The former FBI Director James Comey and Andrew McCabe were each chosen in their own right for an IRS audit program, according to a July 6 New York Times report.
The coincidence of two former top officials being chosen has sparked concerns and reactions from Congress, IRS officials, and the wider tax community, despite the IRS’s claims that the selection process is random.
Reporter Jonathan Curry from Tax Notes will expand on this and discuss why these audits are creating such a stir. Greetings from the podcast, Jonathan.
Jeremy Curry Howdy, Dave. I enjoy being here as always.
DAVIS D. STURTE: Could you briefly recap Comey and McCabe’s backgrounds and how their tenures at the FBI ended for the benefit of the listeners?
Mr Curry: All right. Yeah. For the majority of his lengthy career, James Comey worked for the government. He had worked in the business for a while.
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In addition, from 2013 to 2017, he served as FBI director. To be clear, the FBI director’s term typically lasts for ten years, but 2013 to 2017 isn’t exactly ten years.
Clearly, his time was limited. That will be covered shortly. It’s interesting to note that, until 2016, he had been a longtime Republican voter.
For the period of 2016 to 2018, Andrew McCabe served as the FBI’s deputy director. Additionally, he worked for the FBI for a very long time.
For a few months after Comey left, he served as acting director of the FBI, but for a brief period, he actually resumed his previous position as deputy director.
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Dave, did McCabe and Comey leave their positions without conflict?
DAVIS D. STATE: I vaguely recall how it ended, and it didn’t go well.
Jeremy Curry For them, things did, in fact, become a little more difficult. It’s enough to say that political drama abounded. Since doing so could take an hour and I might even get some details wrong, I won’t go over every last detail. Both complex and fascinating, it was.
However, to give at least a high-level recap, President Trump was upset that Comey refused to allow the FBI to close an investigation into his campaign’s ties to Russia as well as into Russian interference in the 2016 presidential election in general.
In May 2017, not too long after Trump took office, Comey was fired pretty quickly.
Shortly after that, Comey set up a memo he had written after meeting with Trump to be leaked to the media.
In it, he asserted that Trump had ordered him to stop looking into Michael Flynn, who was serving as the president’s national security adviser at the time.
You may recall that this ultimately played a significant role in Robert Mueller’s special counsel investigation. It keeps going forever.
The key point is that Comey’s dislike of Trump before his dismissal is obvious. Even after he was fired, he kept referencing him in tweets and campaign appearances. I should say that they were unfriendly.
Andrew McCabe takes over at that point. Immediately after Comey was fired, he opened an investigation to see if Trump had attempted to obstruct justice.
Subsequently, a probe to see if Trump’s connections to Russia posed a threat to American intelligence was also started. It did not take long for McCabe to lose the trust of the Trump administration.
Within a short while, McCabe was the subject of an investigation and charged with making false statements and disclosing private information to the media.
He announced his retirement a few months after returning as the deputy director. He lost his government pension after being fired just before he was set to retire. Rightfully sore,
I should add a brief footnote to that: His pension was eventually reinstated.
To be clear, President Trump made no secret of his distaste for these two men throughout this. He charged treason against them. He recommended firing them. A dismissal was made.
In addition, he repeatedly questioned their financial situation in front of the public. This seems somewhat pertinent, maybe.
DAVIS D. STURTE: Thus, these two audits are being examined more closely. What is the alleged accusation?
Jeremy Curry As a broad overview, let me say that. Already, the overall audit rate for the IRS is very low.
In a recent article, The New York Times revealed that Comey was the subject of an NRP audit in 2019, a specialized type of audit.
The tax return in question was from 2017, which, as you may recall, was also the year he lost his job. Right off the bat, that seems kind of crazy.
Exactly who is chosen for an NRP audit two years later is a mystery. G. Andrew McCabe There is an audit of his 2019 tax return. It’s 2021 before he learns about this. Trump actually left office after that.
For these NRP audits in the tax year 2017, Comey was one of 5,000 returns chosen. One out of 8,000 McCabe’s opened in 2019.
How likely is this, exactly? The odds, as determined by the New York Times, were extremely high. One in 82,000,000 is the likelihood that Comey and McCabe will both be selected.
That appears to be a lot, David D. Stewart.
Jeremy Curry Yeah. To imagine it is pretty crazy, right?
Stewart, David D. However, I consistently observe that some details are frequently overlooked when probabilities are calculated.
We’re going to discuss that, says Jonathan Curry. There is some messiness involved.
DAVIS D. STATE: The audits were a part of a program, NRP, as you recently mentioned. Tell us more about that program, please.
Jeremy Curry Yeah. Just to set the stage before we go any further During a routine audit, the IRS might ask you to substantiate some deductions.
They might ask you to provide receipts for business expenses, mileage reimbursements, travel expenses, or something similar if they feel the taxpayers have overreached.
However, these two investigations into Comey and McCabe are a part of a unique auditing program known as the National Research Program, or NRP. NRP audits are awful, as almost everyone who has to go through one would probably agree.
They are basically evaluating every single item on your tax return, not just one or two suspect deductions, so they are not just looking at the surface level.
Considering how data-hungry the IRS is. In general, they are interested in the activities of taxpayers.
To close the tax gap—the difference between what taxpayers owe and what they actually pay—they need to develop reliable estimates. Additionally, they wish to enhance the selection of audits.
Actually, they pick taxpayers who are more likely to have overstepped the mark or possibly cheated a little bit on their taxes.
DAVIS D. STURTE: This program is not one that I have heard a lot about. When did it start existing?
Jeremy Curry Ah, I see. Since 2000, the NRP has existed. However, these audits have a lengthy history. I think we should go back to the 1960s.
These were referred to as TCMP audits, or Taxpayer Compliance Measurement Program audits, back then.
I’ve been told that these audits were both more intrusive if you can even imagine that and that the IRS performed a lot more of them than they did in the cases of Comey and McCabe, perhaps as many as 50,000 in a single year as opposed to 5,000 or 10,000.
At the time, people hated these audits a lot. Midway through the 1990s, the IRS called them to a halt; however, in 2000, the NRP was born once more.
Certain aspects were streamlined. However, going through the audits is still extremely painful.
Since it can frequently cost you thousands of dollars in representation fees and take dozens of hours to answer all of these questions, the National Taxpayer Advocate has actually recommended that Congress enact legislation to compensate taxpayers who go through one of these audits, unless they’re found to be clearly committing tax fraud. They can be quite vicious.
DAVIS D. STURTE: Have recent reviews of this program been looked into in any way?
In the ’90s, it was so unpopular that the IRS called it off. Jonathan Curry: I’m not sure about recently. They had to be restarted after the IRS effectively hit pause.
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They have, however, generally been gathering data while operating in the background. One of these audits allegedly involved a Senate Finance Committee Chair in the 1990s, but this is just a rumour that I have heard. Hearings about them, I think, were held in Congress.
Even if that’s not the case, they have a history of being unpopular, so that may have contributed to it.
DAVIS D. STATE: How do the taxpayers choose this super review program get chosen?
Jonathan Curry: These audits are ostensibly random in that the IRS’s research division developed a really sophisticated computer algorithm to choose which ones to perform.
The taxpayers chosen by this algorithm are chosen in such a way that the audited sample of taxpayers is representative of the entire population.
However, there’s one thing about this point I want to emphasize. Out of the roughly 150 million people who file taxes annually, the program does not simply choose 5,000 at random for audit. There’s been a significant misunderstanding here, in my opinion.
Your chances of being audited by this are significantly lower if you’re one of the tens of millions of taxpayers who simply go to work every day, receive a W-2, and claim a standard deduction when you file because you’re a part of a larger subset of taxpayers who all do the same thing as opposed to a taxpayer with more tax variables, such as high income, self-employment income, book royalty income, or other similar items. With those, your chances of getting chosen for an audit would be much lower.
