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Expect No Audit: A Heretofore Overlooked IRS Scandal

By Glenn Dippel, CPA

Up to this point the IRS scandals have been about IRS selective (make that highly selective!) harassment, intimidation, and autocratic ill treatment of citizens and organizations and the attendant palpable corruption within the IRS. There is, however, another probable scandal that is the mirror image reverse of such unethical aggression against said citizens and organizations. IRS-Building1 [1]

This “reverse” scandal is the assurance from within the IRS that select(ed) tax returns (and certain other IRS filings) absolutely will not be examined (audited) by the IRS.

This mirror image reverse thing is better understood within the age-old context of “politics is one vehicle by which enemies are punished and friends are rewarded.” So, if enemies (you know, Conservatives) are being punished in this model, then doesn’t it naturally follow that friends are being rewarded with assurances that their returns will not be examined? Hence, deducting the cost of the family vacation in Maui as a business expense becomes OK if the IRS elects NOT to examine the attendant tax return.

Unfortunately, direct evidence of such behavior can only come from within the IRS itself. (Whistleblowers and leakers, your time has come!) Feel free to read up on the finer points of Empirical Evidence.

The following example passes the rationalist test of evidence with flying colors and it is so very compellingly logical.

A simplified example of why assurance of an IRS non-examination can be beneficial:

Oren J. Simmons, Taxpayer-business owner, is in the business of buying and selling widgets and it has been a great year. Taxable income stands at $700,000 even after much polemical interchange with the firm’s tax preparer, a local CPA. There has been much weeping, gnashing of teeth, and rending of garments. Mr. Simmons has been to seminars and has heard that there are some methods for reducing taxable income that are just not known to local proletarian unwashed CPAs. He obtains the name of an upscale Chicago-based law firm and flies there for an initial consultation with a Mr. J. Cochran. Mr. Cochran requests copies and attendant underlying documentation of the firm’s year-end widgets inventory, trade accounts payable, and prepaid expenses. Within a couple of weeks Mr. Cochran informs Mr. Simmons by email that trade accounts payable is understated by $100,000 and widgets inventory is overstated by $300,000. These “adjustments” have the effect of lowering taxable income by $400,000 in the current year.

Mr. Cochran also includes his bill for $25,000. A bargain!

Here’s the epiphany part. Mr. Cochran has an “arrangement” with a very select few folks within the upper levels of the IRS. These “upper level IRS folks” have the authority to insulate certain pre-selected tax returns from examination. Mr. Cochran has “arranged” for Mr. Simmons’ tax return to be insulated from being selected for examination.

This is a fee-generating scheme that enables Mr. Cochran to increase his fee income and build a reputation as an “expert” tax attorney. Then, of course, there is the subsequent need to “take care” of “upper level” co-conspirators within the IRS. The possibilities of this “taking care of” is left to the reader’s imagination. Think Lois Lerner. Cronyism, anyone? Or Michael Barone’s description: “Gangster Government.”

So, you have doubts that this is happening? Then peer through this prism: Past and probably present US presidents and high level officials have routinely used the IRS to punish enemies. So, in turn, it’s not a great stretch of forensic imagination to recognize that rewarding friends is quite possible using this model.

The “prosecution” rests.

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1 Comment To "Expect No Audit: A Heretofore Overlooked IRS Scandal"

#1 Comment By paintedfaces On November 16, 2014 @ 8:56 pm

My own personal favorite concerning Peggy Lee was –

Is that all there is ?