IRS to cut by half lawyers who audit the wealthy

Move seen as bid to shield well-connected

July 23, 2006|By NEW YORK TIMES NEWS SERVICE

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 IRS deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the IRS who oppose them.

The Bush administration has successfully lobbied Congress to enact 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.

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 IRS 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 IRS to shield people with political connections and complex tax-avoidance devices from thorough audits.

Sharyn Phillips, a veteran IRS estate tax lawyer in Manhattan, called the cuts a "backdoor way for the Bush administration to achieve what it cannot get from Congress, which is repeal of the estate tax."

Brown dismissed as preposterous any suggestion that the IRS 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 more than $1 million.

Brown said that civil service rules barred the estate tax lawyers from moving over to audit income taxes.

An IRS 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 IRS, according to Brown. For each hour they work, they find an average of $2,200 of taxes owed to the government.

Brown said that analysis showed that the IRS 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 is likely to be of relatively little value.

That is a change from six years ago, when the IRS said that 85 percent of large taxable gifts it audited shortchanged the government. The IRS said then that it would hire three more lawyers just to audit taxable gifts of $1 million or more.

Over the past five years, officials at the IRS and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem.

The six IRS 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 IRS had become increasingly reluctant to pursue cases.

The lawyers said that the risk analysis system the IRS 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 IRS estate tax lawyer in New York who, like Phillips, is active in the National Treasury Employees Union, which represents IRS 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."

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