Did the IRS Break the Law by Outsourcing an Audit to a High-Priced Law Firm? | U.S. Chamber of Commerce
May 19, 2015 - 9:00am

Did the IRS Break the Law by Outsourcing an Audit to a High-Priced Law Firm?


Senior Editor, Digital Content

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The Internal Revenue Service headquarters in Washington, D.C.
The Internal Revenue Service headquarters in Washington, D.C. Photo credit: Dennis Brack/Bloomberg.

By outsourcing an audit to a high-priced law firm, the IRS might have broken the law, and the Senate Finance Committee Chairman wants to know why.

Sen. Orrin Hatch (R-Utah) wrote a scathing letter to IRS Commissioner John Koskinen asking why his agency hired the “law firm of Quinn Emanuel on a $2.2 million contract” to assist in auditing Microsoft. “This contract marks the first time, to the Committee’s knowledge, that the agency has hired a private contractor to take such an involved role in an examination.”

Hatch is also asking why the IRS “issued a temporary regulation, without a notice and comment period” allowing the firm to “take compulsory, sworn testimony" weeks after it hired the firm. 

Sen. Hatch has three problems with what the IRS has done.

Action Defies Will of Congress

First by hiring the firm, Sen. Hatch believes the IRS has stepped outside the law. In writing the tax code, “the Congress intentionally chose to restrict the performance of certain revenue functions, such as examinations and the taking of sworn testimony, to the Secretary and limited delegates,” Sen. Hatch writes. This doesn’t include hiring a law firm for $1,000 per hour.

Doesn’t Protect Taxpayers

Second, letting an outside law firm investigate a tax case doesn’t protect taxpayers:

Unlike private contractors, Treasury Department officials are required to swear an oath to the Constitution and are subject to rules of conduct and federal law regulating their interactions with taxpayers. This is one of the core reasons Congress has sought to limit certain examination actions to these officials, who are accountable to the public and for whom there is a clear chain of command.

The IRS Has the Resources to Investigate

Third, Sen. Hatch questions if the IRS is using its resources properly:

The IRS has over 40,000 employees dedicated to enforcement efforts, including more than 36,000 tasked specifically with exams and collections. If none of these employees, nor IRS Office of Chief Counsel or Department of Justice tax attorneys, have sufficient expertise to undertake the examination at hand, we should have a broader conversation about your agency’s hiring practices and recruitment needs.

What Kind of Law Firm is Quinn Emanuel?

On the “About Us” page of its website, Quinn Emanuel crows, “Litigation is a zero sum game. There is a winner and a loser. We know how to win.” The page also features a quote about the firm from The American Lawyer: “Better. Faster. Tougher. Scarier.”

Sleep well, America, the IRS gave some pit bull plaintiff lawyers the power to “take compulsory, sworn testimony.”

In Fiscal Year 2014, Congress gave the IRS over $11 billion. If it thinks one particular investigation is that important, it should dedicate enough internal resources. What the IRS can’t do is act like it’s above the law.

Sen. Hatch is demanding that Quinn Emanuel stop its investigation and that the IRS answer his questions immediately.

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About the Author

About the Author

Sean Hackbarth
Senior Editor, Digital Content

Sean writes about public policies affecting businesses including energy, health care, and regulations. When not battling those making it harder for free enterprise to succeed, he raves about all things Wisconsin (his home state) and religiously follows the Green Bay Packers.

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