By Brian Festa, Esq., Vice-President & Co-Founder, We The Patriots USA, Inc. and Sally Wagenmaker, Esq., Partner, Wagenmaker & Oberly, LLC
With the U.S. House of Representatives’ recent passage of the Inflation Reduction Act, and President Biden’s expected signature, there has been much talk of excessive government spending – and with good reason. The massive legislation includes $400 billion in spending. But with overspending typically also comes overreach, including increased taxation. The new Act also allegedly includes $700 billion worth of new revenue via taxation on the American people and businesses.
What’s more, in recent days many have been sounding the alarm that the Act allocates $80 billion to the Internal Revenue Service (IRS), and that the IRS is seeking to hire 87,000 new agents. You read that right. Not 87. Not 870. Not even 8,700. Eighty-seven THOUSAND. Even more troubling is the IRS’s classified ad for “special agents” in its Criminal Investigation (CI) Unit that has been circulating in recent days, which lists among the “major duties” of the job the requirement to “[m]aintain a level of fitness necessary to effectively respond to life-threatening situations on the job” and the willingness and ability to “participate in arrests, execution of search warrants, and other dangerous assignments.” A prior version of the ad (which has now been removed from the IRS’s website) listed an additional duty: “Carry a firearm and be willing to use deadly force, if necessary.”
While it is reasonable to assume that the IRS removed the earlier version of the ad due to the backlash it was receiving in the conservative media, the question remains: Does the IRS really employ law enforcement agents who can arrest (and shoot, if necessary) American citizens? The answer, to the surprise of many, is yes. Perhaps even more surprising to most is that this is nothing new. The IRS’s CI Unit has been in existence for over 100 years, since 1919 (although the unit did not originally operate under that name). Remember, Al Capone was convicted for tax evasion – and went to prison.
The Internal Revenue Code (IRC) is not purely civil law; 26 U.S.C. § 7201 is a penal statue, making tax evasion a crime punishable by fines and imprisonment. Since the IRS is the agency tasked with enforcing the IRC, that would mean it has the power to enforce the criminal portions of the code as well, not just the civil. In 2019, for instance, the IRS’s CI Unit celebrated its 100th anniversary by executing 1,720 warrants, and initiating almost 2,500 criminal investigations (including 1,500 tax crime investigations and 985 non-tax crime investigations) – and all this with a special agent force just over 2,000 strong.
Now all that being said, does this mean they are justified in hiring 87,000 new agents? Admittedly, the IRS appears to be under-resourced. Indeed, it can be extremely challenging, if not impossible, to reach an IRS representative via telephone these days, and their timeliness in responding to written inquiries can be downright abysmal. And finding knowledgeable IRS agents who are well equipped to address pending tax matters can be equally problematic. So something certainly seems broken at the IRS.
The question is whether hiring so many new employees is the answer. Not at all! The gargantuan number of expected IRS hires itself not only indicates excessive government waste on its face, with little to no assurance of sufficient training and capable supervision, but many fear that this move is aimed squarely at taking down innocent Americans who refuse to bow to the radical progressive agenda in this country. Others, like Brian Kilmeade, speculate that the IRS will use its expanded workforce for the purpose of “hunt[ing] down and kill[ing]” the middle class.
Fears of IRS weaponization are far from unfounded. Such action is hardly unprecedented, with top IRS official Lois Lerner of the Obama administration admitting that the agency used its powers to target conservative groups. As a 2014 Forbes opinion piece put it,
Last year, Lois Lerner, the IRS’ former director of Tax Exempt Organizations, publicly acknowledged the political, predatory and punitive actions of the agency that led to the harassment and intimidation of conservative groups. Anyone who thinks that these IRS bureaucrats were acting solely in response to the Senators’ letter or of their own volition is kidding themselves. This strategy was deployed by a cunning White House and the community-organizer-in-chief who still understands Saul Alinksy’s rule number 10 – “The major premise for tactics is the development of operations that will maintain a constant pressure upon the opposition.”
As the U.S. Supreme Court astutely observed long ago in the seminal case of McCulloch v. Maryland, decided in 1819, the “power to tax is the power to destroy.” No doubt! The IRS’s primary function is to operate as a revenue collection agency, with vast regulatory authority to carry out such purposes. Done properly, the IRS certainly needs revenue agents and related resources. But all too often, government agencies – including the IRS – have used their power for political purposes that violate our country’s deeply held constitutional values, such as freedom of speech, religious liberty, and freedom of association. Examples abound of such abuse, as an ugly underbelly to our democratic principles.
What does this mean for conservative-leaning organizations (and individual citizens) who are now in the cross hairs of an extraordinarily powerful federal agency that is set to increase its forces to behemoth proportions, in the hands of the Biden administration? What, if anything, can businesses and taxpayers do to protect themselves?
In brief, be very careful, know one’s rights, and be ready to defend oneself. The IRS looks poised now to exercise enormous enforcement muscle, more than ever before in our country’s history. Individual taxpayers and businesses alike thus should maintain careful financial records reflecting their revenues and expenses, compensation information, employment benefits, property, charitable giving, and other aspects of their activities – all in connection with timely filed tax returns. If the IRS comes a knocking, you need to be ready – because the agents certainly will come in!
Notably, the applicable tax statute of limitations is three years, extended to six years in cases of fraud or other misconduct. So a retention policy of seven years (six years, plus one for margin) may be advisable.
Consider too that taking aggressive tax positions may become more costly than expected, with greater IRS scrutiny, so it may become prudent to consider more conservative tax stances. On a related point, increased reliance on tax professionals (accountants and attorneys) may become more compelling, particularly for important guidance and direction on how best to proactively handle tax reporting and related legal obligations.
Tax-exempt organizations should be mindful of the IRS’ increased regulatory power to police their status and activities. Optimistically thinking, perhaps the IRS will now be able to catch up on its tax-exemption application backlog. But more realistically, the IRS may become well-poised to aggressively nose around tax compliance areas for which many nonprofits tend to be quite lax (or at least they push the limits), whether from ignorance or intentionality. A few examples come to mind: political involvement that steps over the Section 501(c)(3) political campaign prohibition, excessive lobbying by 501(c)(3), executive compensation that stretches beyond “reasonableness,” other private benefit, and improper conflicts of interests. These areas implicate IRS standards that are based vaguely on “reasonableness” and “facts and circumstances” tests, which are inherently subjective. An organization’s conclusion may be that its activities fall within permissible tax-exempt legal parameters, but such interpretation may be deemed otherwise by IRS agents, who just may think differently as a matter of politics and ideology – or not enough! At what cost? Loss of tax-exempt status, financial penalties for leaders, and other adverse consequences may deter nonprofits from pursuing their worthwhile missions and even, in some cases, defeat them.
The horizon looks dark, filled with this monstrous IRS army filling our view. Can the IRS do good? Of course! But will it? With such vast new forces subject to politics’ sway, amidst such incredibly polarized times, the potential for tax-related government abuse seems all but certain.
Note: The views expressed herein are solely those of the individual authors.