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March 19, 2014
Exclusive: Attorney Details Mismanagement in IRS Chief Counsel's New York Offices
by David Cay Johnston

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David Cay JohnstonDavid Cay Johnston received the Pulitzer Prize for his coverage of tax policy while at The New York Times. He now teaches at Syracuse University College of Law and is the author of three books about taxes -- Free Lunch, Perfectly Legal, and The Fine Print.

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A veteran IRS lawyer opened a window on the secretive operations of one of the biggest IRS field offices March 18, telling 10 senators in a letter that the Office of Chief Counsel ignores serious problems of waste and employee abuse in two New York offices.

Jane Kim, a 10-year veteran chief counsel attorney for the Small Business/Self-Employed Division, wrote that "a sustained pattern of abuse" by chief counsel's supervising lawyers in Manhattan and Long Island, has led to "gross waste of government resources, gross mismanagement, violation of labor laws, and active abuse and retaliation against employees."

The complaint depicts a workplace culture in which favored employees are given light workloads, while their colleagues who pick up the slack face discipline and retaliation if they chafe at unfair treatment. Meanwhile management turns a blind eye to the problems -- when it isn't actively making them worse.

As a result of that negligence, tax cheats often get away without paying, taxpayers needing help go unaided, and good employees suffer more stress in an agency already struggling to deal with budget cuts and public scorn.

These and other complaints are in letters Kim sent to the senators, including Finance Committee Chair Ron Wyden, D-Ore., and ranking minority member Orrin G. Hatch, R-Utah. Kim promised to send a second complaint in two weeks detailing what she called a failure by the National Treasury Employees Union to address abusive managers.

Kim also included a letter from a Criminal Investigation division special agent that was sent two years ago to Senate Finance Committee member Charles E. Schumer, D-N.Y., asserting that millions of dollars have been wasted by CI. That letter names seven other special agents who are willing to testify about "malicious behavior" by managers because they are retired and no longer subject to retaliation.

The name of the special agent and the seven others he identified were blacked out in Kim's letter.

Many similar complaints have come to me over the years from auditors, revenue officers, special agents, specialists, and clerical staff, but I had no way to verify most of them, though I did write some pieces based on analyzing IRS statistics that were consistent with the complaints.

In Manhattan, Unbalanced Workloads

Kim's complaint alleges that managers in the New York offices let some employees coast by while others are forced to work long hours without proper compensation. She accuses the head manager in the Manhattan office, whom she calls "M1," as being particularly lazy and fostering a culture of work avoidance among his subordinates.

M1 has also let recordkeeping in the office fall into disarray, adding to the staff's workload, Kim reported. He failed to preserve a detailed database for tracking cases, built by his predecessor as head manager, a much respected man who retired in 2012. Without that database, she said, M1 has wasted his time and that of subordinates "with weekly mass emails asking us, 'Who has this case?'"

M1 also allegedly refuses to apply a uniform issue locator number, or UIL, to each case, instead telling subordinates to do the work. Without a UIL, she wrote, lawyers cannot determine which paralegals and other support staff are qualified to work on the issue.

Attorneys working under the two other supervising attorneys in the office, on the other hand, are so overworked that they have often been forced to work off the clock lest they be reprimanded for failure to timely file legal papers.

Kim said she has personally experienced the unfair treatment given to hard workers. On February 13, when a snowstorm led the IRS to allow Manhattan workers to arrive as late as 11 a.m., Kim came to work at 6:30 a.m. She said she worked on a pressing matter until 5:30 a.m. on February 14, but was told she would be credited for comp time for only four extra hours, while workers under M1 came as late as possible and left early, their departure unquestioned.

Even rules against workplace drug abuse have been ignored in the Manhattan office, Kim wrote. A paralegal once complained about marijuana being smoked in the office, but management did nothing, according to the complaint. When a second paralegal "explicitly complained to management about it, management did nothing" until Kim went to the Treasury Inspector General for Tax Administration, after which the smell of pot no longer wafted through the IRS offices.

Negligent Managers

In the Long Island office, where she wrote that a docket of 12 to 16 Tax Court cases per year is considered a full load for one attorney, at least two lawyers carry as many as 37 cases each, even though one of them works part time, according to Kim's complaint. Many others in that office seem hardly to do any work, she wrote.

One Long Island manager, called "Wanda" in the complaints, routinely initials legal papers prepared by her subordinates without reviewing them, Kim wrote.

"Rather than reviewing material at her desk, [Wanda] stands outside her door, initials documents without review, and places them in our outbox," according to Kim's complaint. The lawyers who prepared these papers, and others who later had to work with them, have caught numerous mistakes that the supervisor missed, she wrote.

Kim told the senators that while M1 and Wanda committed most of the misconduct that she detailed, the abuse is attributable largely to their boss, Area Counsel Frances F. Regan, the top chief counsel lawyer for SB/SE in the New York area. Kim accused Regan of ignoring misconduct, waste, and mismanagement by her top subordinates.

The IRS said that since it had not seen Kim's complaint, which was filed with the 10 senators late in the afternoon on March 18, it would have "no immediate comment." The IRS said it would advise Regan of the complaint, but she did not respond to requests for comment.

Cases Jeopardized

Lazy workers and poor management at the IRS mean tax evaders have an easier time escaping notice, Kim wrote. "Rather than fixing the situation by forcing the non-workers to actually work for their salaries, management[,] knowing that the working attorneys face an impossible workload, is advising us to give up cases worth millions of dollars," she said.

She cites one example, in which a lawyer in Manhattan identified as "Grace" whom Kim considers hardworking was advised by an unnamed manager to drop a multi-million dollar case, even though Grace "knew that the IRS should and would prevail."

Kim said Grace and a lawyer she called "Eric," who works in M1's group, worked a month straight with no days off, and that their "diligence resulted in a 75% concession from the other side, in a case that Management advised her to concede."

Kim said management has also instructed lawyers that "with respect to certain cases, we would be taking a more 'creative' or 'malleable' stance towards settlement." Those words are code for conceding "cases of arguably obvious tax cheats," according to the complaint.

These matters are complicated by the severe reductions in IRS staff, which I wrote about in an earlier column.

The culture of irresponsibility also means a disregard for basic courtesies that staff normally shows toward taxpayers. Kim wrote about taxpayers who mistakenly send Tax Court filings to the IRS. The long-standing practice was to promptly forward those petitions to the court so the taxpayer would not be in jeopardy. But Kim wrote that M1 issued an email directive ordering subordinates to return the papers to the taxpayer in those cases, costing the taxpayers precious time and possibly their rights before the court.

Kim said that in one instance, she contacted another chief counsel lawyer in Washington and at his direction forwarded the taxpayer filing to the Tax Court so that the taxpayer would not be in jeopardy.

That action embodies the agency ethic Kim describes earlier in the letter -- that "the IRS culture instills in its employees as complete an impartiality and neutrality with respect to taxpayers as is organizationally possible. We are taught from day-1 the extreme care with which we are to treat taxpayers."

Kim cited that ethical code in a rebuttal to some points made by William Henck, a 26-year IRS attorney, in a February 6 post on the website Power Line. Henck asserted that some groups of taxpayers are being "targeted by the IRS" while other taxpayers are getting tax benefits they should not receive.

"I agree with him regarding rife, unbridled management abuse within the Service, [but] I strongly disagree with his mischaracterization that the environment within the agency is ripe for the targeting of certain groups and individual taxpayers," Kim wrote.


Kim also detailed the hurdles lawyers face if they try to file Equal Employment Opportunity Commission complaints about their work situations. One of the Long Island lawyers burdened with 30-plus Tax Court cases filed such a complaint and found herself loaded down with extra legal work so she would have no time to pursue those complaints. In the decade since, she has repeatedly requested transfers to other units, only to have them denied, Kim wrote.

The second Long Island lawyer with the heavy caseload also initiated an EEOC complaint, but Kim said she later dropped the matter under pressure from management. That attorney "was finally allowed to transfer out of the group" in 2013.

Reprimands and the denial of bonuses are common among the overworked attorneys in Manhattan, while among M1's group, it is a very different story. She wrote that M1's refusal to work serves him and his attorneys well, but that the negative effects on other managers and attorneys in the office are profound.

"Because [M1] and his group have so little work, he spends much time chatting socially with his attorneys," Kim wrote. "Because his attorneys have so little work, they are having a wonderful time . . . receiving a six-figure attorney salary with little stress. Because they have so much time on their hands, they never blow deadlines or have reason for negative reviews. In turn, M1's reviews from his attorneys are golden."

The attorney Kim calls Grace features in another example of what Kim considers the abuse of hardworking IRS lawyers by lazy ones. One of M1's attorneys, whom Kim calls "Abigail," sought help from Grace with a Tax Court case involving a complex legal question. Grace researched the issue and wrote a motion for summary judgment that was reworked into a brief and ultimately led to an IRS-favorable opinion in the case. But the credit for the victory, Kim alleges, went entirely to Abigail, who put only her own name on the brief.

The matter was brought to Regan's attention, who did nothing, according to the complaint. When Grace and Abigail later had a tense exchange about it, "management" warned Grace "that her annual evaluation would be lowered if she could not get along with Abigail."

At the end of the anecdote, Kim concludes, "Frances Regan will lash out against anyone, such as Grace, who complains about an unjustifiable situation."

In addition to Wyden and Hatch, the senators who received a thick package of documents from Kim are Finance Committee members Michael F. Bennet, D-Colo., Benjamin L. Cardin, D-Md., Michael B. Enzi, R-Wyo., Chuck Grassley, R-Iowa, and Charles E. Schumer, D-N.Y., and Sens. Susan M. Collins, R-Maine, Kirsten E. Gillibrand, D-N.Y., and Jon Tester, D-Mont.

A Familiar Ring

Many of Kim's complaints are consistent with allegations that other IRS employees in New York and Long Island have shared with me over the last 15 years. In addition to favoritism, I have listened at length to complaints about pressure to go soft on, or quickly close, cases involving large corporations and some wealthy individuals.

One of the most consistent complaints I received was one that Kim dwells on at length: grossly uneven workloads. Favored workers do little while others were forced to work long days, denied leave time they had earned.

Seasoned investigators known for their skill at ferreting out subtle misconduct should be assigned to investigate the cases cited by Kim where the IRS missed deadlines, dropped the ball, or otherwise didn't act in a timely fashion. To have credibility, those managing such an inquiry must issue clear orders that the chips will fall where they may given the deplorable favoritism shown by IRS managers in the San Francisco collections cases and the Chevron Indonesia oil cases detailed in my 2003 book, Perfectly Legal.

Many of Kim's accusations can be verified, or disproved, with records -- time sheets, telephone bills, and computer records tracking the flow of court filings.

Kim's charges, I believe, should prompt the Senate to hold hearings after TIGTA and Senate staff make their own inquiries, not the least because it has been six decades since a serious congressional inquiry into the IRS, which showed widespread corruption. (The 1997 and 1998 hearings by the Senate Finance Committee relied on witnesses whose claims did not hold up under scrutiny by Tax Analysts, The Wall Street Journal, The Virginian-Pilot, and by me in The New York Times.)

Kim's letters to the 10 senators make clear that she and others are willing to provide damaging information and name names. Her charges could be verified -- or knocked down -- by examining the flow of documents and computer files to determine who made what changes to which documents.

As part of such a Senate investigation, the Obama administration should be asked to grant immunity for any section 6103 violations to those who give accurate and truthful testimony.

Congress has a duty of oversight. That word has two meanings. One is to supervise; the other, not to notice. For too long Congress has been failing to notice. It's time to investigate.

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