The IRS Still Reeks Of Institutional Rot And Corruption

This week, the Internal Revenue Service (IRS) made a rare and surprising move by issuing an apology to billionaire Ken Griffin. The apology was in response to the agency’s leak of sensitive information about a group of wealthy Americans, including Griffin. This unexpected act of contrition stands out, as the IRS is not known for admitting wrongdoings or extending apologies, despite its reputation for corruption and incompetency.

Charles Littlejohn, a contractor at Booz Allen Hamilton who was working for the IRS, brazenly stole thousands of wealthy American taxpayers’ information, including that of former President Donald Trump and billionaire Ken Griffin. Littlejohn then proceeded to disclose Trump’s tax information to The New York Times and information about other wealthy individuals to ProPublica. He claimed to be motivated by a desire to seek financial equity, and that his action was a service to the country. The leaked information was the basis of several articles published by both the NYT and ProPublica that criticized billionaires such as Trump and Griffin for allegedly avoiding paying federal and state income taxes through financial gimmicks and legal loopholes.

Ken Griffin sued the IRS in December 2022 over the leak. Rather than admitting wrongdoings, the government fought every step of the way. According to The Wall Street Journal, even though the government knew Littlejohn was the culprit, it continued denying any knowledge of what happened and who did it publicly. After Littlejohn was identified, the government tried to argue that Littlejohn wasn’t a government employee when he committed the crime, even though, at the time, he worked inside the IRS and used the IRS-assigned computer to steal private citizens’ tax records.

In October 2023, Littlejohn pleaded guilty to unauthorized disclosures of income tax returns. This January, he was sentenced to five years in prison and ordered to pay a fine of $5,000. Judge Ana Reyes told Littlejohn, “What you did in attacking the sitting president of the United States was an attack on our constitutional democracy. … [Y]our actions were also a threat to our democracy. … It engenders the same fear that January 6 does.”

Griffin and the IRS settled the data leak lawsuit recently. Griffin reportedly indicated that his goal in the lawsuit was to motivate the IRS to “improve data security and acknowledge its mistakes rather than getting the modest monetary damages he could likely claim in court.”

This Tuesday, the IRS publicly apologized to Griffin, stating, “The IRS takes its responsibilities seriously and acknowledges that it failed to prevent Mr. Littlejohn’s criminal conduct and unlawful disclosure of Mr. Griffin’s confidential data. … The agency believes that its actions and the resolution of this case will result in a stronger and more trustworthy process for safeguarding the personal information of all taxpayers.”

Griffin was able to extract a rare public apology from the IRS because he had the financial resources to take the government to court. However, many Americans who lack financial means also deserve an apology from the IRS.

The IRS has a reputation for being an agency that “can’t do its basic job well but will terrorize taxpayers whether deserving or not,” according to The Wall Street Journal. Some instances reported by the WSJ that highlight these concerns included the following: The agency answers only 10 percent of taxpayers’ calls; the IRS admitted it distributed $19 billion in “improper” earned-income tax credit payments in fiscal year 2021 (28 percent of all EITC payments); an audit found the IRS has spent $574 million to implement the Foreign Account Tax Compliance Act, but collected only $14 million in revenue (the U.S. Congress expected the law to collect $9 billion compliance revenue by 2020).

Other controversies surrounding the IRS are not to be overlooked. During the Obama administration, an IRS employee disclosed the National Organization for Marriage’s donor information to the media, a breach of trust that raised concerns about the agency’s data security. The Huffington Post then ran a story that identified a political action committee linked to Mitt Romney as one of the donors, a move that further fueled the controversy. The IRS eventually paid NOM $50,000 to settle the lawsuit.

Undoubtedly, the most flagrant IRS scandal during the Obama administration was the agency’s unjust targeting of conservative groups seeking nonprofit status. A congressional investigation revealed that the IRS “set aside all incoming Tea Party applications for special processing — a decision that would subject those organizations to long delays, burdensome questions, and would ultimately prove fatal to some of their applications.” During the investigation, as many as 24,000 emails of Lois Lerner, the former Internal Revenue Service (IRS) official at the center of this scandal, were “improperly” destroyed. Eventually, President Obama’s Justice Department declined to bring charges against Lois Lerner, and she was able to retire with a full pension.

Despite the IRS’s long history of incompetence and failures, the agency keeps demanding more money, power, and greater access to taxpayers’ data, even though it often breaks its promises. In 2022, while lobbying for receiving an additional $80 billion in funding as part of the 2022 Inflation Reduction Act to hire 87,000 new IRS agents, IRS Commissioner Charles Rettig reassured the U.S. Senate that these additional IRS agents would “absolutely not” increase audit scrutiny on small businesses or middle-income Americans. However, the most recent IRS audit shows, “As of last summer, 63% of new audits targeted taxpayers with incomes of less than $200,000. Only a small overall share reached the highest earners, while 80% of audits covered filers earning less than $1 million.” In other words, the IRS broke its promise.

An even bigger headache is coming for ordinary American taxpayers in 2025. It is called the “$600 rule.” Starting next year, any American who gets paid more than $600 for the transaction of goods and services through third-party payment platforms, i.e., PayPal and Venmo, will have to report the income through a 1099-K form. The IRS insists it is interested in catching wealthy tax cheaters, yet it is pathetically going after Americans who try to make ends meet with side gigs. Besides the additional burden of preparing one more tax form, American taxpayers deserve to know why we should entrust more financial data to an agency with a history of failing to keep our data secure.

While it’s a step in the right direction that the IRS publicly apologized to Ken Griffin after a costly legal battle, it’s crucial for the agency to understand that this is not just about one individual. It’s about rebuilding the trust of every American taxpayer. This can only be achieved through tangible actions, not just words. As a start, the IRS needs to demonstrate its commitment to data security and transparency, reassuring taxpayers that their financial information is in safe hands.