.

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You read that right. The IRS apparently doesn't have enough lawyers and tax experts on staff to do the job so it brought in the politically connected Los Angeles-based law firm of Quinn Emanuel, which legal experts say has no special expertise in tax matters but is known as a first-rate shop for litigation.

The firm has been tasked with reviewing documents and otherwise assisting with the investigation at a cost of as much as $1200 taxpayer-dollars an hour.

In order to do what it has been contracted to, the firm has been given classified, secret tax documents that, according to existing U.S. law, only those within the IRS should be allowed to see. That's OK, though, because after the IRS made its $2.2 million taxpayer-funded deal with Quinn Emanuel, it issued a rule saying it was OK for this one firm to see Microsoft's tax returns and supporting documents. That move was later affirmed by a federal judge who, while noting the unusual nature of the arrangement, nonetheless approved of it.

Microsoft is, as it should, fighting back. As the result of FOIA requests, the company discovered the agency had erased a computer hard drive belonging to a former top IRS employee involved in bringing Quinn Emanuel into the case, even though there was a court preservation order on all documents related to the IRS having brought the firm into the case.

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How serious is that? Well, by way of comparison, remember that the U.S. Department of Justice indicted and, in essence, destroyed Arthur Anderson over its shredding of documents they might have wanted at some point to see during its investigation of the collapse of Enron, despite the fact that many of the paper records that were destroyed were backed up on computers. What the IRS has done here is far worse.

All this needs to come to a stop immediately. There are many governmental functions that can be outsourced; conducting tax audits is conspicuously not one of them. The backhanded, sneaky, legal gymnastics the IRS has employed against Microsoft – and, one presumes other companies – are nothing but attempts to get around the established rules of conduct set forward in the law and by numerous court decisions.

Moreover, as the law firm is almost certain to reap a sizable percentage of whatever it helps the IRS determine Microsoft "owes," it sets a very bad precedent for the future. Just as civil asset forfeiture has become a bounty for federal law enforcement, allowing private firms to give this kind of assistance to federal regulatory federal agencies – whether it be the IRS or the Commodity Futures Trading Commission or the Securities and Exchange Commission – will provide never-ending funding to law firms on the public teat. If it's allowed to take root, there will be no way to ever dig it out.