You may not have discerned this through the fog and mist of recent weeks, but the Internal Revenue Service is pretty durn good at its job.
Some experts would go further. “I think they do an extraordinary job, considering that they’re historically underfunded and under-resourced,” says Dennis Ventry, a tax expert at UC Davis law school. Last year, he observes, the agency processed 144 million returns for the personal income tax, 2 million for the corporate income tax, and 3 million for the estate and gift tax, with a speed he calls “miraculous.”
Over the last few years it has successfully focused its enforcement efforts on the wealthiest taxpayers — those with the best opportunities for skirting the tax law; in 2012, 18% of returns reporting $5 million to $10 million in income, and 27% of those reporting more than $10 million, were audited, while only 1% of those with income less than $25,000 were examined.
Not many years ago, people at both ends of the income scale had roughly an equal chance of facing an audit.
No one is talking about this record just now. Not while Washington remains wrapped up in its witch-hunting cabaret about whether rank-and-file employees in the agency’s Cincinnati outpost selected — excuse me, “targeted” — conservative organizations for special scrutiny of their eligibility for preferential tax treatment simply because of their political leanings.
Thus far, there’s no evidence that’s what happened. Indeed, the IRS inspector general has found that groups whose names featured “tea party,” patriot,” or other terms favored by conservatives were a minority of the organizations selected for scrutiny. The IG also reported that most of the groups given special attention were, in fact, suspiciously political and therefore possibly ineligible for the donor anonymity that C4 (c)4 designation confers.
But the lack of evidence doesn’t matter in Washington, because members of Congress are fixated full time on the opportunity to berate the IRS for the TV cameras.
There’s a purpose behind this show. For one thing, members of Congress are well aware that for the public, the IRS is “the easiest agency to hate,” as Ventry observes. So why not pile on? Indeed, the IRS show trial staged last week by Rep. Darrell Issa (R-Vista) and his Committee on Oversight and Government Reform reminded me of the old “Far Side” cartoon by Gary Larson contrasting “What we say to dogs” (“Okay, Ginger! You stay out of the garbage! Understand, Ginger?”) with “What they hear” (“Blah, Ginger, blah blah blah blah, Ginger...”). In this case the lawmakers are assuming that the public will hear only “Blah blah IRS blah blah blah IRS....”
Ordinary taxpayers should be skeptical of this sort of theater. The last time the IRS was hauled over the coals for its supposed wrongdoing — in 1998, when the ostensible issue was the mistreatment of innocent individual taxpayers by revenue agents — Congress’ true underlying motive was to hamstring its enforcement program against corporations and wealthy taxpayers. And that’s precisely how things turned out.
What’s the underlying motive today? Most likely to hobble the agency’s scrutiny of political organizations claiming legal advantages as “social welfare” groups under section 501(c)4 of the tax code, which allows them to keep their donors secret. Indeed, during last week’s hearing, Issa almost gave the game away by observing that the (c)4 designation covers “organizations that perhaps all of us have grown to like.” Sure, because they funnel campaign cash to politicians on both sides of the aisle, anonymously.
It’s worth revisiting that earlier attack on the IRS to see how it played out, and how things have barely changed in 15 years.
The 1998 hearings staged by the Senate Finance Committee under Sen. William V. Roth Jr. (R-Del.) featured a parade of taxpayers who allegedly had been mistreated or manhandled by zealous revenuers.
There was scant evidence that the anecdotes they offered were representative or even factual. Indeed, the most eye-catching yarns turned out to be exaggerated at best.
The image of the IRS as a hive of Gestapo-style thugs endured, however. The harvest was the 1998 IRS Restructuring and Reform Act, which passed 97 to 0 in the Senate and 426 to 4 in the House. The measure resulted in a wholesale shift of agency resources from enforcement and toward customer service.
To no one’s surprise, collection efforts collapsed. Audits of individual taxpayers fell from nearly 2 million in 1996 to 618,000 in 2000. Abusive tax shelters enjoyed a heyday.
“The IRS started to suffer from a brain drain,” says Tanina Rostain, a tax expert at Georgetown University Law Center and co-author of a forthcoming book on the rise of tax shelters at the time. “When it became a target and looked like an incompetent agency, people no longer wanted to go there as a career step.”
Today the IRS is still starved for money and personnel. Under a withering inquisition by Issa’s committee last week, former IRS Commissioner Douglas H. Shulman pleaded that he couldn’t be expected to know everything that happened in an agency with 90,000 employees. What he didn’t say was that as recently as 1996, that workforce was 107,000. Has its workload shrunk in that period? (It’s a rhetorical question.)
Every member of Congress treats the taking of potshots at the IRS as a perk of office. At last week’s hearing even reliably intelligent progressives such as Rep. Jackie Speier (D-Hillsborough) couldn’t resist the temptation to pile on with raised eyebrows and ostentatious expressions of disbelief at the efforts by witnesses to deliver reasonable answers to tendentiously prosecutorial questions.
Speier did get off the best laugh line of the day when she suggested that Shulman had responded too casually to congressional complaints about the treatment of tax-exempt applicants. She asked: “When Congress contacts you, whether it’s 12 senators or members of this committee, doesn’t it alert you to the fact that if there’s smoke maybe there’s fire?” Shulman was too polite to tell her the truth, which is that smoke on Capitol Hill typically emanates not from fire, but from smoke-making machines.
Speier eventually did get to the nub of things, which is that although the law says a 501(c)4 group must be “exclusively” devoted to social welfare purposes — that is, no politicking — IRS regulations say an applicant is still all right if it’s “primarily” devoted to social welfare — that is, only a minority of its work amounts to intervening in campaigns. It was left to the Cincinnati staff to parse terms such as “campaign intervention” and “primarily.”
If Congress desires there to be a bright line distinguishing (c)4 eligibility, it will have to draw the line itself. But plainly it prefers that these politically fraught decisions be made by civil servants who can then be hauled to the gibbet and hanged for their “incompetence” if things get hot.
When the issue of Congress’ accepting this responsibility came up in last week’s hearing, Issa ran for the hills: It’s not his committee’s job to write tax law, he said, but the Ways and Means Committee’s. “The one thing we don’t do is we don’t pass tax law,” he said, with a hint of relief.
This is how finger-pointing works during scandal season in Washington. Indignation is cheap, and therefore abundant. Governing? That’s hard work, and therefore very, very hard to find.
Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at email@example.com, read past columns at latimes.com/hiltzik, check out facebook.com/hiltzik and follow @latimeshiltzik on Twitter.