The Internal Revenue Service may be forfeiting billions of dollars in taxes from some of the nation’s largest companies.
The trouble is, it’s illegal.
On Sunday, an attorney in the IRS Office of Chief Counsel and IRS Whistleblower Office in Washington released a letter noting questionable practices within the IRS.
According to the letter, attorney Jane Kim’s deepest concerns are that IRS executives are giving away billions to large corporate taxpayers through lax enforcement of laws that are imposed on citizens, small businesses and wage-earning individuals with “draconian strictness.”
Further, the method of implementation of the illegal tax schemes is downright insulting to the checks and balances instituted to prevent such activity, she said.
“The IRS appears to have intentionally undermined the authority of the IRS Whistleblower Office so that no action is taken in cases involving billions in corporate taxes due,” Kim wrote in the letter sent to media outlets.
One of the primary examples Kim presents is the case of Caterpillar U.S., an American company that produces industrial equipment, which went under investigation by Sen. Carl Levin, D-Mich., and others earlier this year.
According to an official statement by Levin during the Senate Permanent Subcommittee on Investigations hearing on “Caterpillar’s Offshore Tax Strategy, April 1, 2014,” Caterpillar U.S. in 1999 drafted a tax strategy with the seemingly deliberate and sole intent of evading the payment of U.S. taxes.
“From 2000 to 2012, the Swiss tax strategy shifted eight billion in profits from Caterpillar U.S. to its affiliate in Switzerland,” Levin said in the statement. “This cut Caterpillar’s U.S. tax bill by $2.4 billion during that period.”
Levin said that despite the fact that most of Caterpillar’s production, assets, employees and parts are based in the United States, the majority of its international parts profits go to Switzerland.
“Caterpillar is an American success story that produces iconic industrial machines,” Levin said. “But it is also a member of the corporate profit-shifting club that has transferred billions of dollars offshore to avoid paying U.S. taxes.”
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Kim said while formal investigations like those conducted by Levin’s staff highlight work that the IRS WO failed to pursue, they could only draft a report and hope that the IRS would act on it.
“As of yet it remains unclear whether any tax has been collected,” Kim wrote.
The IRS estimates that the United States loses as much as $450 billion in tax evasion per year, according to a report published on the IRS website, “IRS Releases New Tax Gap Estimates; Compliance Rates Remain Statistically Unchanged From Previous Study.”
What the study doesn’t show is that a large portion of the tax gap, especially with regard to the evidence Kim’s presents, appears to come from malpractice originating from within the IRS, she said.
The reputation of the IRS has already been marred by similar scandals since the start of the 2008 recession, Kim said, citing similar examples like Synfuel and Black Liquor incentives in 2005, costing taxpayers billions.
However, the most troubling aspect of Kim’s evidence is the sheer scale of the apparent corruption in one of the nation’s largest and most powerful institutions, she said.
Kim wrote that immediate action is required against the seemingly deliberate illegal activity within the IRS executive offices. She called for the offices of the Secretary of Treasury, IRS Commissioner and Chief Council to formally request the Senate and House hold hearings to conduct a serious and thorough audit of the IRS.
“The situation in the agency is really grim,” Kim said in an email. “It’s pretty unbelievable just how dysfunctional, dishonest and abusive they can be. I’ve never seen anything like it before.”
In an email, Julianne Fisher Breitbeil, IRS national media relations representative, said the IRS could not comment on specific cases or investigations. However, she said the IRS strongly supports statutory policies providing for whistleblower rewards where information leads to the collection of additional tax proceeds.
“The IRS is committed to pursuing and addressing tax evasion and fraud through all available tools,” Breitbeil said. “Including information provided by whistleblowers.”
A full copy of Kim’s letter is available on the Daily Lobo website.
Tomas Lujan is a staff reporter for the Daily Lobo. He can be contacted at news@dailylobo.com or on Twitter @TomasVLujan .
