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What Was so Lavish About the IRS Employee Conference?

Richard Satran

The Internal Revenue Service, already mired in scandal for its Tea Party profiling, found itself in a fresh scandal last week when the Treasury Inspector General for Tax Administration cited it for "excessive" spending at a $4 million IRS small-business division managers conference in Anaheim, Calif., home of Disneyland. In response to the report, Congress called the 2010 event "lavish," "shameful" and "maliciously self-indulgent."

The report by Inspector General Russell George was red meat tossed in the middle of the Washington scandal pit. It cited a dreadful "Star Trek" parody as a $50,000 waste of government funds, along with a video of IRS agents showing off their dance steps on camera (estimated cost: $1,600).

George says the review was sparked by an anonymous tipster who wanted to blow the lid off the IRS's excesses. Congress's Committee on Oversight and Government Reform, in its "fact-finding" role, quickly held a hearing titled "Collected and Wasted: The IRS Spending Culture and Conference Abuses." It was led by Chairman Darrell Issa, a wealthy California Republican and ardent IRS critic.

But what was it that the IRS small-business unit did besides "insult the memory of 'Star Trek,'" as one committee member lamented? Tax experts and lawyers who have been professionally involved in reviews and in setting up conferences say evidence of wrongdoing is slim. George, who is not a trained tax expert but a Republican-appointed ex-prosecutor and Bush administration official, conducted an "audit" that would qualify as a political review but did uncover evidence of things that would fail an IRS audit, tax experts say.

[Read: Taxing Days Ahead for Everyone in IRS Scandals.]

"There are very serious problems at the IRS, but this takes attention away from the real issues," says Elizabeth Atkinson, a tax lawyer for LeClairRyan in Virginia Beach, Va., who has been a vocal critic of the agency. "You want them to be conducting training conferences at a time like this. Their job is extremely complex. And they are failing at it."

Bill Smith, managing director in the national tax office of accounting firm CBIZ, says, "What struck me was that there was no attempt by the inspector general to compare the IRS costs to what would be reasonable on the private side." The expenses would likely pass an IRS audit, he says, and were "not a bit out of line" with private-sector costs that are routinely expensed and deducted.

What were the "excessive" expenses the inspector general cited in his report, and what do legal accounting firms think of the conference spending? Here are the highlights:

Overall cost. A $4 million outlay for a three-day national convention would not be out of line for a national conference for more than 2,600 senior managers. With 100,000 employees spread across 50 states, the agency's revenue is $2.5 trillion per year - six times that of the largest private U.S. company, ExxonMobil. Deloitte Consulting estimates that U.S. companies spend $60 billion a year on training and education. Leadership conferences are one of the biggest single-line items.

Hotel cost. The biggest single expense for the conference that was questioned by the inspector general was the hotel bill, which, at a rate of $135 per room, was below the $140 average for U.S. corporate-travel hotel rooms and the average $165-per-night corporate room rate for the Los Angeles area where it was held, says Matt Johnson of Travel Leaders Corporate, which provides travel services and information.

Free room upgrades. The inspector general criticized the IRS for taking free room upgrades and additional complimentary rooms. This violated no official policy, but the inspector general's review said it adds "the perception of wasteful spending." Smith says such upgrades are "standard throughout the meeting world."

Pricey conference planners. The IRS spent $133,000 on conference planners, and this detail was among most serious of the report's charges. Planners were employed by the hotels, so they had no incentive to lower costs, the inspector general said. But they had no incentive to raise them, either, since the prices were negotiated before the planners came on board and were based on requests for proposals from competing hotels in three cities. Meetingsnet.com says professional planners are usually paid 12 percent of an event cost. That's what the Department of Justice paid conference planners for its conferences held the same year, a DOJ report says. The IRS paid a bargain 3 percent for planners to coordinate 2,600 people attending scores of presentations at three hotels.

A happiness expert. There was widespread criticism of the agency for including a "happiness expert" among the $135,000 it spread among 15 outside speakers at the event. Still, beyond the usual tedium and stress the unpopular agency's employees face, it was an unusually difficult year. A few months before the event, a suicide attacker slammed a plane into the IRS office in Austin, killing 68-year-old branch manager Vernon Hunter, a Vietnam veteran and father of six who had worked for the agency for 27 years. The inspector general knew of such issues: He had just done a report documenting more than 1,000 threats and assaults on the agency in recent years.

[Read: IRS Data Web Snares Mostly Low- and Middle-Income Taxpayers.]

Outside speakers. The IRS was a lightweight by corporate standards, with an average of about $9,000 paid to each outside speaker. By comparison, in the corporate world, the bar is high, and the costs are normally expensed as tax deductions. One of the top agencies that books corporate event speakers, Creative Talent International, lists Alan Greenspan, Condoleezza Rice, Tony Blair and Bill Clinton at $250,000 each per engagement. Or companies can get The Rolling Stones, Bruce Springsteen or Katy Perry for $1 million.

Swag. Freebies at the conference cost about $20 per person. The inspector general cited the agency for providing canvas carrying bags, spiral journals, pens, travel mugs, event planners and sticky notepads. He also faulted them for giving away 24 baseball tickets as randomly chosen prizes for conference participants, which came out to less than one for every 100 attendees. "I think the inspector was a bit picky when he went after sticky pads," Atkinson says.

Automated response tools. The inspector general did not like the fact that the agency spent about $10 per attendee for automated response devices used for interactive Q&A sessions on tax policy and rules. Some of the questions were "trivial," he said.

Bad accounting. The report said because of accounting errors, the true cost of the conference could not be "validated." But what sounded like a vast criticism turns out to be the opposite. A total of $245,000 was entered with wrong expense codes. And about 1 percent of the costs (including the "Star Trek" video) were based on estimates. "In a private audit, the expenses need to be reasonable, but not every single thing needs documentation," Atkinson says. "If you document 85 percent, you are usually OK. The IRS appears to have done much better than that."

[Read: New Target of IRS Robo-Audits: Small Business.]

Videos and paintings. In addition to the Trekkie parody, $27,000 worth of paintings were used as visuals, then given away to participants as prizes. Such expenses do not shock tax professionals who regularly see conference costs for everything from Elvis impersonators to $10,000-per-seat luxury boxes at sports events. "The IRS has a big training challenge, and you want to see them addressing it in a creative and out-of-the-box way," Atkinson says. "The 'Star Trek' video was dumb. But you can't fault them for trying."

Was the conference a boondoggle with no value? "We did not evaluate the appropriateness or relevance of the training provided at the Anaheim conference. It was beyond the scope of this review to assess the merits and effectiveness of the conference agenda," the inspector general wrote in his report. He cited only the agency's most embarrassing lapses. But he made no mention of the program's mostly dull content that dealt with leadership, major changes in use of technology, office security (following the Austin attack), training of thousands of new employees, the growing challenge of a global economy and changes and additions to the six-million-word tax code.

The new acting head of the IRS, Danny Werfel, was apologizing for the agency before he even spent a week on the job. Some wonder if he even knew what he was apologizing for. "This is obviously a very challenging time for the agency," Werfel told Congress. He would not have been on board yet for one of the Anaheim conference workshops: "Political Savvy: How Not to Shoot Yourself in the Foot."

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