It’s time once more for that most prestigious of prestigious awards, the 2013 Tax Offender of the Year. The winner of this award must do more than just cheat on his or her taxes. It has to be special; it really needs to be a Bozo-like action or actions. While one year I’m hoping to have a shortage of nominees, that wasn’t the case in 2013.
As you will see, this year it took a lot to win. Last year, a murder for hire plot (mixed with tax charges) won the award; this year, a similar case merited only third place. That individual was Phillip Monroe Ballard of Fort Worth, Texas. Mr. Ballard attempted to channel the idea of last year’s winner, Stephen Martinez. Mr. Ballard approached another inmate and told him he’d pay $100,000 to kill the judge in his tax evasion case so his case would be transferred. The inmate informed authorities, and Mr. Ballard has not only a sentence on tax evasion to look forward to, he has a murder for hire conviction. Given that Mr. Ballard is 72, he’s unlikely to ever again be outside of ClubFed.
Coming in second place this year is the Miccosukee Tribe of Indians in Florida. In most years the Miccosukees would have easily won the award (but not in 2013). Let’s start with what we knew in 2012.
- The Miccosukees run a successful casino near Miami. The tribe is exempt from taxes (they’re considered a sovereign nation), but the members of the tribe must pay taxes.
- The Miccosukees allegedly decided to ignore the last part of the above and didn’t withhold income tax on distributions to tribe members (from casino profits).
- Their attorney supposedly advised them that wasn’t a good idea. So the tribe sued the attorney for malpractice!
- The tribe allegedly did not forward federal income tax withheld from patrons to the IRS.
- The IRS had filed liens against the tribe (totaling $170 million) and has asked for financial records on the Miccosukee tribe from various financial institutions.
That’s where we left off in 2012. There have been a number of additional developments in 2013:
- In August, a judge ordered Morgan Stanley, Citibank, Wachovia (Wells Fargo), and American Express to turn over financial records on the tribe to the IRS.
- Later in August, the Miccosukee tribe sued the IRS and Attorney General Eric Holder, Treasury Secretary Jacob Lew, and Interior Secretary Sally Jewell. The tribe alleged a secret deal was reached in 2005. The tribe wants all the liens to go away.
- In October, the Miccosukee’s lawsuit against former Chairman Billy Cypress was dismissed.
- On October 8th, various tribal members filed Tax Court cases asking for redetermination of their Notices of Deficiency. The major allegation in the petitions is that the Miccosukee tribe is unique, and that the members of the tribe don’t own anything–everything is tribal so the members don’t owe tax (I’m condensing the argument; you can read the petitions yourself). It will likely be a year or two before these cases are heard, but I’m not optimistic on the tribe members prevailing. The problem is that the tribe is part of the United States, so its members today must pay income tax based on today’s laws. The tribe may want to read the 11th Circuit Court of Appeals decision upholding summonses to financial institutions in an investigation of the Miccosukee Tribe.
- In early November, Judge Kathleen Williams threatened Tribal Chairman Colley Billie with fines if he continues to refuse to hand over financial records to the IRS.
- In late November, Colley Billie won reelection as the Miccosukee’s chairman. The tribe had sued the former chairman, Billy Cypress; however, the RICO lawsuit was dismissed (the tribe has filed for reconsideration).
- On December 3rd, the lawsuit filed in August against the IRS, Attorney General Holder, Treasury Secretary Lew, and Interior Secretary Jewell was dismissed.
- On December 16th, the malpractice lawsuit was dismissed. Circuit Judge John Thornton noted, “There is no evidence of fraud. There is no evidence of any damages resulting from any purported bad act.”
And yes, the Miccosukee tribe finished in second place. There is worse to come.
On February 28, 2012, FoxNews published a story, “Numerous Tea Party chapters claim IRS attempts to sabotage nonprofit status.” News of this percolated up to Congress. On April 17th, Congressman Tom McClintock (R-CA) asked the House to investigate alleged IRS harassment of a Tea Party group in his district.
Then IRS Commissioner, Douglas Shulman stated in March 2012, “Yes, I can give you assurances…that we are a nonpolitical non-partisan organization…There is absolutely no targeting….” Here’s the clip:
In late June 2012, Congressman Darrell Issa (R-CA) sent a letter to J. Russell George, Inspector General for Tax Administration of the Treasury Inspector General for Tax Administration (TIGTA). In this letter, Congressman Issa notes the alleged scrutiny of Tea Party groups and also notes that TIGTA is investigating.
Let’s fast forward to Friday, May 10, 2013. Up to that date, I (along with almost everyone) believed former Commissioner Shulman. It was just a conspiracy theory. Joe Kristan put it well:
Confession: I never took seriously complaints that the IRS was harassing Tea Party organizations who filed for tax-exempt status. It didn’t seem impossible, but the IRS can be difficult to anybody, regardless of political affiliation. Don’t be paranoid!
We were wrong.
“IRS admits targeting conservatives for tax scrutiny in 2012 election,” screamed one headline. Lois Lerner, Deputy Commissioner of the IRS for Exempt Organizations, noted that actions were taken:
“That was wrong. That was absolutely incorrect, it was insensitive and it was inappropriate. That’s not how we go about selecting cases for further review,” Lerner said at a conference sponsored by the American Bar Association.
“The IRS would like to apologize for that,” she added.
Of course, we now know that the targeting began in 2011, the IRS Chief Counsel allegedly knew of the targeting, that the IRS leaked applications of conservative/Tea Party 501(c)(4) organizations to the liberal organization ProPublica, TIGTA confirmed the scandal, that the breaking of the scandal was anything but accidental. We also know that the scandal broke only because of the TIGTA investigation, and that the TIGTA audit report was being released the following week. Had the TIGTA audit never occurred, we might still be in the dark on the IRS scandal.
“I have ordered an investigation to be done,” Holder said. “The FBI is coordinating with the Justice Department to see if any laws were broken in connection with those matters,” he added. “We are examining the facts to see if there were criminal violations.”
There’s plenty to investigate, starting with all the different excuses coming from the Obama Administration for the scandal. We’ve heard the following
causes excuses from the Obama Administration:
- Two (or four) low-level IRS employees in Cincinnati;
- 88 rogue agents mostly in Cincinnati;
- Mid-level managers from Cincinnati, Laguna Niguel, El Monte and maybe elsewhere implemented this policy; and
- Incompetence by various IRS employees.
I don’t believe any of those excuses, and I doubt you do, too. The two, four, or 88 low-level or rogue IRS employees has been thoroughly discredited. The mid-level manager defense has gone out the window. The current excuse is gross incompetence. Unfortunately for the Obama Administration, I doubt that’s the case.
Occam’s razor states that among competing hypotheses, the hypothesis with the fewest assumptions should be selected. For this to be gross incompetence, it would have to be gross incompetence among a large number of employees at the IRS. A far simpler hypothesis is that one high-level manager ordered the targeting. It’s simple, straightforward, and explains everything.
This is where that massive investigation by the Department of Justice through the FBI comes into play. There’s a problem here: There’s no evidence that the DOJ or FBI has done any investigation. And that’s why the Department of Justice is the 2013 Tax Offender of the Year.
Attorney General Eric Holder stated that the IRS scandal is disturbing and probably illegal. We know that officials at the IRS knew of the targeting of the Tea Party back in 2011. It would seem that there is plenty to investigate; as noted above, an investigation was supposedly begun.
In any criminal investigation, the victims of the crime are interviewed. Yet that doesn’t appear to be the case here. There’s no good reason for why this hasn’t happened. Back in September the National Review asked if the FBI was actually doing anything? They hadn’t contacted the American Center for Law and Justice (ACLJ). The ACLJ is representing 41 Tea Party groups targeted by the IRS. Another attorney representing six Tea Party groups also hadn’t been contacted. That’s a red hot investigation in action.
Indeed, the only individuals who have shown signs of interest in learning what the cause or causes of the IRS scandal are tax bloggers (Paul Caron of the TaxProfBlog deserves special attention here; he’s done a daily update on the scandal–at day 235 and counting) and Congressman Darrel Issa’s Committee on Oversight & Government Reform. The media cared about the scandal for a couple of months, but ObamaCare has pushed the IRS scandal off the agenda.
Unfortunately, this scandal has a huge potential to harm US tax administration. As I’ve said before,
For the IRS to function effectively, it needs both a reasonable budget and to be apolitical. It’s vital that the Department of Justice go after individuals who turn the IRS into a political organization from an apolitical one. Yet the current Administration apparently doesn’t see the urgency in this issue. That’s a huge mistake, and one that will definitely come back to haunt them and all Americans. We need a well functioning IRS…and given what the Administration is doing (and not doing), it’s very likely the budget for the IRS will continue to shrink.
It shouldn’t be difficult to determine who caused this policy. I wrote in early June, “I’m reminded of one of my favorite lines in literature. Sir Arthur Conan Doyle wrote, ‘When you have eliminated the impossible, whatever remains, however improbable, must be the truth.'” This scandal was not the result of misguided IRS workers in Cincinnati. Someone decided to implement this policy. That individual had to be high up at the IRS.
Back in June I wrote,
3. A high-level employee in Washington decided to implement this policy. High level employees at the IRS do make policy. Thus, let’s examine the structure of the Tax Exempt & Government Entities division of the IRS.
The IRS provides a web page noting how it is structured. At the top is the Commissioner of the IRS (currently Daniel Werfel is the Acting Commissioner). Underneath him are two Deputy Commissioners: Deputy Commissioner for Services and Enforcement (DCSE) and Deputy Commissioner for Operations Support. It’s DCSE where we need to go, as here there are nine reports, including the Commissioner of Tax Exempt and Government Entities Division (TEGE). The DCSE? Well, it’s listed as former IRS Acting Commissioner Steven T. Miller, the Acting Commissioner for Tax Exempt and Government Entities is Michael Julianelle. (You can see the top-level of the IRS Organization Chart here.)
Mr. Julianelle is new to his position; back in 2012 Sarah Hall Ingram was Commissioner for TEGE and Joseph H Grant was Deputy Commissioner. Under them was Lois Lerner, Director of Exempt Organizations. Breitbart published a post which included the IRS organizational charge for TEGE from February 2011 showing these individuals. What we can state as factual is that all of these individuals were based in Washington.
As you might remember, Ms. Lerner took the Fifth when testifying before Congress. She made a statement where she said she wasn’t guilty of anything. That might be true. However, if she didn’t implement the policy, her bosses had to order her to do so. It could not have been at a level below hers. Indeed, I suspect it was done above her level…but that’s just a suspicion.
4. The policy came from the White House. Today, there is absolutely no evidence of this. But the IRS is part of the Executive Branch. Could this have been ordered from the White House? Certainly. (Note that when I say “from the White House” I do not mean it had to be President Obama. It could have been the President, the Secretary of the Treasury, the White House Chief of Staff, etc.)
The reason there are suspicions that this comes from above the IRS is the reports of individuals who filed the 501(c)(4) applications receiving scrutiny in other ways. The individuals were subject to audits (from another division of the IRS), scrutiny by the Bureau of Alcohol, Tobacco, and Firearms, the Department of Labor, etc. It is theoretically possible that these are all coincidences. Today, there’s no proof that these are not coincidences. But it sure feels improbable to me.
Those appear to me to be the only possible culprits. That’s a list of about ten individuals. It should not take the Department of Justice (and/or the FBI) that long to determine which individuals may be guilty.
But what if the DOJ/FBI has interviewed everyone, and every individual either denied everything or took the Fifth Amendment? That’s definitely possible; however, the DOJ then could coordinate with Congressman Issa’s committee and recommend giving immunity to one or more individuals and then those individuals would be compelled to testify. In the end, I suspect Congressman Issa’s committee will do just that; at that time, we will learn who really did order the policy.
I was asked why I’m not giving the 2013 Tax Offender of the Year award to the IRS. The reason is straightforward: The IRS likely didn’t order this policy. I believe one individual ordered this policy. The IRS faithfully implemented this policy. That individual is the culprit, not the IRS. (As an aside, almost every individual I’ve worked with at the IRS is doing his or her best, treat taxpayers well, and serve the Agency quite well.) The IRS didn’t commit this offense; some person did.
And that’s why the DOJ deserves the 2013 Tax Offender of the Year award. The DOJ could have (and should have) investigated this scandal. Instead, as best as anyone can tell they’ve done nothing.
The country deserves better. We deserve an IRS that has a reasonable budget to do its job, that is non-partisan and apolitical, that goes after its goal of current compliance, and that is respected as being fair. Republicans in Congress rightly won’t vote to increase the IRS’s budget until the cause of the scandal is found. The IRS Advisory Council (IRSAC) echoed my thoughts on the possible damage to our tax system; they noted in this year’s report:
The IRS accomplishes its mission by issuing clear, concise tax law guidance, providing assistance to taxpayers, enforcing current tax law, and collecting taxes used by the U.S. government. Reducing the IRS’s budget constrains IRS effectiveness and efficiency, which results in taxpayers’ loss of respect for the agency and our voluntary tax system. IRSAC is very concerned that prior year and proposed budget cutbacks have so diminished IRS effectiveness that most taxpayers are now experiencing increased compliance costs. This undermines the voluntary tax system, reduces government revenues and promotes the underground economy. The IRS must be provided sufficient resources to continue to operate as a world-class financial institution while maintaining the integrity of our voluntary tax system.
If the DOJ were to have investigated, and if the culprit were prosecuted, then the stigma of this scandal would have been removed. Instead, the IRS scandal continues to percolate, the budget of the IRS gets cut, and the ability for the IRS to effectively administer the tax laws of this country have been hurt. The Department of Justice is worthy of the 2013 Tax Offender of the Year Award.
(I apologize to the attorneys in the Department of Justice Tax Division for my selection of the DOJ as the Tax Offender of the Year. Tax Division attorneys pursue tax scofflaws and do, overall, an excellent job in enforcing the nation’s tax laws fully, fairly, and consistently. Unfortunately, the DOJ is, imho, responsible for the lack of a true investigation into the IRS scandal.)
That’s a wrap on 2013. I wish you and yours a happy, healthy, and prosperous new year.