Looking the other way

Joni Ernst targets IRS workers while big-money tax cheats get away with it

Photo by The New York Public Library on Unsplash

U.S. Sen. Joni Ernst loves to talk about “making them squeal” in Washington, D.C.

Frequently, the Iowa Republican will target an often-obscure part of the federal budget and complain about waste.

Lately, the Internal Revenue Service has been in her sights.

Over the last few weeks, she’s complained about the Democrats’ plan to hire thousands more people at the IRS to try to improve customer service and recover hundreds of billions of taxes that go unpaid each year.

Congress has cut the IRS’s budget for years. But Ernst says the agency ought to clean up its own house before hiring more people, and she’s highlighted a 2019 report by the Treasury Inspector General for Tax Administration, or TIGTA, that says in 2017 the IRS flagged 1,250 agency employees who underreported their income or filed late tax returns. That amounts to roughly 1.5% of the agency’s current workforce of nearly 79,000 workers.

Of the 1,250 employees, about 800 worked in “tax-related positions,” TIGTA said. The largest group were “contact representatives,” or employees who worked on the IRS’s customer service phone system. The inspector general also identified 334 employees who had substantiated non-compliance in prior years.

“Innocent, hardworking Americans should not be subjected to unfair and costly IRS audits when the agency is ignoring tax cheats on its own payroll,” Ernst said in a letter to the inspector general for tax administration, J. Russell George.

Congressional oversight is important, but Joni Ernst is looking in the wrong place. She’s failing the Willie Sutton Test.

Sutton is the Depression-era thief who said he robbed banks because “that’s where the money is.”

If Ernst really wanted to make some of the more prolific tax cheats squeal, she would look at a couple different TIGTA reports.

Just a couple weeks ago, the inspector general reported that over a 14-month period in 2018 and 2019, the federal government awarded roughly $10 billion to more than 3,000 contractors who were delinquent on $621 million in taxes.

Meanwhile, more than 900 federal grant winners were awarded almost $23 billion while owing $269 million in delinquent federal taxes.

Nearly 100 of those contractors and grantees owed more than $1 million in taxes apiece – totaling $696 million.

Now, that’s serious money.

This kind of delinquency isn’t new, either.

It’s been going on under Congress’s nose for years.

Photo by MIKE STOLL on Unsplash

In 2007, the Government Accountability Office found thousands of federal contractors had “substantial amounts of unpaid federal taxes.”

In 2019, the GAO reported that in 2015 and 2016, 2,700 contractors – out of 120,000 – owed $350 million in taxes.

Ernst might also look at a 2020 TIGTA report that said from 2014 to 2016, nearly 880,000 high-income non-filers (those making $100,000 a year or more) owed roughly $46 billion in federal taxes.

Remarkably, the cash strapped agency didn’t even work 369,000 of those non-filers, leaving more than $20 billion on the table.

No wonder these folks don’t bother to file their taxes. If the IRS doesn’t have the staff to go after them, why worry?

If Congress isn’t paying attention, why worry?

Federal law prohibits the IRS from sharing tax information about contractors with agencies making the awards. Instead, the government maintains a system where contractors and grant-seekers report their own tax status.

Not surprisingly, delinquents aren’t turning themselves in.

The TIGTA report said 93% of those who were delinquent on their taxes, didn’t accurately report their tax status.

The GAO found the same thing.

If one really wanted to be a budget watchdog, this is pretty fertile ground.

To be sure, these scofflaws represent just a fraction of the overall number of contractors who bid for government business. But I’ll bet they owe a whole lot more in unpaid taxes than the folks at the IRS.

As for those IRS cases, the agency said that of the 1,250 who were flagged, just 90 were willful violations. A 1998 law requires the termination of IRS workers who willfully fail to file their taxes on time or underreport their income, unless they have a reasonable excuse.

TIGTA, however, estimated that in 530 of those cases, the IRS didn’t make a proper determination whether a violation was willful or not.

Look, I understand. Republicans in Congress aren’t happy that the Democrats are trying to get the IRS back on its feet after years of budget cuts. The agency is stretched so thin it can’t answer 90% of the phone calls it gets from the public, and as of mid-September it still had a backlog of 6.9 million individual tax returns. (Note: An earlier version of this column used an outdated figure on the number of unprocessed returns.)

It doesn’t make a lot of sense for a country with more than $30 trillion in debt to hamstring its revenue agent and look the other way while hundreds of billions of dollars of legally owed taxes aren’t being paid every year. In 2019, the “net tax gap” was $554 billion, or 15 percent of what was owed, according to the Committee for a Responsible Federal Budget.

This kind of cheating – unchecked by Congress year after year – is what makes innocent taxpaying Americans squeal.

One other thought on this subject: I could find no federal agency, other than the IRS, where a law requires employees to be subjected to termination if they willfully fail to follow the tax laws.

There is some logic to that. As TIGTA noted, the people who work for the nation’s tax collector have a heightened obligation to follow the tax laws themselves.

In that same vein, so do the people who write those laws – our representatives in Congress.

To date, though, we have no way of knowing whether they follow the law. There is no requirement that representatives and senators disclose their tax returns. They do file personal financial disclosures, but those offer only limited information.

Interestingly, amid the outcry over former President Trump’s refusal to release his tax returns in 2017, the Capitol Hill newspaper Roll Call said it sent a request to every member of Congress, asking each to release their own tax returns.

The result: Of the more than 500 members, only 37 bothered to respond – and only 6 disclosed their tax documents.

Nobody is squealing there.