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Lawyers Warn That Splitting DOJ's Tax Division Would Lead to Weaker Enforcement

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The Department of Justice's (DOJ) proposal to split its tax division is another indication that enforcement will decline, lawyers warned

Bloomberg Tax reports that the DOJ intends to transfer the tax division’s enforcement duties to their respective criminal and civil divisions as part of its larger efforts to reorganize, which also includes eliminating thousands of positions. Not having a designated tax division can lead to less internal backing for funding tax enforcement, and may result in unqualified attorneys defending the government in cases involving taxes, the lawyers noted.

Although the DOJ stated that the move was a way to offer increased oversight in tax enforcement and to more efficiently disseminate resources in its budget request to Congress for the next fiscal year, others who were previous employees at the division perceive it as eroding the initiatives to combat tax avoidance. Ex-DOJ attorneys and IRS officials complained about a previous proposal to spread tax division attorneys in offices throughout the U.S.

The reorganization is slated to happen in August, based on budget documents. The tax division split will assign 98 employees and around $20 million to the criminal division and 264 employees and $85 million to the civil division, Bloomberg Tax reported.

Last year, the tax division had 503 employees with 390 attorneys. The tax division’s lawyers provide support to the IRS in collecting taxes and prosecuting fraud.

How does this affect taxpayers? According to Frank Agostino, founder of Agostino & Associates PC, threats of prosecution emanating from the tax division drives voluntary compliance. Having a separate DOJ division delivers a strong message that paying taxes is mandatory and that there are consequences for tax evasion.

“When you eliminate that, you encourage people to take a chance and play audit roulette,” Agostino said.

The tax division's split comes as the recent and significant workforce reductions at the IRS have already led people to take more risks in how they treat their tax obligations, attorneys said.

DOJ budget documents indicate that there will be a newly established “Tax Branch” in the civil division, although it is unclear if it will be the same on the criminal end, according to Bloomberg Tax.

By keeping a unit with a dedicated tax staff within the DOJ's civil and criminal divisions, it could mitigate the negative effects of reorganization as it would keep institutional knowledge and guarantee that attorneys who are tax experts are working on tax cases, said Brian Harris, an attorney at Fogarty Mueller Harris PLLC.

Keeping the tax division separate will also mean less litigation that the government has to deal with and would ensure that tax enforcement will remain a priority for funding allocations in the DOJ's budget.  

For one, cases will take a longer time and will irk taxpayers specifically those who are disputing refunds—if other attorneys without tax experience in the civil division take on tax cases, stated Starling Marshall, a Crowell & Moring LLP partner and a DOJ ex-attorney.

Those with complex tax returns might be more amenable to litigate if they think DOJ attorneys who are not tax specialists are handling their cases, Marshall noted. This will make it more difficult for  the government to fight for taxes owed, Bloomberg Tax reported.

While it defends the federal government and works closely with the IRS, the tax division does not always side with the IRS and might choose a more taxpayer-friendly fight, said Gil Rothenberg, ex-chief of the tax division’s appellate section.

Lawyers with minimal tax experience could be more inclined to defer to the IRS’s position if they do not have a good handle on tax law.

Tax enforcement will now have to compete for funding against the the civil and criminal divisions' other priorities and could be sidelined in favor of current hot issues, including immigration, Agostino noted.

Including the tax division under civil and criminal units would mean that there will no longer be senior officials who can advocate for tax enforcement funding, Rothenberg noted. Each DOJ division is led by a Senate-confirmed appointee, although the tax division—which was established in 1934—has not had a confirmed leader since former President Barack Obama's term.

Additionally, coordinating with the IRS will be more difficult without a separate tax division, Rothenberg stated. The tax division leader and top IRS attorney usually had monthly meetings to talk about both the common tax disputes and tax law gray areas.