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IRS Downgraded Large Financial Services Audits

Newly released data from the IRS show that only 15% of large financial services companies — those with $250 million or more in assets — were audited in 2008, compared with 64% of all other similar sized corporations. And when they were performed, these financial service audits appear to have been less thorough than those in other industries.

In addition, fewer of these audits were being performed by the IRS agency group with special expertise in large financial service corporations, while the number performed by other IRS groups more than doubled since 2004.

You can get the background and data tables in the full report by the Transactional Records Access Clearinghouse. Here are some highlights:

Last year, looking at the largest corporations with assets of $250 million or more, nearly two out of every three returns (64%) filed by large corporations outside of the financial services sector were audited by the IRS. In contrast, for the more than 10,000 of large financial services companies, only 15% of them were audited in FY 2008. As TRAC documented in a 2005 report, the problem is not new. Thus, unlike the situation for the rest of large corporate America, the IRS in recent years has not regularly examined the returns of the large financial services companies.


Less Time Devoted to Financial Service Audits

When a financial services firm was audited, the thoroughness of the audit — measured by the average hours the auditor spent — also was very different. For example, focusing only on the largest companies audited — those with $20 billion or more in assets — the audit for companies not in the financial sector averaged 3,145 hours of direct examiner time. Despite the unique challenge of understanding derivatives and the like, however, the audits for financial services giants averaged 1,695 hours, about half the time the typical audit took for all behemoths. This was not simply an anomaly; the identical pattern was found for all of the other categories of large corporations.


Fewer Financial Service Audits Performed by FS Specialists

Because of the shrinking resources IRS was giving to the auditors in its Financial Services group, there has been a dramatic shift in which industry group is conducting audits of financial services firms. During FY 2004, the Financial Services group conducted most of the audits of the large financial services companies. But during the last five years the actual number of such audits declined by 27%. In contrast, over the same five year period, the audits completed of large financial companies by the four other nonfinancial industry groups more than doubled, up by 131%. The end result: the group that is currently charged with the responsibility for policing the financial services sector is today not conducting the majority of audits of large financial services corporations. This was true even for the largest of the large corporations, those with assets of $20 billion or more.

The Nucular Option

There's a war on. One of words, not bombs.

Language doesn't sit still. Dictionaries don't dictate usage, they reflect it. And for years I've heard to this sneering mispronunciation of a scientific term take root in the sidewalk cracks of everyday life.

I've read a few theories. One is that "nucular" was used by military folk when referring to "nukes" (nuclear weapons). Another is that in English, the "cu-lar" sound is more common (particular, molecular, circular) and easier to say than the "cle-ar" sound. Although "likelier" doesn't seem that hard to say.

Whatever the origin, it seems that saying "nucular" is meant to label the speaker as being anti-elite, anti-Northeastern, anti-establishment (forgetting for the moment who happens to be holding the White House). It says "I'm just plain folks, don't be afraid of me, I'm not one of those smart guys (or gals) trying to trick you. You can trust me."

Know what? When someone says "trust me" is the time to open the horse's mouth wide and check out those teeth.

Now I don't feel any shame in being considered intelligent or educated. And I like the idea of smart people running things (with proper oversight, as braininess is no prevention against greed or narrow self-interest). I feel much safer driving over a bridge or using a computer or riding an elevator in a building created by someone who knows how to pronounce a scientific term correctly.

But more and more, using the "correct" pronunciation seems to be shorthand for "I'm an arrogant asshole and I'm going to use my cleverness to screw you first chance I get."

Unfortunately, after sixteen presidential years of "nucular" -- by the folksy Clinton, who seemed to pronounce it either way, and the sneering Bush, who seems to want people to forget he's a Yalie -- the prospect of "nucular" as an acceptable pronunciation seems to be getting likuler all the time.

Despite Rhetoric, DHS Not Really Fighting Terror

The new TRAC report on DHS Immigration Enforcement has gotten extensive coverage by the traditional news media, including CNN, the Washington Post, the Associated Press, Time, US News and World Report and the Orange County Register. It's also been picked up in the blogosphere, by Bruce Shneier and others.

Based on some of the comments I've read, I think it makes sense to clarify and summarize some key points of the study:

• Despite rhetoric by DHS' immigration agencies (ICE and CBP) that fighting terrorism is their most important job, 99.98% of DHS immigration cases in the last 3 years have nothing to do with national security or terrorism.


• Of the 620 criminal prosecutions by the Department of Justice that were labeled international terrorism, domestic terrorism or terrorism finance, only 31 had any involvement by DHS. In other words, DHS had no role in 95% of terrorism related criminal prosecutions.


• In a similar 3 year period ten years ago (1994-1996) there were 52 terrorism and 185 national security cases handled in immigration court. Before 9/11 those numbers were down to 12 and 106 (1999-2001). Since 9/11, those numbers have barely changed -- 12 terrorism and 114 national security cases in 2004-2006.

One logical conclusion is that the DHS really has very little to do with fighting terrorism. TRAC co-director David Burnham was quoted in the CNN article as saying "The DHS claims it is focused on terrorism. Well that's just not true. Either there's no terrorism, or they're terrible at catching them. Either way it's bad for all of us." By that, I believe he meant that it's bad for us if we've created this huge bureaucracy to fight terrorism if the threat's not there, and of course it's bad for us if the threat is there: because the DHS sure isn't finding it.

John and Mary at the Night Eagle Cafe

Last week I was skimming through the Central New York folk music concert calendar compiled by local folkie Larry Hoyt. I was surprised — and thrilled — to find playing nearby a new incarnation of an old favorite act: John and Mary and the Valkyries.

John is John Lombardo, one of the founding members of 10,000 Maniacs, and co-writer of some of their most groundbreaking songs such as My Mother the War, Tension and Can't Ignore the Train. Having left the band just before they achieved mainstream popularity, John has been referred to as the "Pete Best of Jamestown," referring to another young man who left a band from a working class town before that band achieved notoriety.

The Mary would be, yes, Mary Ramsey, who did some session and touring work on the last two 10,000 Maniacs albums before Natalie Merchant went solo. Both John and Mary rejoined the band after Natalie left, staying for two more albums.

I was a relative latecomer to 10,000 Maniacs fandom, having seen only 4 shows with Natalie Merchant, all of them after John had left. John and Mary were actually the opening act at one of these, at Oswego on 10/21/90; I was on a date with my current wife, who got sick during the Maniacs' set. We had to leave early, but not before I was smitten by John and Mary’s upbeat folkie feel (and totally depressing lyrics). I picked up their first CD Victory Gardens there and it was immediately in constant rotation along with all my Maniacs CDs. It was similar in feel to the first few Maniacs albums; not surprising, since John wrote most of the music in the band's early days. The followup, the Weedkiller's Daughter, was even better.

I was a pretty dedicated John and Mary fan. For example, I once drove from Syracuse to Fredonia and back (round trip, about 6 hours) for a John and Mary show. But as time went on (and kids arrived), my acceptable radius for attending their concerts kept shrinking: the outer limit became Buffalo, then Rochester, then Oswego or Ithaca. By 2001, it became clear the Maniacs weren't going to regain commercial success and the tours stopped happening. I think I saw John and Mary a few more times after that, once at a bar in Syracuse. They put out one more indie album, The Pinwheel Galaxy, but it didn't really grab me. Maybe it was because my musical taste had turned more sharply toward folk -- I saw the Nields open for the Maniacs in Geneva NY and was hooked, and from there discovered Dar Williams, Dave Carter, Ellis Paul and other shining lights of the northeast folk music scene. Mary moved out to California and John and Mary were pretty much history as far as I knew.

Still, The Wishing Chair and The Weedkiller's Daughter remained two of my all-time favorite albums. So now maybe it's easier to understand my excitement at finding out John and Mary had a new group and were working on a new album and would be playing at the new Night Eagle Cafe in Binghamton, only a 90 minute drive away. With a lot happening in my family this weekend it was complicated to arrange, but I managed to get on the road early enough to arrive around 7:30, just in time to catch the end of the soundcheck. I was a little worried that nobody else was there yet, even though that's when the doors were supposed to open. I've been to a few shows where I was a large fraction of the audience; luckily that wasn't the case tonight.

I was quite pleased to see 10,000 Maniacs' Jerome Augustinyak on drums; Jerry is probably the best drummer I've ever seen, and I've seen some pretty good drummers, including Jerry Marotta, Eddie Hartness (of Eddie from Ohio) and Dave Hower (from the Nields). John saw me waiting outside and gave me a nod of recognition, which made me feel like it had already been worth the hassle of getting there: many musicians have told me they enjoy recognizing a friendly face when they're on the road.

After the soundcheck, John sat and chatted with me for a few minutes before the show started. I never know what to say in these circumstances, I think I muttered something about my oldest kid, the one who at 18 months old danced in a diaper in front of them at the Great Blue Heron Festival, was now 14 and as tall as me. I showed him some family pictures that were still on my camera and listened to him talk about where his life is and the state of live music in Buffalo. I've always enjoyed getting a minute or two with John; he's very friendly and serious and low-key and knows a huge amount about art and music. Listening to him is like auditing a college lecture by a very cool professor. I was disappointed when he said they wouldn't do a lot of their old stuff, but he showed me the set list and there was enough good old stuff there to get me in a very positive frame of mind. As was typical for a John and Mary set, there were a mix of old Maniacs tunes that John co-wrote, John and Mary songs, and a few interesting covers, although missing were the traditional but obscure folk tunes that used to be a John and Mary staple. Also missing were any songs from the forthcoming John and Mary CD; according to John it's 90% done and they're hoping to have it ready for July 4 and the Great Blue Heron festival.

The show itself was wonderful. The band was tight, which isn't surprising since in addition to Jerry (who was filling in for drummer Rob Lynch) the band included John's old friends Patrick Kane (lead guitar) and Kent Weber (bass). I can never get enough of Mary's 5-string Zeta; I enjoyed what I got but there was less of her blistering solo work than in some past concerts. And of course, she didn't pick up a guitar (which she plays, though rarely) or accordion (yes, I've seen her play one). I took some crappy video with my Canon PowerShot which I'll share provided you don't take me to task on the lack of visual or aural fidelity.

The first clip is Clare's Scarf, which has an interesting origin: John took a tape of the first song he and Mary wrote together, Piles of Dead Leaves, and played it backwards, and decided he liked the sound enough to make another song of it.



The second clip is Can't Ignore The Train, which is probably my favorite Maniacs song of all time. I shared this with John before the show, which is probably why he dedicated it to me:



Overall, it was a great night out. In a more perfect world, John Lombardo would be much better known than he is. But we don't live in a more perfect world. I'm just thankful that I happen to live in the one with which he and Mary Ramsey have chosen to share their music.

IRS Goes Easier on Biggest Corporations

When called on the facts that they're conducting fewer audits of large companies (assets over $250 million), and spending less time when they do, the IRS disagrees that it's giving the big boys a break.

The facts, contained in a new TRAC report and covered in the NY Times and elsewhere, are that the IRS has reduced the time spent on each audit by 21 percent in the last five years, to 958 hours from 1,210 hours. At the same time, the number of actual audits, which had increased in the last two years, has fallen back to the level of 2002.

(Keep in mind that companies of this size, while filing only 0.2% of all corporate returns, control 90% of all corporate assets and receive 87% of all corporate income, according to data from an earlier TRAC report.)

The IRS responds that they're just leaner and meaner:

IRS spokesman Terry Lemons said the agency strongly disagreed with TRAC's conclusion that the biggest corporations were getting off easy. "Large corporations are not getting easier treatment," he said. "They are hearing more often from us and getting bigger tax bills."

He said that, between 2002 and 2006, the recommended levy per return for audits of corporations with assets of $250 million and up had gone from $3.65 million to just under $6 million.

Now, it's plausible that the IRS is enforcing the tax laws more effectively, and that's why they are able to increase the total tax collected from big companies with less auditing. (The IRS says that $48.7 billion in enforcement revenue was collected in fiscal 2006, up from $47.3 billion the previous year, a 3% increase.) But that's not the only possible explanation.

It might also be that more big companies are just plain cheating more. If they know it's less likely they'll be audited, and the audits that are conducted will be quicker and less thorough, then there's greater incentive to cheat. So perhaps there's a lot more tax cheating going on, and that 3% increase in tax revenues from these companies is just the easy-to-reach low-hanging fruit.

The big problem is that the IRS has stopped providing the information that would make it possible to know which of these scenarios is true.

Prof. Sue Long, a director of the Syracuse clearinghouse, said getting the data used in the research had been a problem. The I.R.S., Professor Long said, initially turned over a small number of pages of data in May after Judge Marsha Pechman of Federal District Court in Washington directed the I.R.S. to resume complying with a 1976 order to make the data available. Later, after she complained, the I.R.S. turned over much more data.

Professor Long said the data was a mess. "It took us months to sort it out," she said.

"They told us they had given us all of it, but we noticed from the page numbers in the upper right hand corner that they had not and it turned out they had given us less than 1 percent of the data" that the university researchers eventually received, Professor Long said.

In addition, she said, it is difficult to tell if the data is complete because the I.R.S. will not provide an inventory.

No administration enjoys having independent watchdogs look over their shoulder, but the level of secrecy and FOIA non-compliance by the Bush administration is unprecedented. The new Congress will likely be able to do little to improve the FOIA climate, that will have to wait until 2008. For now we see through a glass, darkly.

Supreme Court Rules For Immigrant Rights

This past Tuesday, the Supreme Court struck down a lower court ruling that would have made it much easier for the Administration to harass and deport legal immigrants. As reported in the NYT:

The Supreme Court rejected the government's interpretation of immigration law on Tuesday, ruling that a noncitizen is not subject to mandatory deportation for a drug crime that, while a felony in the state where the crime was prosecuted, is only a misdemeanor under federal law.

The 8-to-1 decision restored to one category of immigrants, caught in the nearly impenetrable maze where immigration law and criminal law meet, the ability to avoid automatic deportation and the other dire consequences of being guilty of an "aggravated felony."

Here's a reference for aggravated felony. But in a nutshell, under U.S. Immigration law, a legal immigrant can be deported for immigration violations, national security and terrorism activities, or criminal violations. With the Anti-Drug Abuse Act of 1988, Congress got specific about the kinds of crimes that would justify deportation by creating the concept of aggravated felony, which specifies as grounds for deportation murder, drug trafficking, and illegal trafficking in firearms and destructive devices.

The list of offenses that fall under the "aggravated felony" category was expanded several times, and include even some misdemeanor offenses. Results of an aggravated felony decision are severe, and include the following:

1. Ineligible to stop deportation. Many other deportable offenses allow a non-citizen to be able to apply for "waivers", or exceptions, to deportation. But no exceptions are available to aggravated felons.


2. Unable to apply for other legal immigration status. Many persons with other violations, including some criminal violations that make them deportable, remain eligible to apply for asylum, lawful permanent residence (green card), and other routes to legal status spelled out in the INA if they meet other qualifications. Aggravated felons are disqualified from almost every provision of the law that would enable them to legalize their status or to retain existing legal status, such as a green card.


3. Guaranteed to be detained. Aggravated felons, in addition to several other types of non-citizens, fall within the INA's "mandatory detention" provisions. This means that most will be detained until DHS is able to effect their deportation.


4. Less access to immigration court. For the most part, non-citizens can only be deported after an Immigration Judge conducts a hearing and signs an "order of removal (deportation)". However, the INA allows DHS to deport aggravated felons who are not green card holders "administratively", that is, within the agency without having to take the case before an Immigration Judge.


5. Less access to federal appeals courts. Aggravated felons are among a group of deportable non-citizens who have fewer legal rights to request a federal judge hear their case on appeal.


6. Permanent ejection from the US. Most non-citizens who are deported from the US are not eligible to apply to return legally to the country for a period of from five to 20 years depending on their circumstances. But aggravated felons are permanently disqualified from ever returning to the US for any reason.

The law does not apply to illegal immigrants, and it has not been used primarily against recent immigrants either. In fact, the median length of residence for individuals charged under this law has been 14 years. That means half the people charged have been legally living and working in the
United States for 14 years or more.

I'm particularly heartened by the lopsided decision. Lone dissenter Clarence Thomas basically stated that if Congress had meant for aggravated felony to only apply to felony offenses, it should have said so.