Congressional hush fund gives IRS a new card to play

In the Nov. 5 edition of these American Thinker pages, critiquing the damage Robert Mueller has wrought on the FBI, James Lewis opined in passing that the Internal Revenue Service has lost its public credibility, perhaps irretrievably.  Taxation, of course, is always an unpopular but necessary evil, but the IRS, like all other tax-gatherer bureaucracies that are, were, and ever will be, should play the hand it is dealt with impartiality and fairness.  But the IRS has been shooting itself in the foot with ever increasing frequency and intensity in recent years on account of its politicization.

The recent revelations of a secret taxpayer-bankrolled slush fund to facilitate settlement of sexual harassment claims made against current (and former) members of Congress has dealt a good card into the IRS's hand.

If a list of the congressional beneficiaries of the hush fund were to fall into the IRS's hands, then statute and case law would posture the IRS quite well to monetize the list to the benefit of the public fisc.

In 1929, in the Old Colony Trust Company case, Mr. Chief Justice Taft wrote:

[W]e think the question presented is whether a taxpayer, having induced a third person to pay his income tax or having acquiesced in such payment as made in discharge of an obligation to him, may avoid the making of a return thereof and the payment of a corresponding tax. We think he may not do so. … The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.

The IRS has a lower bar to jump if it asserts a civil penalty instead of bringing criminal charges against the taxpayer (and also would not need to have some GS-½ physically carry the case file across 10th Street to the Justice Department, a complex bureaucracy in its own right, for criminal prosecution).  Obligees of the tax who possess high degrees of sophistication are held to a higher standard by the IRS and the courts when it comes to imposing the Internal Revenue Code's civil fraud penalty; these include current and former members of Congress

Nowadays, it is quite rare to find the term "non-partisan" used in the same sentence as "Internal Revenue Service," but if (and what a big "if," indeed) the IRS (A) gets its hands on the list; (B) audits the tax returns of all the solons who benefited from the slush fund coverage; (C) ascertains whether the slush fund settlements were properly reflected as income on the tax returns; (D) ascertains that expenditures from the alleged abusers' own personal piggy banks were not taken as improper deductions; and (E) imposes the same standard, in a non-partisan manner across the board, in pursuing its remedies against all relevant congresscritters without regard to political affiliation, then the IRS could posture itself to recover, in addition to tax monies, at least a portion of the public esteem it has of late squandered.

The IRS's political cancer may already be too metastasized for it to have the will and the ability to recover Congress's fumble and run with it.  On the other hand, an IRS bureaucrat with relatively clean hands just might recognize the slush fund as opportunity to advance his career.  I hope for the latter but fear the former.

Perhaps the IRS will never make full recovery in the eyes of the public, but if it handles the hush fund issues in a truly objective, evenhanded, and non-partisan manner, then at worst it certainly cannot incur any further losses to its already battered public respect and self-respect.

Kenneth H. Ryesky is a freelance writer who has taught business law and taxation at Queens College CUNY.  He formerly served as an attorney for the IRS and as a senior adviser with Ernst & Young's Tel Aviv affiliate office's U.S. Tax Desk.

In the Nov. 5 edition of these American Thinker pages, critiquing the damage Robert Mueller has wrought on the FBI, James Lewis opined in passing that the Internal Revenue Service has lost its public credibility, perhaps irretrievably.  Taxation, of course, is always an unpopular but necessary evil, but the IRS, like all other tax-gatherer bureaucracies that are, were, and ever will be, should play the hand it is dealt with impartiality and fairness.  But the IRS has been shooting itself in the foot with ever increasing frequency and intensity in recent years on account of its politicization.

The recent revelations of a secret taxpayer-bankrolled slush fund to facilitate settlement of sexual harassment claims made against current (and former) members of Congress has dealt a good card into the IRS's hand.

If a list of the congressional beneficiaries of the hush fund were to fall into the IRS's hands, then statute and case law would posture the IRS quite well to monetize the list to the benefit of the public fisc.

In 1929, in the Old Colony Trust Company case, Mr. Chief Justice Taft wrote:

[W]e think the question presented is whether a taxpayer, having induced a third person to pay his income tax or having acquiesced in such payment as made in discharge of an obligation to him, may avoid the making of a return thereof and the payment of a corresponding tax. We think he may not do so. … The discharge by a third person of an obligation to him is equivalent to receipt by the person taxed.

The IRS has a lower bar to jump if it asserts a civil penalty instead of bringing criminal charges against the taxpayer (and also would not need to have some GS-½ physically carry the case file across 10th Street to the Justice Department, a complex bureaucracy in its own right, for criminal prosecution).  Obligees of the tax who possess high degrees of sophistication are held to a higher standard by the IRS and the courts when it comes to imposing the Internal Revenue Code's civil fraud penalty; these include current and former members of Congress

Nowadays, it is quite rare to find the term "non-partisan" used in the same sentence as "Internal Revenue Service," but if (and what a big "if," indeed) the IRS (A) gets its hands on the list; (B) audits the tax returns of all the solons who benefited from the slush fund coverage; (C) ascertains whether the slush fund settlements were properly reflected as income on the tax returns; (D) ascertains that expenditures from the alleged abusers' own personal piggy banks were not taken as improper deductions; and (E) imposes the same standard, in a non-partisan manner across the board, in pursuing its remedies against all relevant congresscritters without regard to political affiliation, then the IRS could posture itself to recover, in addition to tax monies, at least a portion of the public esteem it has of late squandered.

The IRS's political cancer may already be too metastasized for it to have the will and the ability to recover Congress's fumble and run with it.  On the other hand, an IRS bureaucrat with relatively clean hands just might recognize the slush fund as opportunity to advance his career.  I hope for the latter but fear the former.

Perhaps the IRS will never make full recovery in the eyes of the public, but if it handles the hush fund issues in a truly objective, evenhanded, and non-partisan manner, then at worst it certainly cannot incur any further losses to its already battered public respect and self-respect.

Kenneth H. Ryesky is a freelance writer who has taught business law and taxation at Queens College CUNY.  He formerly served as an attorney for the IRS and as a senior adviser with Ernst & Young's Tel Aviv affiliate office's U.S. Tax Desk.

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