August 10, 2004

In Case There Was Any Doubt: IRS Shows True Colors As Illegal Extortion Racket

The New York Times is running an article today entitled "Tech Company Settled Tax Case Without an Audit". The text basically shows how a secret agreement between the IRS and a minor semiconductor firm allowed said firm to avoid paying some $51 million in back taxes on shady stock option packages given to employees. Frustrated with the failure of the internal chain of command to address the illegal nature of the deal, Remy Welling, the auditor who was asked to approve it, took her case to the FBI, the Securities Exchange Commission (SEC), and the press. She will lose her job for her honesty.

This deal is made even more questionable by two additional facts: first, it was negotiated by a retired high ranking IRS official who now works for the company, and, second, the deal was made before an intended audit of the company was carried out, and the audit was stopped as a result. IRS policy dictates that, while such deals are allowed, they must be made after the audit is complete. This company's audit will never be carried out. At least two similar incidents have been exposed to the press in recent years.

This comes on the heels of a claim by Speaker of the House J. Dennis Hastert (R, Illinois) that his party would support the abolition of the IRS and its replacement with a federal sales tax (see here), in accordance with reccomendations by an organization known as Americans For Fair Taxation. This has met with skepticism from libertarians who have long supported the abolition of the IRS which is illegal and unnecessary (see esp. question 4 and question 11a) anyway.

If ever there was ever an opportune time to abolish the IRS and stop them from illegally extorting money from the American people, this is it. This is just one more area in which the American people find fault with how the Republicans and Democrats have been running this country. Perhaps Hastert will really carry out this plan, but, since Bush will not go on record on the issue, this is just one more reason to vote for Libertarian Michael Badnarik.

Posted by Kenny at August 10, 2004 10:39 PM
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Comments

As an employee with 30 years within the IRS
we can say that the agency is corrupt and poor
remy is now a subject of retaliation for telling
the truth. Those management officials should
be fired and not remy welling. Get a senate
hearing going.

anonymous

Posted by: Anonymous at August 13, 2004 9:20 PM

Hmmm. Well, I am definitely in favor of not firing me. It is true they have sent me home on leave without pay - indefinitely. And they did issue what is called a "30 day letter" to terminate my employment. I am still officially employed at the IRS.

I wanted to clarify a couple of things I noted above. Jim Casimir, the former National Appeals Director the IRS, now works for PriceWaterhouseCoopers,. Micrel's accountant. I was told Jim Casimir contacted my manager's boss'boss JoAnn Bank, the National Field Director for Technology issues to begin the deal.

Also, I do not believe this type of agreement is legal - between National Office and the taxpayer even after the audit begins. A Technical Advice Memorandum is the correct procedure in situations such as this:

The Revenue Agent receives all the facts and circumstances from the taxpayer and makes a determination based on those facts, then writes up the facts, law and argument. This goes to the local Counsel and then on to National Office. The taxpayer corporation does the same thing. The National Office reads both and makes a decision and this decision is made public to everyone in the United States (IRC Sec 6110) on Westlaw, Lexis-Nexis, etc. in what is called Technical Advice Memorandum. One should not use a Closing Agreement - which need not be seen by anyone - when a Tech Advice Memorandum would be more appropriate (TAM). This was stated in a Committee Report of Congress.

Also, even though there is something in the code about "good faith effort" for valuing the stock per IRC Sec 422(c)(1) - that applies only to privately-held corporations that are difficult to value. Public corporations such as Micrel are always valued by their over the counter price - that is, in this case - NASDAQ.

Posted by: Remy Welling at September 8, 2004 11:16 PM

Thank you for the clarifications, Ms. Welling. As can be seen from my comments elsewhere, I tend to think that the IRS is illegal in general. The IRC is intentionally written to confuse people into paying taxes they don't have to. I would refer any questions to the excellent web-site, nontaxpayer.org.

Posted by: Kenny at September 9, 2004 12:18 AM

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