August 21, 2006
CHICAGO - Some financial planners and tax lawyers may change the advice they give on estate tax issues to high-net-worth clients now that the Internal Revenue Service is reducing the number of agents who enforce the taxes.
The Bush administration recently said it planned to cut 157 of the IRS’ 345 estate tax lawyers and support staff. Some industry observers believe this is a backdoor move for President Bush to reduce the estate tax on his own. A recent bill to repeal the estate tax was rejected by Congress.
Industry leaders believe the decision likely will lead to fewer audits.
Joe Dolan, a tax lawyer and certified public accountant, says of the cutback, "It may cause me to be more aggressive in taking a position on an estate tax return in the future." Mr. Dolan is tax lawyer at Porzio Bromberg & Newman PC in Morristown, N.J.
Others fear the Bush administration’s decision is effectively eliminating the tax, even though lawmakers didn’t vote to repeal it.
"I’m concerned, because it seems like it’s prejudging the outcome of the legislative battle on whether to keep the estate tax or not," said Lee Farris, a senior organizer on estate tax policy, with United for a Fair Economy, a Boston-based national non-profit agency of business people, investors and affluent Americans. The agency supports keeping the federal estate tax.
Alvin Brown, a former IRS lawyer, said the amount of money the IRS could recoup from estate audits if it were fully staffed is substantial. He used to work for the IRS in California in the 1960s and says he knows firsthand how wealthy individuals can manipulate land values and other complex issues.
Mr. Brown said that in many cases he would uncover thousands of dollars simply because people would grossly undervalue their land.
"There’s so much money," for the government, he said. "Why would they want to forgo revenue that could be raised except for a political reason," Mr. Brown asked.
Mr. Brown now fights the IRS as a tax lawyer with Alvin Brown & Associates LLC, based in Washington. "The president shouldn’t go through the back door," Mr. Brown said. "It’s an ugly precedent."