Detection of Gift, Estate Tax Cheating Far Less Likely
A secret tax favor for the super-rich, authorized in the Trump administration, was just two days away from taking effect last summer when DCReport exposed the giveaway. After our story appeared, the IRS abruptly stopped advancing the plan.
But now President Joe Biden is letting the giveaway for the super-rich go through, an internal IRS document obtained by DCReport shows.
It’s the latest example of how Biden embraces Trump policies that favor Wall Street and the wealthiest Americans.
On Jan. 10, for example, we reported on Biden allowing wholesale changes to Medicare that started under Trump. Those Medicare changes will enrich Wall Street, not save taxpayer money; they will cause harm, even death, to older Americans and the disabled as care is denied to enhance profits.
That the Biden administration is going along with this plan is part of a disturbing pattern of embracing Trump policies and appointees which has yet to draw the attention of journalists inside the Beltway.
Biden has also held onto Trump appointees who head the Federal Reserve (Jerome Powell), the FBI (Christopher Wray), and, most troubling of all, the IRS (Charles Rettig).
On June 29, DCReport revealed a scheme, cooked up when Trump was president, to downgrade the skills of IRS auditors who examine gift and estate tax returns. IRS documents and reports have shown rampant gift and estate tax cheating for decades.
Our article revived an intense internal debate over the plan to make it more likely that sophisticated tax cheating would go undetected, insiders tell us. [See note on sources below.]
The Biden White House ignored DCReport’s Jan. 8 requests for comment. Ignoring questions was a consistent pattern with the Trump White House, but Biden vowed to be different.
The Trumpian tax scheme Biden has embraced is diabolical because on the surface it appears to be a 50% increase in enforcement of gift and estate tax law by hiring 71 examiners. But its not.
Budget Cuts Gut the IRS
After years of budget cuts mandated by Congress, only 137 IRS tax lawyers do this work. The need for more auditors is overwhelming as wealth snowballs at the top of American society. Even hiring several hundred auditors would hardly make a dent in gift and estate tax cheating.
The problem is that the new hires won’t be lawyers or have advanced degrees in law and accounting. They won’t have the necessary skills to spot elaborate cheating. However, they “will have the opportunity to learn to perform these duties,” according to a 13-page internal document obtained by DCReport.
Note on sources: DCReport uses named sources and links to documents. However, on rare occasions, we make an exception with the IRS. Because of a 1924 law that makes tax returns secret, we need to protect IRS sources from management retaliation or even criminal prosecution. In more than 40 years of reporting on the IRS, it has never publicly challenged the accuracy of my reporting on its internal operations and policies.
Also significant is where the 71 lower-skilled auditors will work. The listed duty posts are Los Angeles, Oakland, Denver and Norwalk, Conn.
All but Denver cover geographical areas where huge incomes and vastly larger fortunes from Digital Age companies make it lucrative for those so inclined to cheat.
Typically, such cheating involves mind-numbingly complex devices to hide the economic substance of gifts made to family and friends as well as making vast fortunes appear, at death, to be relatively tiny.
This year Congress allows you to give up to $16,000 to as many people as you wish with no tax. That’s chump change to billionaires and even centimillionaires.
Taxpayers must report gifts above that amount to the IRS.
Significantly, a law sponsored by Republicans already helps tax cheats. The IRS says that “in general” Section 6501(a) of the tax code “requires the IRS to assess a gift tax liability within three years.”
A Law That Helps Tax Cheats
That means if the IRS doesn’t have enough auditors or if the assigned auditor lacks the skill to figure out a complex gift or real estate transaction, the tax cheat succeeds after three years pass.
The current gift and estate tax auditors are all tax police detective colonels with the sophisticated skills required to understand extremely complex trusts and other devices that lawyers like the IRS commissioner design and defend to hide money from the IRS.
The new hires will only be lightly trained tax specialists, the equivalent of mere corporals on the tax police force. Lacking advanced education in law and accounting makes it far less likely that they will see through the fog of confusion that tax lawyers create so their clients can pay little to nothing in taxes.
This Trump-Biden plan to favor the rich also makes no business sense on another level. Despite the severe downgrading in required skills, the new hires will get the same pay and benefits as the lawyers doing the work now. The internal document shows that the new hires will make $66,649 to $122,884 per year.
The new hires will also be eligible for promotion and can also move on to other jobs in the service. But the 137 existing auditors will be frozen in their positions, a clear signal to the best among them to leave. That policy further assists wealthy tax cheats.
That the Biden administration is going along with this plan is part of a disturbing pattern of embracing Trump policies and appointees which has yet to draw the attention of journalists inside the Beltway.
Going Easy on Rich Tax Cheats
Earlier, we reported on how IRS let the rich off easy under Trump. We will show in future reports that when it comes to wealthy tax cheats, a de facto policy of lax enforcement continues under Biden. It’s the result in large part of Congress starving the IRS.
The IRS is so short of money that on Monday the Treasury Department warned that the 2022 tax filing season may not go smoothly. People expecting refunds may face delays and other services to taxpayers may be hard to access.
Similarly, even with Trump gone, the IRS evidently has not revived its criminal investigation of William Ingraham Koch, who lives one mansion away from Trump’s Mar-a-Lago. In contrast to his better-known brothers, Charles and David, William became a major fundraiser for Trump. The IRS abruptly dropped its criminal investigation weeks after Trump assumed office, as detailed in our five-part investigation in 2019.
We’ve been skeptical of the IRS commissioner Trump appointed. Charles Rettig is a Beverly Hills tax lawyer whose firm specializes in representing people who got caught cheating on their taxes. Keeping Rettig is one of the many unexpected and inexplicable Biden decisions.
Allowing the giveaway to rich tax cheats to proceed is disgraceful.
Biden can stop the Trump plan to help rich gift and estate tax cheats with one phone call. Will he?