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Emanuel, Neal Call for Hearings on IRS Failure to Collect Taxes Owed by Large Companies |
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WASHINGTON, D.C.—Today, U.S. Representatives Rahm Emanuel and Richard E. Neal sent the following letter to Commissioner Mark W. Everson to express concerns about recent reports alleging that top IRS officials are pushing auditors to prematurely close audits of large companies, leaving billions of dollars of taxes owed on the table. Emanuel and Neal announced today that they will hold a hearing on this matter in the Ways and Means Committee’s Subcommittee on Select Revenue Measures at the earliest possible date.
Following is text of the letter: January 16, 2007 The Honorable Mark W. Everson Dear Commissioner Everson: We are writing to express our concerns about a recent report and editorial in the New York Times alleging that top IRS officials are pushing auditors to prematurely close audits of large companies with agreements to have them pay only a small fraction of the taxes they owe. We intend to hold a hearing on this matter in the Ways and Means Committee’s Subcommittee on Select Revenue Measures at the earliest possible date. As you know, the IRS estimates the current gross annual federal tax gap at approximately $345 billion. After collection efforts, the net annual federal tax gap is about $295 billion. Some experts claim both numbers are far higher. In the face of the tax gap and our budget deficits, we can scarcely afford to leave billions of dollars of corporate taxes owed on the table. To do so would be unfair to the millions of middle-class families who dutifully pay their taxes but must shoulder the burden for those who do not. The Times interviewed dozens of IRS employees in connection with its report, few of whom would speak on the record for fear of being fired. The picture that emerges is troubling. The auditors interviewed claim their superiors are so focused on avoiding delays and closing cases that tax enforcement is suffering and billions of dollars are being left on the table. It appears IRS officials are pushing to close audits so quickly that agents are unable to pursue obvious examples of questionable deductions and sheltering activity. We are also concerned that IRS officials and companies are agreeing in advance to the scope of audits, effectively handcuffing auditors by prematurely declaring certain areas of inquiry off-limits. Even if questions emerge during the audit, agents are being denied the authority to expand the scope of their investigations. These tactics appear to contravene official IRS policy which requires agents to “do the right thing” and pursue audits beyond deadlines if warranted. Perhaps these cases are being prematurely closed out of old fashioned self-interest, because according to the Times, IRS supervisors receive cash bonuses and promotions based on closing cases within the time allowed, not on the quality of audits or the dollars collected. That is an inherent conflict which must be reconciled. The numbers clearly bear out the auditors’ claims. According to recently released IRS statistics, the time devoted to each large company audit in 2006 was more than 20 percent below what it was in 2002, and while a larger share of companies was audited between 2003 and 2005, that number declined substantially in 2006. While IRS officials point to a rise in tax dollars collected per hour of audit, revenue agents claim this merely reflects the fact that tax sheltering now is so prevalent that it is easy to find additional taxes due. We look forward to your response to this letter and to continuing to work with you in the 110th Congress as we aim to achieve our mutual goal of ensuring that the IRS collects the taxes it is owed by ordinary individuals and large corporations alike. Sincerely, Richard E. Neal Rahm Emanuel
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