David Cay Johnston on Catch and Release at the IRS

I’ve said positive things about David Cay Johnston before. (So has PGL.) He’s a NY Times reporter who actually does one heck of a job ferreting out what’s going on in the tax world. Today, David Cay Johnston does his thing again:

“Top officials at the Internal Revenue Service are pushing agents to prematurely close audits of big companies with agreements to have them pay only a fraction of the additional taxes that could be collected, according to dozens of I.R.S. employees who say that the policy is costing the government billions of dollars a year.

Â?ItÂ?s catch and release,Â? said Douglas R. Johnson, an I.R.S. auditor in Colorado for three decades who said he grew so frustrated at how large corporations were allowed to pay far less than what he thought they owed that he transferred to the agencyÂ?s small-business division.

With one exception, other working agents would talk about the issue only on condition they not be identified because they feared being fired. They said a policy intended to avoid delays in auditing corporations was being pushed so rigidly that it prevented them from pursuing numerous examples of questionable corporate tax deductions.”

Following that, there’s the obligatory quote by someone – I assume a political appointee – saying that more is being collected per hour of audit. I covered that in a post a while back… if you reduce enforcement, cheating goes up. That allows you to collect more in penalties, making it look (to the uninformed, a.k.a. most of Mr. Johnston’s colleagues) that you’re doing something while simultaneously letting your base (i.e., the cheaters) pay less. You win both ways.

The other key points in the article:

“But auditors said they were told to limit questioning only to those specific issues that the I.R.S. and the companies had agreed in advance to examine. When other questionable deductions emerged in the course of the audit, they said, additional taxes were ignored.”

and…

“Of roughly 50 auditors interviewed, only one said he agreed with the new policy, arguing that it was better to audit more companies lightly than a few thoroughly as a strategy to improve compliance with the tax laws. But even this agent agreed with the others that large companies were being allowed to pay far less than they owed.”

There are many ways to cut taxes. This is one.