The Scandalous Side of the IRS Non-Scandal

Who’s going to emerge as the real winner once the ‘IRS scandal’ dust settles? Only the awesomely affluent among us benefit when we have an underfunded — and ineffective — IRS.

By Bob Lord

House Oversight Committee chair Darrell Issa has failed to pin the “IRS scandal” on President Obama — or even prove the existence of a major scandal. But he may be winning on his real objective.

For weeks, we have watched Darrel Issa and the conservative media circus concoct a “scandal” surrounding the handling by the IRS of applications by tea party organizations for tax-exempt status. These same actors have sought to tie the Obama administration to the scandal. Turns out, President Obama had nothing to do with IRS scrutiny of tea party groups, and the scrutiny of those tea party groups turned out to be not all that sinister anyway.

So did Issa and his friends fail?

That depends on how you define their mission.

If Issa and friends really did have Obama and “IRS corruption” as their targets, then they have failed miserably.

But if Issa and friends were seeking to cast the IRS in a bad light, their mission may yet prove to be a smashing success. The IRS as an institution has certainly taken a hit, perhaps most dramatically at that crucial moment when every major American media outlet was airing video footage that had IRS employees learning the cupid line dance on the taxpayers’ dime, at a “lavish” conference in Anaheim, California.

With that image still fresh, the House Appropriations subcommittee recently approved legislation that would cut IRS funding by 24 percent. A cut this draconian stands little chance of passing. But consider the fallout that recent press coverage of the IRS could have on other moves to undercut the agency.[pullquote]Imagine the ads that could now run against any lawmaker who votes to increase IRS funding.[/pullquote]

Keep in mind that voters don’t have warm fuzzy feelings about the IRS to begin with. Now imagine the ads that could run against any lawmaker who votes to increase IRS funding — or against legislation that would decrease it.

Those ads could juxtapose a clip of those IRS dance lessons with the message that Senator X or Representative Y has voted to spend your tax dollars on an out-of-control IRS.

With this ad threat over their heads, will lawmakers who face a tough race — and whose top priority in life is getting re-elected — vote to adequately fund the IRS? Don’t bet on it.

Cuts to IRS funding pose an obvious problem. When IRS funding decreases, so does federal revenue, because reduced funding chokes IRS enforcement efforts.

How much does IRS underfunding cost us? In one new report, The Wrongheaded Quest to Shrink the IRS, Citizens for Tax Justice notes that every dollar the IRS spends on enforcement activities translates into ten dollars in revenue.

Who benefits most from inadequate IRS tax enforcement? Certainly not wage earners, who have their federal taxes withheld straight from their paychecks. Corporations and wealthy individuals, on the other hand, have everything to gain from failed IRS enforcement efforts.[pullquote]Corporations and wealthy individuals have everything to gain from failed IRS enforcement efforts.[/pullquote]

After all, tax shelter transactions don’t have to be cleverly structured to effectively shelter the income of the affluent from taxes. These transactions just have to escape IRS scrutiny. Now, thanks to the efforts of Darrell Issa and friends, aggressive tax structuring stands to receive less IRS scrutiny than ever. That could shake loose a lot of campaign contributions, or perhaps reciprocate for contributions already made.

And that’s the scandal that the IRS non-scandal may have been all about all along.

Bob Lord, a veteran tax lawyer and former congressional candidate, practices in Phoenix, Arizona.