Tax Notes reporter Jonathan Curry discusses the IRS audits of former FBI Director James Comey and his deputy, Andrew McCabe, and why they’ve drawn attention from the tax community.
This transcript has been edited for length and clarity.
David D. Stewart: Welcome to the podcast. I’m David Stewart, editor in chief of Tax Notes Today International, This week: suspicious minds.
On July 6 the New York Times reported that former FBI director James Comey, and his deputy, Andrew McCabe, were separately selected for an IRS audit program. While the IRS says the selection process is randomized, the coincidence of having two former top officials being chosen has raised questions and evoked reactions from Congress, IRS officials, and the tax community at large.
Here to talk more about this and why these audits are causing such a stir is Tax Notes reporter Jonathan Curry. Jonathan, welcome back to the podcast.
Jonathan Curry: Hi, Dave. Always good to be here.
David D. Stewart: To begin with, could you give listeners a refresher on who Comey and McCabe are and how their time at the FBI ended?
Jonathan Curry: OK. Yes. James Comey had a long career that was mostly in government. He’d spent some time in the private sector.
Importantly, he was the director of the FBI from 2013 to 2017. Now to point out, the FBI director’s term is usually 10 years and 2013 to 2017 is not 10 years, is it? His term was obviously cut short. We’ll get to that in a minute. Interestingly, he was also a registered Republican for most of his life up until 2016.
Andrew McCabe was a deputy director of the FBI from 2016 to 2018. He was also a longtime career FBI employee. He took over from Comey as acting director of the FBI for a few months, and then actually reverted back to deputy director for a short spell.
Now, Dave, did Comey and McCabe retire peacefully?
David D. Stewart: I have a bit of a memory about this and I don’t think it ended well.
Jonathan Curry: No, things got a little complicated for them, didn’t it? Suffice to say there was a lot of political drama out there. I’m not going to rehash every detail of it because it could take an hour and I probably might even get some details wrong. It was very convoluted and interesting.
But for at least a high-level recap, President Trump was angry that Comey refused to have the FBI drop an investigation into his campaign’s ties to Russia, and into Russian interference in the 2016 presidential election overall. Pretty quickly in May 2017, which is not too long after Trump took office, Comey was fired.
Not long after that, Comey arranged for a memo that he had written after he had met with Trump to be leaked to the press. In that, he claimed that Trump told him to stop investigating Michael Flynn, his national security advisor at the time. That ended up becoming a big part of the special council investigation by Robert Mueller, if you remember. And on and on it goes.
The point is Trump clearly did not like Comey before he was fired. He continued to talk about him in tweets and campaign events well after he was fired. They were not friendly, I should say.
So then Andrew McCabe takes over. He quickly opened an investigation into whether Trump had obstructed justice when Trump fired Comey and then a probe was launched over whether Trump’s ties to Russia were a threat to US intelligence. McCabe was quickly seen as not being entirely loyal to the Trump White House.
Pretty soon McCabe himself was caught up in an investigation in which he was accused of making false statements, as well as leaking confidential information to the press.
A few months after he stepped down, back to deputy director, he announced his retirement. Right before he was about to retire, he was fired and lost his government pension. Ouch, right?
Now, a small footnote to that; his pension was eventually reinstated.
To emphasize, though, in all of this, President Trump was very vocal about not liking these two dudes. He accused them of treason. He said that they should be fired. They were fired.
Notably, he has also repeatedly publicly questioned his personal finances. Looks a little bit relevant here perhaps.
David D. Stewart: So, people are taking a closer look at these two audits. What are being made?
Jonathan Curry: Well, just as a big picture. The IRS already has a very low audit rate just in general.
What The New York Times revealed in an article recently that was in 2019, Comey was subjected to a special kind of audit called a National Research Program (NRP) audit. That was of his 2017 tax return, which you’ll remember was the same year that he was fired. That already kind of seems pretty wild by itself, right?
Two years later, guess who else gets picked up for an NRP audit? Andrew G. McCabe! His 2019 tax return gets audited. He finds out about this in 2021. That is actually after Trump left office.
Comey was one of 5,000 returns selected in tax year 2017 for these NRP audits. McCabe’s was one of 8,000 in 2019.
What are the odds of this, right? The New York Times calculated the odds and it was astronomical. The odds of both Comey and McCabe being chosen are one in 82 million.
David D. Stewart: That seems like a lot.
Jonathan Curry: Yes. It’s pretty wild to imagine, right?
David D. Stewart: Yes. But I always find that when people calculate probabilities, there’s usually things that get left out.
Jonathan Curry: Yeah, we’re going to get into that. It does get a little messy.
David D. Stewart: Now you mentioned that these audits were part of a program, NRP. Could you tell us about that program?
Jonathan Curry: Yes. Before we get into that, just a level set. In a normal audit, the IRS might want you to substantiate some deductions. Maybe the taxpayers stretched too far, and they’ll want you to show some receipts for business, mileage, travel claims, or something like that.
But these two audits of Comey and McCabe are part of a special audit program called the National Research Program, which is NRP. Probably anyone who goes through one of these would agree that NRP audits suck. Because they’re not just checking out one or two sketchy deductions, they’re doing a top to bottom evaluation of basically every single item on your tax return.
That’s because the IRS is hungry for data. They want to know what taxpayers are doing in general. They want to come up with solid estimates of the tax gap, which is the gap between what taxpayers owe and then what they actually pay. They also want to improve their audit selection.
They are actually selecting taxpayers who are more likely to have maybe cheated on their taxes or pushed things a little too far.
David D. Stewart: I haven’t really heard about this program much before. How long has it been around?
Jonathan Curry: Oh yeah. The NRP has been around since 2000. But the history of these types of audits goes back decades. Back to, I believe, the ’60s.
Back then these were called Taxpayer Compliance Measurement Program audits or TCMP. I’m told that these audits were both more invasive, if you can even imagine that, and the IRS did a lot more of them, to the tune of maybe like 50,000 in a year instead of the 5,000 or 10,000 that they did in the case of Comey and McCabe per year.
These audits were really unpopular at the time. The IRS called them off in the mid-1990s, but then it was resurrected in 2000 again, as the NRP.
It was streamlined in some ways. But the audits are still very painful to endure.
In fact, 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, because it can oftentimes cost you thousands of dollars in representation fees and takes up dozens of hours to answer all these questions. They’re pretty brutal.
David D. Stewart: Has there been any sort of scrutiny of this program recently?
Jonathan Curry: I don’t know about recently, but in the past, it was so unpopular in the ’90s that the IRS called it off. The IRS essentially hit pause and then had to restart them.
But for the most part, they’ve been proceeding in the background, collecting information. I have heard a sort of unsubstantiated rumor that at one point in the ’90s, a Senate Finance Committee Chair was subjected to one of these audits. I believe the Congress had hearings about them.
That may have played a role in it, if that’s even true or not, but they have been unpopular in the past.
David D. Stewart: How does this program select taxpayers for this super review?
Jonathan Curry: These audits are ostensibly randomized audits in the sense that they’re selected by a really highly complex computer algorithm that would be developed by really nerdy PhD employees at the IRS and their research division. This algorithm selects taxpayers in a way that the sample of taxpayers that are audited are representative of the entire population.
But I really want to emphasize something on this point. The program is not just randomly picking 5,000 out of the 150 million or so individuals that file taxes every year to audit. I think that’s been a major misunderstanding here.
If you’re one of the tens of millions of taxpayers who just goes to work every day, gets a W-2, claims a standard deduction when you file, then your odds of getting audited by this are way less, because you’re part of a larger subset of taxpayers who all do the same thing, than a taxpayer with more tax variables,…
Credit: www.forbes.com /