The Administration

The IRS’s abuse of power

During the reign of King George III, Britain’s American colonists felt the heavy burden of a monarch imposing his will to levy heavy taxes without representation, overregulate businesses and trample upon basic freedoms. In order to overcome these oppressive bonds, the 13 Colonies banded together to declare their independence from tyranny.

{mosads}President Obama does not have the same level of power as King George, but he is using every tool at his disposal to emulate the king and restrict the freedom of Americans as they pursue their daily lives and conduct their business. In other words, when Obama famously said in January 2014 that he had a pen and a phone to get things done with or without Congress, he was not joking. His administration has taken unprecedented steps to issue regulations and rulings without going through normal administrative procedures, such as issuing “sub-regulatory guidance” and circumventing Congress whenever possible.

A prime example of this kind of abuse of power was the hiring of outside counsel by the Internal Revenue Service to conduct interviews and assist in an audit of Microsoft on May 19, 2014. In a May 13, 2015 press release regarding his letter to the IRS about this matter, Senate Finance Committee Chairman Orrin Hatch (R-Utah), questioned the legality of such an action because it “1) appears to violate federal law and the express will of the Congress; 2) removes taxpayer protections by allowing the performance of inherently governmental functions by private contractors; and 3) calls into question the IRS’s use of its limited resources.”

Hatch’s letter noted that “certain revenue functions, such as examinations and sworn testimony,” may only be performed by “the [Treasury] Secretary and limited delegates.” Certainly, a few of the IRS’s 36,000 employees who conduct exams and collections could be added to those who were already working on the audit in order to draw it to a close. As Hatch and others have observed, this appears to be the first time such revenue functions and sharing of taxpayer information have been outsourced.

The law firm hired by the IRS, Quinn Emanuel, calls itself “a global force in business litigation” yet does not list “taxes” as one of its 32 practice areas. At the time the contract was awarded, the IRS did not provide any justification or legal authority. On June 18, 2014, the Treasury Department and IRS “authorized” the deal through a temporary regulation issued as a “clarification” to the Internal Revenue Code. The attorneys can charge more than $1,000 per hour, and the contract is worth $2.2 million.

The audit, which began in January 2007, is related to how Microsoft calculated taxes on income made overseas between 2004 and 2006. Its outcome has serious implications for multinational corporations. While Microsoft has been asking the IRS for an assessment so the company can settle the case, the hiring of Quinn Emanuel for both audit purposes and potential litigation appears to be the answer.

This is the same IRS that left taxpayers in the lurch during the most recent tax season, when it shut down call centers due to “budget cuts.” On April 22, 2015, House Ways and Means Subcommittee on Oversight Chairman Peter Roskam (R-Ill.) cited the $2.2 million contract as misspent funds at the IRS that could have used to assist 252,000 individuals with their taxes.

This extraordinary episode should be troubling for all taxpayers. On top of the waste of tax dollars, the hiring of outside litigators at Obama’s IRS is the latest overreach by the administration and the same agency that spawned Lois Lerner, the former director of the Exempt Organizations unit.

While there is no excuse or justification for this action by the IRS and no one should be subject to such an misuse of the taxpayers’ money, a large company can battle to maintain its rights under the law (albeit at the expense of conducting its ordinary business). It is bad enough when IRS auditors and bean counters come knocking at someone’s door, but there is no way that a small business or individual taxpayer could withstand a grilling by high-powered and highly paid litigators. Congress was not around to stop King George, but it can and should stop the Obama administration’s ongoing abuses of power.

Schatz is the president of Citizens Against Government Waste.

Tags Internal Revenue Service IRS Microsoft Orrin Hatch Peter Roskam Taxation
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