IRS may cut lawyers who audit the rich

The federal government is moving to eliminate the jobs of nearly half the lawyers at the Internal Revenue Service (IRS) who audit tax returns of some of the wealthiest Americans, specifically those subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.

The administration plans to cut the jobs of 157 of the agency's 345 estate-tax lawyers, plus 17 support personnel, within 70 days. Kevin Brown, an IRS deputy commissioner, confirmed the cuts.

The Bush administration has successfully lobbied Congress to enact measures that reduce the number of Americans subject to the estate tax — which opponents refer to as the "death tax" — but has failed to eliminate the tax.

Brown said in a telephone interview Friday that he had ordered the cuts because far fewer people were obliged to pay estate taxes under President Bush's legislation.

But six IRS estate-tax lawyers whose jobs are likely to be eliminated said the cuts were the latest moves at the IRS to shield people with political connections and complex tax-avoidance devices from thorough audits.

Sharyn Phillips, a veteran IRS estate-tax lawyer in Manhattan, called the cuts a "back-door way for the Bush administration to achieve what it cannot get from Congress, which is repeal of the estate tax."

Brown dismissed as preposterous any suggestion that the IRS was soft on rich tax cheats. He said the money saved by eliminating the estate-tax lawyers would be used to hire revenue agents to audit income-tax returns, especially those from people making more than $1 million.

Brown said civil-service rules barred estate-tax lawyers from moving over to audit income taxes. An IRS spokesman said the agency had asked for permission to allow such transfers twice, but the Office of Personnel Management had not responded.

Estate-tax lawyers are the most productive tax-law enforcement personnel at the IRS, Brown said. For each hour they work, they find an average of $2,200 of taxes owed to the government.

Brown said that analysis showed the IRS was auditing enough returns to catch cheats and that 10 percent of the estate audits brought in 80 percent of the additional taxes. He said auditing a greater percentage of gift- and estate-tax returns would not be worthwhile.

That is a change from six years ago, when the IRS said 85 percent of large taxable gifts it audited shortchanged the government. The IRS said then that it would hire three more lawyers just to audit taxable gifts of $1 million or more.

In the past five years, officials at the IRS and the Treasury have told Congress that cheating among the highest-income Americans is a major and growing problem.

The six IRS tax lawyers, some of whom were willing to be named, said that clear evidence of fraud was pursued vigorously by the agency but that when audits showed the use of complicated schemes to understate the value of assets, the IRS had become increasingly reluctant to pursue cases.

The lawyers said the risk-analysis system the IRS used to evaluate whether to pursue such cases gave higher-level officials cover to not pursue tax cheats and emboldened the most aggressive tax advisers to prepare gift- and estate-tax returns that shortchanged the government.