Romney’s tax audit, Aurora and risk, inside the IRS

By Steven Brill
July 30, 2012

1. What happened with Romney’s audit?

On Sunday, Mitt Romney – while promising ABC he would “go back and check” to see if he had ever paid less than the 13.9 percent in income taxes he reported paying in the only return he has released so far – volunteered that he had been audited in the past by the IRS. So, the next question needs to be, “Governor, when you were audited, did the IRS then require you to pay additional taxes, and, if so, would you specify the discrepancy between what you claimed and what the IRS determined was the appropriate tax? And was more than one year of returns audited? If so, what were the results of those other audits?”

2. Aurora and risk:

When I saw reports in the wake of the Aurora massacre that theater chains are thinking about how they might implement new security measures to restrict who can bring what into a theater, I was reminded of a story I read recently about what happened in the aftermath of a horrific air crash 16 years ago.

Most of us have only a dim memory of TWA Flight 800, the Boeing 747 that exploded over the Atlantic shortly after leaving Kennedy Airport for Paris on the night of July 26, 1996.

An investigation found that the oxygen had ignited in the jet’s fuel tank, and that this was probably caused by excessive heat because the plane had been sitting for hours on a hot summer runway before taking off. But despite all the headlines and speculation in the days immediately following the crash, attention faded, and not much was done until July 16, 2008 – 12 years after the accident. Only then did the Federal Aviation Administration get around to issuing an order that airlines had to retrofit thousands of potentially vulnerable planes with a safety feature designed to prevent the kind of explosion that downed Flight 800.

However, according to this report in the trade e-newsletter Aviationpros.com published two weeks ago on the 12th anniversary of the crash, it turns out that the airlines still haven’t installed the required flammable suppression systems on most of their planes. In fact, they may not meet the FAA’s 2014 deadline for retrofitting just half of their jets and a 2017 deadline to retrofit all of them. That’s right: The FAA set the deadline for 2017, 21 years after the explosion. And the airlines aren’t going to make the changes even by then.

According to the Aviationpros.com report, the airlines blame Boeing, which they say has not “certified the kits and service instructions needed for certain models of its aircraft.” The FAA has fined Boeing $13.57 million. That’s less than two hours of revenue for a company with $68.7 billion in 2011 sales. A Boeing spokesman told Aviationpros.com that the company has now “provided the service instructions to the FAA concerning the … aircraft that are the subject of the proposed penalty,” but offered no explanation for the delay. The rule involves 1,830 Boeing planes and 900 Airbus planes. Airbus met the deadline.

It may be that the lackadaisical approach by the aviation industry and its regulators to fixing the planes is because there’s a quiet consensus that the Flight 800 disaster was a fluke and that the security fix – which costs $92,000 to $311,000 per aircraft, according to the report – is more about cosmetics than a sensible cost-effective investment in actual safety. After all, despite the lag in installing the new system, no other planes are known to have gone down in 16 years in an accident like Flight 800’s.

Or it could be that the airlines have been able to put short-term profit ahead of safety because the industry and its lobbyists succeeded in pushing back the regulators as broader public attention faded. That seems to be how the business lobby succeeded in beating back new regulations recommended by security officials following 9/11 in areas ranging from the storage and shipment of dangerous chemicals to cyber-security.

But imagine the headlines and expressions of outrage from politicians that we’d see in a nanosecond if another plane did go down this way. (And imagine the slam-dunk lawsuits.) Similarly, imagine the handwringing and recriminations the morning after some deadly chemicals went missing or got blown up in transit, or a cyber attack crippled our air traffic control system or our power grids.

What does this have to do with the Aurora killings? Yes, someone ought to dig into the Boeing retrofitting story and see whether it’s a case of regulators asleep at the switch or a matter of everyone tacitly slow-walking what they believe is needless hassle and expense. But beyond that I’d like to see a thoughtful look at how we tend to overreact to the risk of the day but then forget what we were worried about as the memory fades and a new risk takes center stage.

Why, for example, would we now consider posting security guards at theaters but not at shopping malls? And how does the expense and hassle of security checks at either place versus the actual safety benefit compare with the expense and hassle versus the actual safety benefit of limiting the availability of assault weapons and 100-round magazine clips?

To take another example, soon after 9/11, the FAA forced airports to eliminate parking spaces that were too close to a passenger terminal. The fear was that a bomber would park a car filled with explosives near the terminal and kill people at the airport. (Yes, the 9/11 terrorists were suicide bombers on planes, not terrorists hoping to leave a bomb in a car near an airport and set it off without hurting themselves, but in the days after 9/11 everything about air travel was a priority.) But what’s so special about an airport? Anyone can park a car inside most shopping malls and many office towers, and right next to most sports stadiums.

This broader story would look at how we deal with disasters and risks and the ways we can make our reactions to threats more rational. It could start by listing the five most overrated risks – situations where we spend too much time and money – and the five most underrated, and examine in each case how and why we have gotten the balance so out of whack.

3. Let’s go inside the IRS:

Both this report from the New York Times about an outside panel of expert art appraisers that advises the Internal Revenue Service about the value of art left in taxable estates, and this piece in the Washington Post about how the IRS may act to tighten regulations on tax-exempt so-called social welfare groups that are financing millions in political advertising but don’t have to reveal donors, illustrate a major reporting gap: We need a comprehensive story or a series of stories taking us inside the IRS.

Using the social welfare organization loophole as a departure, we’d want to know who signs off when the IRS changes a regulation or its interpretation of a regulation that can, as in this case, have enormous impact. The Post article quotes a Washington tax lawyer as saying that the Treasury Department, of which the IRS is a unit, has to approve. Do political appointees at Treasury have a direct role? What about the White House? And what are some other pending issues related to these kinds of regulatory deliberations that are below the radar but similarly significant? Which corporations or people would be most affected, and what are they doing about it?

As for the high-stakes art appraisals, does the IRS have other expert panels that help the bureaucrats deal with equally esoteric issues – such as the value of complicated financial derivatives, or patents, or foreign real estate – that can determine millions or even billions in tax revenue? How are the panels chosen? What authority do they have? How are conflicts vetted?

More generally, how does the IRS – which faces off against corporate tax departments stocked with dozens or even hundreds of highly paid lawyers and accountants – recruit its own sophisticated talent? And what are the rules governing whether that talent can move through the revolving door to the other side?

Speaking of staffing, opponents of Obamacare argued that enforcing the individual insurance mandate would require the hiring of thousands of new IRS agents. Now that the mandate has been upheld, what are the actual plans for enforcement, including new personnel?

Other question abound. How does the IRS keep up with changing technology? How are returns chosen to be audited? How has the agency’s approach to customer service changed and improved or declined over the years? How does it test the customer-friendliness of its instructions and documents?

This is the one agency that touches every American. We should know a lot more about its people and how they work.

PHOTO: U.S. Republican presidential candidate Mitt Romney and his wife Ann wave to people on the street before his meeting with Poland’s Prime Minister Donald Tusk at the Old Town Hall in Gdansk, Poland, July 30, 2012. REUTERS/Jason Reed

3 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

On the IRS concern, one might ask why electronic returns are funnelled from the IRS website to one of fifteen private entities to process the return? Why was an inherently governmental function passed off to for-profit entities?

Posted by TIREDINPHILLY | Report as abusive

LOL. Steven Brill, I love these questions. It’s like you are a reporter or an economist. But since there are no answers here, you must just be our conversation instigator.

Since I’ve often wondered about the cost/benefit analysis of safety related rules and regulations, your question about the value of safety guards at movie theaters is a salient one for me. I admit that personal preference gets in the way of my opinions. For example, automobiles are 1000% more likely to result in death than Hepatitis B. Yet my child has to have that vaccine to go to school when it’s typically a sexually transmitted disease between two people- hardly a risk for my kindergartener. Maybe if she was attending high school this would make sense, but kindergarten?

On the other side of the coin, the Glass–Steagall Act of the 1930′s that protected our financial system from ruin was considered too restrictive and gutted in 1999. However many argue precipitated today’s economic problems, which have threatened our safety in countless ways from the inability to fund fire stations to not being able to afford health insurance.

Clearly there are too many lawyers trading favors and stirring fear in congress and not enough economists instilling some pragmatism into the discourse. Otherwise we wouldn’t even consider sending some pimply 18 year old to protect us from a heavily armed psychopath at a movie theater because, as Brill points out, they can just as readily appear at the mall, too. What we need is policy driven by the GAO and not Fox News.

Posted by LEEDAP | Report as abusive

Let’s see. TSA-like screeners at every doorway — movie theaters, all classrooms, post offices, fast food joints, the Texas Tower, office buildings and every office within. I’d feel REALLY safe.

Posted by Skeptix | Report as abusive