IRS Axing Its Most Productive Employees While a Cabinet Secretary Works the System

David Cay Johnston of the New York Times reports that the IRS is cutting the staff that investigate fraud and abuse among the wealthiest taxpayers.

The federal government is moving to eliminate the jobs of nearly half of the lawyers at the Internal Revenue Service who audit tax returns of some of the wealthiest Americans, specifically those who are subject to gift and estate taxes when they transfer parts of their fortunes to their children and others.
The administration plans to cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in less than 70 days. Kevin Brown, an I.R.S. deputy commissioner, confirmed the cuts after The New York Times was given internal documents by people inside the I.R.S. who oppose them.

Okay, some deadwood federal employees don't want to lose their jobs. Could it be these public servants aren't pulling their own weight?

Estate tax lawyers are the most productive tax law enforcement personnel at the I.R.S., according to Mr. Brown. For each hour they work, they find an average of $2,200 of taxes that people owe the government.

Knowing that the federal government is bleeding money, one might think that our MBA president might conclude that those rare federal employees who actually generate net revenue might be considered valuable.
Could this be one of those mid-level management decisions and not indicative of the mindset of those running the federal government? Consider this Washington Post report on the family foundation set up by Bush's Secretary of Health and Human Services:

Health and Human Services Secretary Mike Leavitt and his relatives have claimed millions of dollars in tax deductions through a type of charitable foundation they created that until recently paid out very little in actual charity, tax records show.
Instead, much of the foundation's money has been invested or lent to the family's business interests and real estate holdings, or contributed to the Leavitt family genealogical society.
The Leavitts used nearly $9 million of their assets to set up the foundation in 2000 under an obscure provision of the federal tax code. But unlike standard private foundations, which are required to give away at least 5 percent of their assets to charitable causes, the Leavitt organization donated less than 1 percent of its assets in 2002, 2003 and 2004. The donations jumped to 6.3 percent of total assets last year, after the sale of family water interests that also allowed the foundation to increase its lending to Leavitt business interests.

Those who think this story is just one of those partisan attacks that come so naturally in Washington, might want to read this follow-up story from the New York Times:

Senator Charles E. Grassley, Republican of Iowa, the chairman of the Finance Committee, and Senator Max Baucus of Montana, the senior Democrat on the panel, expressed their concern in a letter to President Bush.
“It is not enough to encourage charitable giving,” the senators wrote. “We have to make certain that the money given actually goes to help the community and those in need.”

Are they going overboard? Perhaps this is one of the tax code's grey areas:

The tax structure used to create the foundation is called a Type III supporting organization. The Internal Revenue Service has said the category is rife with abuse, designating "supporting organizations" this year as one of its "Dirty Dozen" top tax scams, along with Internet identity theft and offshore banks. Use of the tax structure could be significantly reined in under a tax provision that was inserted into pension legislation passed by the Senate and now under negotiation with the House.

We report. You decide.