“[Jane Kim] also says the IRS has a policy of not enforcing the tax laws that pertain to “large corporate taxpayers,” resulting in the loss of additional billions in tax. On the other hand, Kim says the IRS applies tax laws with “draconian strictness to small business, the self-employed, and wage-earning individuals.” Kim’s letter contained numerous examples of cases the IRS declined to pursue that resulted in nearly $15 billion in lost tax revenues.” – M Nestmann

The intrepid bureaucrats at the Internal Revenue Service have done a superb job of making us fear them. We dutifully file our 1040s, FBARs, and all manner of other forms, consent to having our wages withheld from our paychecks, and suffer indignities on a daily basis at which our forefathers would have blanched.

But it’s never enough. I have seen many examples in my years of experience as a consultant. One client was pursued for 18 months for an underpayment of a few dollars and wound up paying more than $1,000 in penalties to make the IRS go away. Another client filed an offshore trust reporting form one day late and the IRS tried to collect a 35% penalty on a $1 million transfer to the trust.

But I don’t have a large collection of horror stories involving the big Fortune 500 companies. Sure, the IRS took down Swiss banking giant UBS as part of its ongoing vendetta against all things offshore. But these cases are few and far between.

I’ve often wondered if the IRS has a formal policy for ignoring tax evasion and fraud by “whales” (Fortune 500 companies) and instead focusing on “minnows” (you and me).

It turns out such a policy does exist. It may not be formal, but nonetheless, it is real, according to several insider sources, including two high-level attorneys working at the IRS (although perhaps not for long) and one former IRS attorney. Continue reading →