Federal Report

For IRS employees, a five-alarm fire

If tax files of the rich were released by an IRS insider, the agency has a problem on its hands.

Tom Temin@tteminWFED

June 11, 2021 1:00 am

4 min read

A former federal personnel executive told me a while back, he always felt that at the IRS, disclosing or even peeking at an individual’s tax file should be grounds for immediate, on-the-spot firing. It’s not quite that simple, even though a person who leaks taxpayer information also violates federal law.

Nearly every organization has a few activities for which there is no appeal. Say, drinking alcohol or using illegal drugs on the job, having a fistfight, brandishing a weapon, or destroying property. That sort of thing.

I wasn’t particularly surprised to read that some of our richest citizens didn’t pay much or even any federal income tax in some years. The reasons are varied and found deep in the tax code, a document more baffling than the Talmud. But mainly their cash incomes — that is, their “salaries” — were small compared to their capital growth. One individual paid about a billion in taxes against about $4 billion in cash income (a 25 percent rate), while his capital grew by a yet-untaxed $99 billion. Advice to the ambitious: Work for stock.

Outrage has become a cheap commodity, but to anyone’s knowledge these people arrived at their tax obligations, or lack thereof, legally. It’s worth saying that some of the people named in the published reports have created companies that employ tens- or hundreds of thousands of salaried people, nearly all of whom most assuredly do pay income taxes.

People brings their own political convictions to what they think is good or bad about the tax system and what it’s designed to reward or discourage. Personally I’ve never felt the gumption to decide what someone else’s “fair share” is, even if they do have unimaginable wealth. Nor am I denying that zero seems absurd for an Elon Musk or Michael Bloomberg federal income tax liability. So by all means, let’s have a debate about the tax code.

My concern here is the credibility and integrity of the IRS. It’s on the line now. Commissioner Chuck Rettig told a Senate panel that both the agency and the Treasury Inspector General for Tax Administration are trying to discover the source of the leak. Attorney General Merrick Garland called the data loss “astonishing,” and “an extremely serious matter.” Several published reports say the FBI is on the case.

Rettig needs to treat the data leak as a five-alarm fire. If every keystroke of every employee for the past six months requires running through some artificial intelligence algorithm, then do it.

Exactly how did the writers of the briefly sensational report get such detailed tax information about individual Americans?

If it came from within the IRS, then someone or some people in the agency gave out sacrosanct data on individuals, in contradiction of explicit agency policy. Their motivations most likely are political.

Before you say it, in no way were these people whistleblowing. A whistleblower would call out the people disclosing the confidential files.

Whatever internal management challenges the IRS has had over the years, for the most part it’s enjoyed the perception of being impartial while operating within the rules. Back in the “jack booted thug” days, the agency was faulted for overzealousness in the pursuit of tax compliance to the point of abuse. At least some thought so.

That’s a different problem than people thinking tax enforcement being rigged by operating according to politics rather than law. When the agency was dinged in 2013 for alleged bias in application of non-profit tax policy, it faced a similar reputational threat. Equally threatening to legitimacy is that an agency harbors people who will break the law for their own purposes by abusing citizens.

This incident comes at a sensitive time for the agency. If it gets the money it anticipates from the Biden administration proposed budget for 2022, it will hire lots of people, including 5,000 that would nearly double its enforcement staff. And hire them fast. Coming into the agency, those people, wherever they come from, would need to know that upon pain of firing and possible prosecution, you neither satisfy your curiosity nor disclose private taxpayer data. Period, the end.