More Than Half Going
IRS Cuts Attorneys Auditing Wealthiest

By GINGER ADAMS OTIS

The National Treasury Employees' Union is battling the Bush Administration over its plans to halve the number of Internal Revenue Service lawyers who focus on the gift and estate taxes assessed to some of the nation's wealthiest citizens.

PRESIDENT BUSH: Another break for the rich.

The restructuring, first reported in the New York Times July 23, would cut the number of estate tax lawyers from 345 to 157, and also remove 17 support personnel from the agency.

Cuts By September

Staff reductions are to take place before Sept. 30. IRS officials said they would seek regular and early retirements among existing estate and gift tax attorneys to generate the job cuts.

NTEU President Colleen Kelley said "it simply didn't make sense" for the IRS to cut back on the workers who consistently produce significant revenue for the Treasury Department.

She criticized Federal officials for pushing to implement the changes in such a short time.

"These employees are not even being given 90 days in which to decide if taking retirement is right for them," Ms. Kelley said. "This is a life-altering decision that impacts employees and their families and could have been handled better by working through NTEU."

SAYS IRS IS GIVING AWAY MONEY: National Treasury Employees' Union President Colleen Kelley questions why the Internal Revenue Service is eliminating 188 estate tax lawyer positions, which will make it more difficult to detect tax fraud by wealthy Americans. She also is critical of the Bush Administration's plan to enlist private firms to help the IRS with collections at a fee of $25 for every $100 they recoup, noting that one outside study

She has appointed a negotiating team that's meeting with IRS officials to discuss transferring some workers into other departments. IRS Deputy Commissioner Kevin Brown wasn't available for comment, but he told the Times that civil service rules prevented estate tax lawyers from moving over to auditing positions, even though they already perform audits in their current jobs.

OPM: No Transfers

Ms. Kelley said the IRS was being a "little disingenuous" about its inability to transfer workers. She said the union had petitioned the Office of Personnel Management several times to get gift and estate tax attorneys reclassified as "open competitive workers," which would allow them to move within the agency, and had asked the IRS to advocate on their behalf.

OPM told the union it doesn't have the authority to alter the civil service titles. IRS officials ignored the union's request for help, Ms. Kelley said, although an agency spokesman told the Times that officials had approached OPM twice.

Bring in Big Bucks

The IRS doesn't dispute the efficiency and accuracy with which its gift and estate attorneys work. By Mr. Brown's own admission, those employees are among the highest revenue-producers for the Federal Government. For every hour worked, he told the Times, an estate attorney averages $2,200 in captured tax debt.

His decision to cut half the workers, Mr. Brown said, stemmed from changes in the way the tax was applied after President Bush succeeded in getting legislation passed that raised the filing threshold considerably.

Prior to 2001, estates worth more than $675,000 were subject to a tax before they could be passed down to a deceased person's benefactors.

After Mr. Bush succeeded in passing a series of tax cuts, the filing threshold was raised to $1 million, and the percentage of taxes taken was lowered.

Heading for $3.5M

The filing threshold was later raised to $2 million, and will jump yet again in 2009, to $3.5 million. The filing threshold for gifts also rose - to $1.5 million, with ongoing increases tied to the rate of inflation.

In 2010, no taxes will be levied on the estates of anyone who dies, but in 2011, the filing threshold will revert back to $675,000 - unless Mr. Bush succeeds in passing legislation making his changes permanent, or repealing the estate tax entirely before he leaves office in early 2009.

On July 29 the House of Representatives passed a bill permanently raising the filing threshold for estate taxes that also provides a raise in the minimum wage. Democrats in Congress have tried for a decade to get the minimum wage increased.

'A Back-Door Repeal'

"This Administration since 2001 has been trying to get the estate tax repealed, and since they couldn't do it legislatively, what better way than by reducing our numbers so enforcement drops dramatically - it's a back-door repeal," charged Sharyn Phillips, an Estate Tax Attorney who works for the IRS in Manhattan.

Ms. Phillips, who doesn't meet the criteria for a buyout or early retirement, fears she'll lose her job as part of a "reduction in force" campaign if the IRS can't meet its number any other way.

She noted that the tax returns her department routinely audited belonged to "less than one percent of the estate returns filed, and less than one percent of the taxpaying population - we're talking about mega-wealthy people, not the average Joe."

Because estate returns aren't filed until nine months after a death, and are often extended an additional six months and then require three months for IRS processing, it takes a year and a half before an auditor sees a file, Ms. Phillips said. Returns for 2006 haven't even come in yet.

'Will Cost U.S. Money'

"So what we're really talking about is impacting volume a year and a half after the changes take effect - and we're also talking about a tremendous backlog, and so it's surprising that the IRS is rushing to downsize our staff," she contended. "The attorneys are the ones who audit the tax returns - cut our numbers and it has a direct impact on revenues collected. At this stage of the game, it's one way of the executive branch to try and usurp legislative powers."

IRS and Treasury officials have testified to Congress that America's highest-earners consistently short-change the government. They've also recently acknowledged to lawmakers that cheating is a growing problem among the wealthy who file complex tax returns to hide or undervalue their assets. Six years ago, the IRS reported that 85 percent of the gift and estate transfers it audited cheated the government out of taxes due. It hired three additional lawyers to focus specifically on auditing taxable gifts and inheritances worth $1 million or more.

The NTEU sees the IRS staffing issue as one element of a larger struggle it's having with the Bush Administration.

Defending Civil Service

The union, which represents more than 150,000 Federal employees - 94,000 of them in the IRS - has filed lawsuits to fend off sweeping personnel changes proposed by the Bush Administration that would do away with civil service promotion and wage policies.

It has also been battling a plan to privatize the IRS debt-collection process, which is set to be implemented by next month even though the House of Representatives recently passed an appropriations bill that contained specific language prohibiting such a move.

Since the Senate version of the bill didn't contain similar language, the issue will likely have to be decided in conference after the summer recess. The Bush Administration has elected not to wait, however, and will turn over its IRS collections to three high-profile private debt-collection companies in a matter of weeks.

Working for a Piece

The companies won't be part of the Federal budget. Instead, they'll make money by keeping 25 percent of whatever revenues they generate from taxpayers.

Ms. Kelley accused the IRS of running a "money game" to make it look like the IRS was functioning adequately within its budget - which she contended was woefully underfunded.

"Former IRS Commissioner Charles Rossotti [whose five-year term expired in Sept. 2002] told Congress that if they gave him $292 million to hire more Federal employees for the IRS, he could collect $9.1 billion in tax revenues," noted Ms. Kelley. "Today, the IRS will say they need more workers for collections, but they won't tell you that they need more money, because President Bush has said he's budgeted enough."

50 Times As Costly

Hiring outside private contractors to do its debt-collecting work keeps employees off Federal books, but ultimately costs the government more, NTEU said. Productivity studies show that Federal tax employees collect $100 for every 53 cents spent, as opposed to paying $25 for every $100 brought in by the private firms.

Ms. Kelley also expressed privacy concerns, and fears that the transfer to debt-collection agencies would disproportionately impact honest taxpayers hemmed in by unexpected financial difficulties.

"Let's say I'm laid off in August, and then I discover that my company didn't deduct my taxes correctly and I owe the IRS $1,000 but I don't have it. So, being an honest taxpayer, I sign a form and acknowledge my debt. Instead of getting a Federal worker who will help me establish a payment plan, my file will go into the collection bin, and these companies will start calling me," Ms. Kelley contended.

She said the IRS has acknowledged it will use the collection agencies to go after taxpayers it's labeled "low-hanging fruit" - people who file their returns regularly, but through error or circumstance end up owing the agency money they can't pay.

Hurts Poor, Elderly?

The National Taxpayer Advocate - a non-governmental watchdog group that monitors the IRS - issued a report to Congress recently that said private tax collection could severely impact poor and elderly people who depend on Social Security.

NTA President Nina Olson said that an increased effort from the IRS to collect taxes resulted in a 165 percent increase this year in the number of senior citizens who have parts of their Social Security checks garnished to repay IRS debts.

But the private collection plan proposed by the Bush Administration has no mechanism in place to ensure that taxpayers whose incomes are already levied under the Federal Payment Levy Program will be excluded from additional collection attempts. Many taxpayers under the levy program are senior citizens, Ms. Olson noted. Additionally, Ms. Olson said, by allowing collection agencies to pursue installment agreements on accounts where the IRS is already obtaining payments through the levy process, "the IRS is paying commissions to private collectors for work that IRS employees have already performed."

She and other privacy advocacy groups also expressed concerns about turning individuals' private financial information over to companies that were part of the largely unregulated debt-collection industry.