Already Rampant Cheating on Gift and Estate Taxes Encouraged
After months of delay, the Biden administration is moving ahead with a diabolical Trump era tax favor for the super-rich. This decision will cost our government billions of dollars and further entrench dynastic wealth in America while working people are fully taxed.
We call the Trump era plan diabolical because on the surface it looks like a severe crackdown on wealthy tax cheats. In fact, it makes cheating easier and much less likely to be detected by IRS auditors.
The Trumpian scheme increases by more than half the number of personnel auditing gift and estate tax returns, areas where the IRS has told Congress for decades that cheating is rampant. The current — and much shrunken — staff of 137 auditors would be expanded with 71 hires.
Last week job offer letters went out to the first 11 applicants, IRS spokesman Anthony Burke confirmed to DCReport.
Colonels and Corporals
But while the existing auditors have advanced degrees in accounting and tax law, the new hires don’t even have to be lawyers or accountants. Think of this as replacing the colonels among our national tax police with corporals.
By the way, dear taxpayer, you will pay the same salary to each of the newly hired corporals as the colonels now earn. If you’re at a loss to make sense of that, so are we. Think of it as more bucks for less bang.
Worse, the existing crop of auditors will be blocked from career advancement at the IRS. That’s a clear bureaucratic signal to quit and find work elsewhere.
We taxpayers have invested a lot of money in the training and education of the 137 gift and state tax auditors so telling them to find new jobs is a waste of taxpayer resources. Those who do leave may well find work helping the wealthy escape taxes on gifts to descendants, mistresses and the like, applying their taxpayer-financed education and training against the interests of honest and compliant taxpayers.
This downgrade in skills and education matters because the accountants and lawyers who advise the super-wealthy have already created myriad techniques to slip fortunes past the taxman. By design, these techniques are difficult to detect, even for the existing staff of highly trained auditors.
To think that the new hires, with far less education and training, will detect these tax schemes is Orwellian.
Of course, this Trump-era scheme that President Joe Biden has embraced does make perfect sense if the unstated but de facto tax policy of both parties in Washington is to help the rich escape taxes.
That was explicit Trump policy, but Biden said he would raise taxes on the roughly 2% of households making more than $400,000 per year while cutting taxes for nearly all of the 98%. Biden’s plan died for lack of full support by his own party and total opposition by Republicans in the House and Senate.
Internal IRS documents obtained by DCReport last Spring characterized the hiring of lesser skilled auditors without a pay reduction as nothing more than a subtle change to comply with arcane civil service policy. But at least one high-level IRS manager saw through this façade and fought the plan, an email obtained by DCReport showed.
After we revealed this scheme last June, the IRS slow-walked the plan for months. But then earlier this year, noticing that the rest of the news media had ignored the matter, began moving ahead with the Trump era scheme to help wealthy tax cheats.
We exposed the stealth plot to help the super-rich just days after DCReport revealed a nearly total collapse of audits of super high-income Americans, those making on average $30 million a year.
The IRS audited just 38 of the 26,517 households in this rarefied income stratum in 2018. Recommended additional taxes after audit fell 99.1% from 2010, my analysis of new IRS data tables found.
Our June 2021 expose was published soon after ProPublica and The New York Times published separate reports showing how many of the wealthiest Americans pay little to no taxes. DCReport revealed how this forces everyone else to subsidize their lifestyles. All these reports dealt in part with weak enforcement of the tax laws regarding the highest income and wealthiest Americans.
It’s important to understand that Congress has already granted massive opportunities for the rich to pass money on to heirs and others. A married couple age 40 who lived to age 90 and have four children can legally pass more than $27 million of wealth to those children without incurring any tax. (Adjusted for future inflation the untaxed gifts would be much greater.)
More than 26,000 American households report an annual income of $10 million or more, the IRS has disclosed in Table 18 of its annual Data Book. More than two decades ago I got the IRS to confirm that it had received tax returns showing annual incomes in the billions of dollars — that’s not wealth, but a single year’s income. The service emphasized that there were only a few such returns, but in the years since the turn of the century wealth at the top has been piling up like a Spring snow dump in the Great Lakes region.
Ayn Rand’s Acolyte
Alan Greenspan, then the Federal Reserve chairman, told Congress in 2004 about wealth concentrating at the top. The testimony was surprising given Greenspan’s views generally. He was an acolyte of Ayn Rand, the extreme libertarian novelist, and executor of her estate. But even Greenspan warned that increasing concentration of wealth “for the democratic society, that is not a very desirable thing to allow it to happen.”
The gift tax buttresses the estate tax, which applies only to huge fortunes. Most of the money that the super-wealthy hold at death consists of capital gains that have never been taxed.
Congress allows people of means to give $16,000 this year to as many others as they choose without paying any tax and without filing a gift tax return. A wealthy married couple can give $32,000 a year to each of their children. If those children are grown and married the older couple can make tax-free gifts of $64,000 each year to each of their grown children and spouse plus additional gifts to grandchildren.
Gifts above these levels are tax-free up to a lifetime total of a skosh more than $12 million, a total adjusted annually for inflation. Again, double those numbers for married couples.
Once gifts exceed those amounts, they are subject to tax at rates from 18% to 40%.
These huge exemptions from tax make clear that auditors are, or should be, focused on tax cheating by people with tens of millions of dollars of assets if not tens or even hundreds of billions of dollars.
Folks with those kinds of riches can hire the very best tax avoidance lawyers and accountants for a few pennies or dimes on each dollar of gift and estate tax they are escaping. By lowering the qualifications of gift and estate tax auditors, the odds that these wealthy tax cheats and chiselers will get caught shrink dramatically.
Biden White House Unaware
In June last year, when DCReport asked about this Trump era scheme to help the rich avoid taxes, we learned the Biden White House was unaware of it.
That wasn’t surprising because the IRS remains under the control of Charles Rettig, a holdover from the Trump era. Rettig was a Beverly Hills tax lawyer who helped the super-wealthy escape taxes and—if the IRS caught them cheating—negotiated secret settlements that avoided public humiliation while minimizing taxes and penalties.
Rettig is one of many Trump-era appointees who Biden has inexplicably left in place. Others include FBI Director Christopher Wray, who serves the pleasure of the president, and Louis DeJoy, the logistics entrepreneur who has been degrading mail delivery and is credibly accused of violating campaign finance laws before becoming postmaster general under a board whose members Biden appoints.
We’ve asked the Biden White House several times about the reasons it would allow this Trumpian plan to help tax cheats in chiselers go forward. Our emailed questions have been ignored. That’s the right of every administration.
Taxpayers would do well to ask themselves why Biden would embrace a Trump policy to make it less risky for those among the wealthiest Americans who cheat on gift and estate taxes to get away with these crimes.