Former IRS officials familiar with the highly selective audit process that ensnared two top rivals of former President Trump say the IRS is likely innocent of wrongdoing, despite the seemingly impossible odds.
“It looks odd. But there’s a huge chasm between that and [alleging that] funny business was going on,” Robert Kerr, a former staffer in the IRS Office of Research, told Tax Notes.
The New York Times reported July 6 on the rare, highly invasive audits of both former FBI Director James Comey and his deputy, Andrew McCabe, which took place around the time each was under fire by Trump.According to the Times, Comey was informed by the IRS in 2019 that his tax year 2017 return was being reviewed as part of the agency’s National Research Program (NRP) — one of about 5,000 returns selected for an NRP audit for that year. In 2021, McCabe’s tax year 2019 return was one of about 8,000 returns selected for an NRP audit for that year.
Eric Toder of the Urban-Brookings Tax Policy Center, who worked as director of research in the IRS Office of Research, Applied Analytics, and Statistics (RAAS) from 2001 to 2004, acknowledged that it’s “certainly eyebrow-raising” that both Comey and McCabe were selected for audit by the NRP.
Nevertheless, Toder noted that returns are selected for the audits by an automated process, and he added that nothing in his experience when he was employed there or later suggests that either IRS employees or their political bosses deliberately selected specific individuals for audit.
Nina Olson of the Center for Taxpayer Rights, a former longtime national taxpayer advocate, similarly argued that it was entirely plausible that Comey and McCabe’s audits were randomly selected. Olson, a member of Tax Analysts’ board of directors, emphasized that the NRP is a statistical sampling program and that the audits took place in different years.
Still, top Democratic taxwriters are skeptical that a truly random process could have resulted in both former FBI officials being selected for audit, suggesting that the audits could have been politically motivated. They are supporting IRS Commissioner Charles Rettig’s call for an investigation by the Treasury Inspector General for Tax Administration.
For its part, the IRS said in a statement that “it’s ludicrous and untrue to suggest that senior IRS officials somehow targeted specific individuals for National Research Program audits.”
‘Highly Instrusive’
The NRP was established in 2000 and began auditing returns in 2004, but its history goes back much further.
The program began decades ago and was originally dubbed the Taxpayer Compliance Measurement Program. Its “highly intrusive” audits were well known, leading late-night TV talk show hosts to make jokes about the audits, according to Mark Mazur, who served as director of RAAS in the early 2000s. The program was suspended in the mid-1990s over concerns that the audits imposed an excessive burden on affected taxpayers.
However, it was resurrected in 2000 as the NRP, with some modifications that were intended to make it less burdensome and that took into account that the IRS already had access to some taxpayer data, like marital status or W-2 information, explained Mazur, who would go on to serve as Treasury assistant secretary for tax policy under former President Obama. Even so, the audits are “still going to be a fair amount of burden, especially for people who have non-wage income,” he added.
According to Toder, the program has at times faced some resistance within the IRS, because it uses limited audit resources on audits that often don’t yield additional revenue. Being randomized, the audits are intended to select representative samples of types of individuals and businesses to measure the tax gap and update formulas for selecting returns for audit, rather than targeting taxpayers that the IRS anticipates will owe additional taxes, he said.
Despite the burdens imposed by the NRP audits, the information it provides the IRS is invaluable, according to Olson. The alternative is to rely on IRS opinion and conjecture to develop an audit selection program, and if that were the case, “you end up with all sorts of bias in the selection of returns,” she said.
Playing the Lottery
Although the odds of two prominent adversaries of Trump being selected for audit by the NRP within such a short time frame may seem to defy chance, observers noted that both Comey’s and McCabe’s tax situations might have had other factors that made them more likely to be selected.
Mazur explained that the NRP divides the population of taxpayers into different audit classes based on various taxpayer factors and then selects random samples from each class to audit. “My guess is that James Comey is in one of those classes that’s kind of small,” he said.
The chance that someone then closely associated with Comey would also get selected is “probably a small percentage, but not trivially small,” Mazur continued. “It’s probably greater than getting hit by lightning.”
Kerr said that the selection process isn’t like the one used in The Hunger Games. “It’s not like dumping all the tax returns into a big bucket, having the commissioner declare, ‘May the odds be ever in your favor,’ and then pulling out the first 8,000 returns,” he said.
A separate Times article calculated the odds of both Comey and McCabe being chosen as about 1 in 82 million.
Toder said he was skeptical that the NRP would have a manual review process of its audit selections to avoid capturing specific people, like celebrities or lawmakers. Olson went even further, arguing that for a statistical sampling program to carve out politically sensitive individuals from random audits while subjecting “regular Joe taxpayer” to such audits would be indefensible.
What’s Next?
Observers say that the expected TIGTA investigation should prove conclusive.
According to Mazur, the NRP formula for audit selections was designed so that its results could be replicated by the Government Accountability Office or TIGTA, or even by other IRS employees. If there was any mischief, like manual additions to the list of names selected for audit, that should be readily identifiable, he suggested.
“This is knowable,” Mazur said. “So [the TIGTA investigation] should resolve it.”
If it turns out that somehow there was interference by an IRS employee at some level, that would be a painful blow to the agency’s credibility, Mazur continued, noting that the IRS, which employs tens of thousands of individuals, has only two political appointees. “We all want the tax agency to be apolitical and focused on doing their job,” he said.
For Olson, the question of how likely it is that Comey and McCabe were targeted for audit misses a bigger issue, which is that “taxpayers and members of Congress are able to conceptualize that foul play occurred.”
“The impact of the lack of trust is huge,” Olson added.
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