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Senator John Kerry (D-Mass.) sent a letter to the Commissioner of the Internal Revenue Service, Mark Everson, to request the reasoning behind Everson’s decision to dramatically reduce the number of tax auditors assigned to audit gift and estate tax returns. He also shared concerns about cutting the auditors of wealthy taxpayers at a time when the tax gap has grown to $350 billion a year. In the past, Kerry contacted Everson about the disproportionate diligence committed to auditing families who deduct the earned income tax credit. This deduction usually involves the finances of low income families, whose tax omissions make up only a small fraction of the overall gap. In 2004, the IRS conducted 48 percent of its audits on EITC taxpayers, who make up only 17 percent of all tax payers. Kerry said, “We need to right the imbalance of these audits, focusing on the fraudsters who do the most damage and only pry the tax gap wider. We should assign auditors to focus on the areas that will yield the greatest returns, not those that are just considered the lowest hanging fruit. I look forward to hearing back from the IRS on its plan to close the gap, and on how these cuts relate to that plan.” Kerry asked Everson whether the decision to cut down the number of auditors will impact the tax gap, citing the fact that although the number of people paying the estate tax is set to be reduced, large estates are still required to pay the tax until 2009.
Below is a copy of the letter:
The Honorable Mark Everson Commissioner Internal Revenue Service 1111 Constitution Avenue, NW Washington, DC 20224 Dear Commissioner Everson:
With a tax gap of approximately $350 billion a year, I am concerned about a recent decision to eliminate nearly half of the attorneys that audit estate and gift tax returns. The tax gap for the estate tax is a relatively small portion of the overall tax gap, but it is still approximately $8 billion a year. It is my understanding that estate tax lawyers have been very successful in their efforts in auditing estate and gift tax returns. I am worried that if the number of auditors is reduced, the tax gap for the estate tax will substantially increase.
In the past, I have contacted you with concerns about earned income tax credit (EITC) taxpayers being audited and I appreciate the thoroughness of your response. However, I still have concerns about the questionable refund program. In particular, I am troubled that EITC taxpayers are frequently audited and these audits often involve the Criminal Investigation division of the Internal Revenue Service (IRS). I share your concerns about taxpayer fraud and agree with you that the EITC error rate should be reduced. However, I am concerned that the focus of auditors is often low-income families rather than the upper-income taxpayers who are more likely to participate in tax avoidance transactions.
The EITC represents a small portion of the tax gap. In 2004, the IRS conducted 48 percent of its audits on EITC taxpayers who constitute 17 percent of all taxpayers. This number does not include EITC refund freezes. I believe that the auditing of tax returns should be balanced and focus on the areas that would yield the greatest returns such as illegal tax shelters and abusive off-shore accounts.
I would like to know the reasoning behind the decision to reduce the number of attorneys auditing estate tax returns and if you believe this decision will impact the tax gap. I realize that the number of taxpayers paying the estate tax is being reduced, but large estates are still required to pay an estate tax through 2009. In addition, I would like to know if these attorneys will be reassigned and whether or not the IRS is assigning auditors in a manner that is consistent with reducing the tax gap. It is my understanding that the Treasury and the IRS are working on a plan to reduce the tax gap, and I believe that any decisions on reassigning auditors should be consistent with an overall plan to reduce the tax gap.
Thank you in advance for consideration of this important matter.
Sincerely,
John F. Kerry
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