Why Republicans Are Going Wild Over ‘87,000 IRS Agents’

There is one particular provision of the Inflation Reduction Act, President Joe Biden’s $369 billion investment in health care and climate change prevention, that has sent Republican lawmakers into a tizzy. They mistakenly believe the law will allow the IRS to hire 87,000 new revenue agents to go after ordinary taxpayers.

“They’re coming for YOU too,” Sen. Ted Cruz (R-Texas) tweeted in early August. Sen. Ron Johnson (R-Wis.) wrote, “Who do you think they’ll arm 87,000 IRS agents against? The answer is obvious. Their political enemies.”

Funding from the IRS is quickly becoming a reserve for any kind of supposed overreach of government goals, to an absurd degree. “After today’s raid on Mar A Lago, what do you think the left plans to use those 87,000 new IRS agents for?” Sen. Marco Rubio (R-Fla.) tweeted last month.

While the Inflation Reduction Act includes $78 billion over 10 years for the IRS, that money is mainly to support the agency filling thousands of existing positionslike IT people, taxpayer customer support — and, yes, auditors. But they will mostly be designed to focus on ultra-wealthy Americans and corporate tax cheats.

Those positions are vacant in large part because of Republican efforts to defund the IRS. Since 2010, when the GOP took back the House of Representatives, Republicans have been able to cut law enforcement funding by double digits and reduce audit levels of large corporations and ultra-wealthy individuals to historic lows.

Republicans are eager to keep it that way, as the party relies entirely on the wealthiest to fund its election efforts. Wealthy political donors favor the Republican Party by almost every measure: Most of the country’s biggest donors Republican support; megadonors constitutes an oversized part of Republican fundraising; the total donor class is wealthier and more conservative than the average American. If the IRS were to step up enforcement against tax evasion among the wealthiest, it would more than likely target the biggest Republican benefactors.

As it happens, the Department of Justice recently charged one of those donors with running the largest known tax fraud scheme in US history. Robert Brockman, who died in August, was a software billionaire who was accused of building a network of offshore companies over a 14-year period to hide more than $2 billion from tax officials. Over the years, so has Brockman showered the Republicans’ election efforts with large donations, including $100,000 to former House Speaker Paul Ryan’s political committees, and 1 million dollars of super PACs supporting then-presidential candidate Mitt Romney.

Brockman’s tax evasion tactics were relatively simple. New report of the Senate Finance Committee attributed his success in hiding billions of dollars less to his ingenuity and more to the IRS’s severe lack of enforcement ability.

His scheme involved circumventing the Foreign Account Tax Compliance Act, or FATCA, a 2010 law that requires global banks to report their clients’ U.S. assets to the IRS. Congress passed legislation to make it harder for Americans to stash taxable wealth abroad. But Brockman circumvented the law by hiding his money in foreign shell companies, which he then turned into “shell banks” by registering the shell companies with the IRS as offshore financial institutions.

He then used these shell banks to hide his assets in two Swiss banks, Mirabuad & Cie and Syz Group. Both institutions argued that they did not have to report the assets back to the IRS because they technically belonged to a financial institution and not a U.S. individual

What makes this scheme “disturbingly simple,” in the words of the Senate committee, is that to set up a shell bank — the basis of Brockman’s plan — an entity or individual only needs to fill out one form with the IRS. Because of IRS resource constraints and the high volume of requests, the agency told Senate investigators, the IRS almost always approves the request without conducting due diligence on who is making the request or what assets they may be hiding.

“They have no idea how many are undeclared assets and how many are related to legitimate business,” said a Democratic aide to the Finance Committee. “It’s just a huge black hole in terms of tax activity.”

Thousands of wealthy people may be using this method to hide their wealth overseas, the report concluded. When the IRS approves one of these applications, it issues the entity a Global Intermediary Identification Number, or GIIN. In eight of the countries to which Brockman transferred his wealth – including known tax havens such as Switzerland, the Cayman Islands, the British Virgin Islands and Guernsey – there are nearly 130,000 unique entities doing business with IRS-issued GIINs.

Senate investigators concluded that the IRS might never have discovered Brockman’s tax evasion had it not been for a whistleblower and business partner, Robert Smith. who turned to him.

“The committee strongly supports immediate action to make it more difficult for wealthy tax evaders to hide funds overseas in secret offshore accounts,” the Senate Finance Committee report said. To that end, it says the $78 billion in the Inflation Reduction Act “is a significant step forward.”

The report called on Congress and the Treasury Department to go further and require more due diligence on the activities of foreign financial institutions and rigorous vetting of GIIN applicants, strengthen the IRS Whistleblower Office, and increase enforcement resources so that For the IRS to be able to audit large and complex foreign partnerships.

Outgoing House Minority Leader Kevin McCarthy (R-Calif.). a tweet, “Democrats in Washington plan to hire an army of 87,000 IRS agents so they can audit more Americans like you,” would be true if his target audience were ultra-wealthy tax cheats. They may soon owe the IRS more money — and potentially have to explain to the Justice Department why they never paid it.