IRS Has Paid Millions in Illegal Slavery Credits

The Internal Revenue Service, inundated with more than $2.7 billion in illegal claims for slavery reparation payments, may have mistakenly paid out as many as a couple of hundred of these claims last year, IRS Commissioner Charles Rossotti told a congressional committee this week.

The agency has seen an explosion of such claims for the reparations, reflecting both widespread tax scams perpetrated on African American taxpayers and sentiment that such reparations should be paid out by the federal government. IRS offices have received tens of thousands of such claims in recent years.

Although it has caught most of those claims for tax credit, IRS officials have paid out millions of dollars, Rossotti said. A published report put the figure at $30 million.

One IRS employee is under investigation for allegedly helping process returns that claimed the credit, government sources confirmed Friday night. Four current and eight former IRS employees also have applied for the credit, government sources acknowledged.

It was unclear Friday whether those IRS employees--largely low-level workers--were aware that their claims were fraudulent, or whether they also were taken in by a burgeoning cadre of promoters who have recently stepped up efforts to market the idea that African Americans can take tax credits for the value of “40 acres and a mule,” a Civil War-era reparation proposal that was vetoed by President Andrew Johnson.

“Clearly good people have been getting caught up in this scam,” IRS spokesman Terry Lemons said. “The IRS urges taxpayers to be careful when promoters are peddling something that sounds too good to be true.”

Earlier this year, the IRS enlisted Rep. Eddie Bernice Johnson (D-Texas), chairwoman of the Congressional Black Caucus, to help get the word out that these claims are not valid and can subject taxpayers to fraudulent-filing penalties amounting to $500 per claim.

Until now, the IRS had not levied this penalty unless a single individual had submitted more than one slavery reparation claim. Starting Monday, the penalty can be assessed against anyone who fails to withdraw such a claim, Lemons said.

The IRS previously has acknowledged that it has paid some of these claims, but the Treasury oversight report was the first to indicate just how significant the problem had become.

Over the last two years, the IRS could have paid out as much as $30 million in these claims, which average more than $43,000 each, according to the Treasury Department’s inspector general for tax administration. The figures, reported by the Washington Post, were contained in an audit by the oversight office that reviews the tax agency.

“I am genuinely stunned,” said Philip J. Holthouse, partner at Los Angeles tax law and accounting firm Holthouse Carlin & Van Trigt. “At the same time that they are trying to punish people for doing this, they were writing checks. I would put this in the same category as the INS granting [visa] extensions to the hijackers.”

Slavery reparation claims soared to 80,000 in 2001 from 13,700 the previous year, the IRS said. In addition, the agency recently noted that the scam was beginning to move into new groups--most notably Native Americans, who filed about 200 such claims last year, agency officials said.

The agency believes that promoters are marketing these bogus claims through advertisements and church groups.

IRS officials declined to say exactly where on a federal tax return individuals would claim a slavery reparation credit, concerned that would encourage copycat claims.

The promoters explain that a federal law was passed after the Civil War to provide each former slave with 40 acres and a mule. The current value of that grant was estimated at about $43,000. But the promoters’ pitch is only partly true. Congress did pass such a bill, but it was vetoed and never made it into law.

In recent years, some members of the Congressional Black Caucus have attempted to urge Congress to at least study the issue of reparations for descendants of U.S. slaves, but they have not been successful in getting any such bill out of committee hearings.

The debate over reparations for slavery intensified in academic and political circles in the aftermath of such compensation for Jewish Holocaust victims and Japanese Americans who were internees during World War II.

Notably, the IRS said it will attempt to recover any improper refund checks that it has sent out, with interest and penalties. The agency also has prosecuted a host of promoters who promulgated these claims. The penalties can be significant.

One such promoter, Vernon T. James of Texas, for example, was sentenced to more than six years in prison and ordered to pay $1.2 million in fines for preparing 10 returns that fraudulently claimed the “black investment tax.”