The investigative news organization, ProPublica, started a series based on IRS data about the very rich that somehow showed up on ProPublica’s whistleblower platform. The first in the series is The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax by Jesse Eisinger (6/8/21(, Jeff Ernsthausen and Paul Kiel. The article is here. The first offering provides an overview and focuses on specific well-known super-wealthy American “taxpayers.” It shows that their true tax paid relative to their economic income is miniscule, sometimes well under 1%.
It is not a revelation to persons interested in the tax system that the super-wealthy (and even less wealthy) “taxpayers” whose economic income is reflected in assets can do amazing things to make sure the income is not taxed, including shifting values to family and friends and even dying to achieve a step up in basis (true, there may be an estate tax but even that can be mitigated in ways to insure that they never bear their fair share of the cost of government).
The first installment is interesting, although I am not sure it adds much to what tax professionals would have intuited anyway. Perhaps it will make those intuitions more accessible to the general public and therefore contribute to the discussion of how to allocate the costs of a civilized society among those who benefit from that civilized society.
More interesting for readers of this blog is how ProPublica got the IRS data trove and the legal consequences. First, as to how ProPublica got the information, ProPublica explains at this web page: Why We Are Publishing the Tax Secrets of the .001%, here. Basically, investigative journalists sometimes have a whistleblower or informer site where information can be disclosed with anonymity. ProPublica further explains:
We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.
ProPublica further explains:
Many will ask about the ethics of publishing such private data. We are doing so — quite selectively and carefully — because we believe it serves the public interest in fundamental ways, allowing readers to see patterns that were until now hidden.
ProPublica apparently considered the general ethical issue and has satisfied itself that the perceived public benefit outweighs ethics considerations. But, what about the legal implications?
IRS information is generally secret and cannot be shared or access within the IRS except for legitimate purposes and without the IRS also except for very circumscribed purposes stated in § 6103. More importantly for present purposes, § 7213, here, makes it a felony “willfully to disclose” such information. Subsection (a)(1) applies to government employees or former employees. Subsection (a)(2) applies to state employees. Thus, the person disclosing the information to ProPublica clearly is at risk of prosecution.
Subsection (a)(3) provides:
(3) Other persons
It shall be unlawful for any person to whom any return or return information (as defined in section 6103(b)) is disclosed in a manner unauthorized by this title thereafter willfully to print or publish in any manner not provided by law any such return or return information. Any violation of this paragraph shall be a felony punishable by a fine in any amount not exceeding $5,000, or imprisonment of not more than 5 years, or both, together with the costs of prosecution.
Subsection (a)(4) makes it unlawful “to offer any item of material value in exchange for any return or return information (as defined in section 6103(b)) and to receive as a result of such solicitation any such return or return information.” This provision on its face does not seem to apply to ProPublica’s receipt of the information.
ProPublica explains its position of the legal risk:
There is also a legal question here, and we want you to know we have taken it seriously. A federal law ostensibly makes it a criminal offense to disclose tax return information. But we do not believe that law would be constitutional if applied to bar or sanction publication of a story in the public interest when the news organization did not itself remove the information from the control of the IRS or solicit anyone else to do so — as we did not. And this is not our first experience with this law.
In 2012, someone at the IRS (we don’t know who or why; they used a plain brown IRS envelope) sent ProPublica copies of tax filings seeking exemption for a number of political committees, including Republican political guru Karl Rove’s Crossroads GPS. The filings were not yet supposed to be public, and the IRS indicated that it would consider our publication of them to be criminal. We explained our view of the constitutionality of that statute as applied in such circumstances and published our story, which raised concerns about whether Rove’s group had been forthcoming with the agency. We never heard about the matter from the IRS again.
I am posting this to get the information out there. I may add further discussion later.
As I post this, the New York Times has just posted an article: Wealthiest Executives Paid Little to Nothing in Federal Income Taxes, Report Says (NYT 6/8/21), here.