The IRS is assembling what Eric Solomon, a director at Ernst & Young, calls a “SWAT team” to crack down on tax evaders.
With a staff of 90,000 people and a budget of $11.8 billion (after a 2.5% cut for 2012), the IRS is particularly looking to crack down on “transfer pricing,” which occurs when companies shift their profits from country to country in order to pay the lowest tax rate.
According to Reuters:
IRS Commissioner Doug Shulman made changes at the agency in mid-2010 that set the stage for bringing in [transfer pricing director Samuel Maruca], who has filled 40 positions so far and plans to bring on up to 60 more staffers.
‘The economic crisis allowed the IRS to attract talented, experienced industry professionals who might not have been available previously,’ said ex-deputy IRS Commissioner Michael Dolan, now director of KPMG’s Washington national tax practice.
‘The [question] is, what will he be able to do … and will he really have enough resources to change the game?’
Reuters, which describes the IRS as “underpaid and outgunned,” continues:
Federal agencies often struggle to keep up with higher-paid private-sector professionals. The IRS is no exception and there is some skepticism about Maruca’s chances.
‘The valuation problems are insurmountable,’ said Edward Kleinbard, a professor at the University of Southern California and former chief of staff at the Joint Committee on Taxation, which analyzes tax policy for the U.S. Congress.
‘There are billion-dollar disputes on just the arms-length transfer pricing of intangibles.’
In December, payment transfer firm Western Union Co announced it was part of a $1.2 billion transfer pricing settlement with the IRS for taxes owed from 2003 through 2011. The dispute included intangible property and trademark royalties.
While many find the IRS’ new policies troubling, maintaining that 90,000 bureaucrats who exert absolute authority over the citizenry is not a worthy tax expenditure, men like Richard Harvey remain unruffled.
A tax professor at Villanova University and former IRS advisor, he said, “Anybody who thinks the IRS can ultimately enforce transfer pricing is either an eternal optimist or delusional…[the changes will ] will help them on the margins, but they’re still fighting a very difficult battle where the deck is stacked against them.”
But the IRS is beginning more than one new initiative.
Reuters is also reporting that, because of a “surge” in tax refund fraud and identity theft, the IRS may soon be sharing personal tax return information with the police.
Though Congress made it a crime for IRS workers to share this information in 1976, a pilot program could soon begin in Tampa, FL where victims of identity theft and tax return fraud could give permission to the IRS to share their personal information.
Critics of the program note that it is a “slippery slope,” and while the program may begin with victims giving permission to the IRS, it is only a matter of time before the information is shared without consent, or before the information goes public. They also say that, perhaps if the tax code was simplified, the IRS would not need to go to such lengths to collect their dues.
According to Business Insider, Citigroup’s chief economist Willem Buiter said on Bloomberg Radio Tuesday, “As a U.S. citizen, I had to try and get the data together to give to the person who prepares my tax returns, and I almost had a nervous breakdown collecting the data! The US tax system is completely incomprehensible! My wife and I are both PhD’s in economics—both of us!—and we can’t make head or tails of it.”