The IRS will cut 157 of the agency's 345 estate tax lawyers and 17 of the support staff personnel assigned to them. Six of the IRS lawyers who are likely to be laid off acknowledged that the cuts were simply the latest moves behind the scenes at the IRS to protect people with political connections and complex tax-avoidance schemes from detailed audits. Kevin Brown, an IRS deputy commissioner, says the agency is auditing enough returns to catch cheaters. But during the Clinton administration, the IRS stated that cheating by affluent Americans was one of its biggest problems.
The study also found that IRS lawyers, owing to staffing shortages, only spent about 31 minutes auditing each gift tax return, which typically consisted of dozens of pages. John Dalrymple, then director of IRS operations, admitted that the agency lacked the resources to identify those who were falsifying the value of their gifts, or failing to file their returns. Consequently, the IRS announced that it was hiring three additional lawyers to audit gift tax returns. Yet now the IRS says it has too many of these lawyers.
While auditing fewer gift tax returns will certainly help those of Mr. Bush's affluent ilk, auditing fewer fraudulent estate tax returns will be the real bonus from the IRS layoffs. Currently, only couples with an estate valued at more than $4 million are subject to the estate tax, and the first $4 million they pass on to their heirs is completely tax-free. Mr. Bush has lobbied Congress for the last four years to spare the 0.5 percent of Americans who are subject to the tax by repealing it. But since the Republican-led Congress, surprisingly enough, hasn't been willing to go along with him, the administration will now simply layoff estate tax lawyers. After all, Deputy IRS Commissioner Brown says additional audits aren't worthwhile.
But the agency had a very different opinion under President Clinton. In December 2000 the IRS announced that a study found that cheating on estate taxes was more common than cheating on individual income taxes. And the biggest cheaters were the very rich, those who left $20 million or more to their heirs. The study determined that the actual value of the taxable estates audited was on average 13 percent higher than what was reported on tax returns. Consequently, the government was being shorted $1.5 billion in taxes annually.
Since President Bush has failed to coerce Congress to abolish the estate tax, his administration is doing the next best thing. It's forcing the IRS to layoff the very lawyers responsible for catching affluent Americans who cheat. But according to the IRS' own studies six years ago, this is a widespread problem. Perhaps never before in American history have we had a government so completely of the rich, by the rich, and for the rich.