April 8, 2019--The Art of the Audit

It was about ten years ago when Rona and I were audited by the IRS. This was not my ideal way to spend a morning in lower Manhattan. I would have much preferred to be there in search of the best dim sum lunch in Chinatown.

While waiting to meet with the auditor, as is my wont in stressful situations, I anxiously ran down all the scenarios my feverous brain could conger from a slap on the wrist with the admonition not to in the future over-deduct business expenses (we had a house we were renting) to being led out of the office in handcuffs to the Tombs, a prison for the accused awaiting trial, which was in the neighborhood but did not serve to felons wonton soup nor shrimp with lobster sauce.

At issue, I knew, was a major donation of paintings we had gifted to the University of Virginia's Art Museum. Nearly 40 works that my ex-wife and I had collected and which subsequent wife, Rona, understandably wanted off our walls and out of sight. 

Rona on her own had appeared at the initial audit and I joined her at the followup meeting as the auditor had a number of questions, including about how much the appraiser had determined the paintings to be worth and thus how much we could claim as a charitable deduction.

He had said, "Paintings are like cars. You buy one for $20,000 dollars (This was some years ago) and when you drive it out of the showroom as soon as it hits the street it immediately depreciates by at least $5,000."

Rona had said, "This doesn't make sense for art works. You mean if I buy a Picasso for $3.0 million [she was speaking theoretically] when you take it home from the gallery it depreciates and is worth only $2.0 million?"

For this he didn't have a good answer and so it was decided that she and I should come back to make an appeal to the IRS's art expert.

The art specialist saw the logic of Rona's argument and let us off the hook. 

After he left we remained with the initial auditor.

I noticed him looking at me more intently than seemed appropriate. Was he trying to peer deep within me to ferret out any other things I had lied about on our return? I tried to anticipate what I might have to be prepared to confess.

"I know you from somewhere," he said.

That calmed me. "Maybe we went to the same college or summer camp." 

"I don't think so," he said, "I never went to camp."

"Neither did I," I said, "I was only trying to . . ."

"Let me take a look at you." He got up out of his chair to get closer to me and adjusted the gooseneck desk lamp to shine more light directly on my face, which made me think this might be the beginning of the third degree.

"Where did you go to high school?"

"Brooklyn Tech. Why?"

"I went there too. In the late 50s."

"That could be it," I said, "Nice to meet you Mister . . .?"

"Brown. Stan Brown. I was on the math team."

"Me too," I said. "That must explain it. Nice to see you again. We have to go." I began to get up.

"What's your rush?" he asked.

"We have another meeting to get to," I said.

"Not really," Rona said. She is a truth teller. "Only to go for lunch."

Under my breath I muttered, "Unless we have to go to the Tombs."

"What's that?" he asked. I didn't respond. "Look," he said, "You can avoid audits if you bring your questions to us when you're working on your returns. Including about charitable deductions. In fact, as a Tech alum, you can call me with any questions you have. Here's my card with my private number."

"I have a question," I said. "Not about my returns for next year but about these audits."

"Sure," he said.

"Why go after small fry like us when in New York City there are so many rich people who I assume routinely cheat on their taxes? From people like us you might find a small underpayment that won't even cover the IRS's expenses? Including the cost of your time." Smiling, not wanting to make trouble for us, I added, "I of course don't mean this personally."

He waved me off. "Frankly, we don't have the capacity to go after the wealthy who have more and better lawyers than we do. So we go  after people like you and your wife. We concentrate on people with less income who can't afford fancy lawyers. Don't quote me of course."

"This is very sad," I said. "So unfair."

He shrugged. "Take Donald Trump, for example. [He actually mentioned him] He is being audited as we speak. Not him in person, of course, he's got a team of lawyers here representing him."

"That's good to hear," I said, "I mean that he's being audited. I assume he's among the biggest crooks."

My classmate shrugged and smiled. "What do you think we'll find?" he asked then answered his own question. "Probably nothing. His people know all the angles. They used to work for the IRS where they spent a few years learning all our methods and tricks and then leave to make a killing representing people like Trump, helping him and their other clients figure out how to go right to the edge of what's allowed by doing things that are so subtle and hidden that there's no way we at the IRS, with our limited capacity, can ever corner him, can ever make him pay what he might actually owe."

"You guys must have a Trump team that examines his books 365 days a year."

"Hardly," he said, "We call him in--again I mean his lawyers--every year and spend a few weeks trying to fire shots across his bow. To limit what he tries to get away with. But for most of the time he carries on unfettered. He complains in the press that he's always being audited but that's totally untrue. You'd be surprised how little scrutiny he's under by the IRS. He basically does what he wants and gets away with it."

"You're depressing me," Rona said.

"I lost my appetite," I said, "No more dim sum for me."

October 1, 2014--60 Minutes With Professor Barack Obama

So he went on TV and told Steve Kroft of 60 Minutes that the situation in Syria is fraught with contradictions--"I recognize the contradiction in a contradictory land and a contradictory circumstance."

Yes, he actually said that. Much appreciated Professor Obama.

Among the contradictions, he acknowledged, is the fact that we (really, he and his administration) did not know in advance that ISIS (or ISIL as he obstinately insists on referring to them) was going to turn out to be such a threat to the Middle East and ultimately us.

After 9/11 and the failure to connect the dots that should have warned us about an imminent, cataclysmic threat to the U. S. homeland, one would have thought, with that dark lesson in mind, that something as elaborate as ISIS's emergence and, yes, remarkable barbaric capabilities, would have shown up on someone's Oval Office radar.

Al Qaeda was a relatively small band of terrorists incubating in an under-scrutinized part of the world (the forbidding mountains on the Afghanistan-Pakistan border) compared to the thousands of ISIS jihadist warriors arming and preparing themselves to operate even captured American tanks in plain sight right in the middle of the civil war in Syria.

All one needed to do was go to the Internet to learn directly from ISIS itself what they were about and were intending to do. Undoubtedly and appropriately humiliated, Obama told Kroft that we (he) blew it and so now we're involved in another war in the Middle East that we can't win that will soon cost billions and the lives of more of America's finest young people.

Meanwhile, at about the same time, literally closer to home, there was that embarrassing and dangerous event at the White House. An armed intruder jumped the inadequate and unguarded fence, ran across the lawn, entered the ground floor through the unlocked North Portico, raced left to the East Room, and then, still alluding the Secret Service, entered the Green Room where he was finally tackled.

It would not be my favorite thing to have seen him shot well short of the mansion, but allowing him to make it into the building, where, if he knew the layout better, he could have raced up the stairs to the living quarters, I'd opt for the security forces taking him down.

The Secret Service is far from what it used to be--which might serve as a metaphor for much of our federal government and, alas, much of America--but this latest incident is so pathetic as to render one almost speechless.

We learned in the process that, with Obama family members in residence, in 2011 a sniper hit seven windows in the living quarters, firing armor-piecrcing bullets from hundreds of yards away and that that information was withheld from the public and the Obamas, including the distressing fact that it took White House security forces four days after the attack to even know it occurred!

Under questioning by members of Congress yesterday, Julia Pierson, director of the Secret Service, took responsibility and promised that it won't happen again.

Well it already did happen again, and on her watch. There was the shooting incident in 2011 and then the intrusion 12 days ago. I call that happening again.

And another thing that will happen again is that she will not be fired just as no one was fired for the Veterans Administration or IRS scandals or for that matter the Obamacare website rollout fiasco.

As our professor president said, ours is a contradictory land and what we are seeing are contradictory circumstances.

July 23, 2013--501(c)(3)

Colleges and universities are exempt from virtually all federal and state taxes because they are deemed to serve a "public purpose." They provide undergraduate and graduate education services as well as sponsor research, both considered to contribute to the public good.

To gain tax exempt status higher education institutions have to convince the Internal Revenue Service that they are not-for-profit; do in fact serve a public purpose; and do not, under the guise of their not-for-profit status, operate as if they are profit-making corporations.

If they pass these threshold tests (and it is not difficult to do) they are granted 501(c)(3) status. After that  they are required to file a 990 tax statement at the end of each year so the IRS, if it wants too (though it rarely does), can closely examine their sources of income (tuition, grants, endowment earnings, and alumni gifts) and how they in turn spend this income--on faculty and administrative salaries and benefits and on various forms of non-personel overhead costs for classrooms, athletic facilities, staff office, and the like.

A basic understanding between the IRS and universities is that administrative and faculty salaries and benefits should not approach those of for-profit corporations. After all, to provide their public service they in effect receive taxpayer subsidies by the very fact that they are tax exempt. Every dollar of taxes colleges do not pay must be made up by ordinary taxpayers. So keeping control of expenses, especially salaries and benefits, should be serious business and colleges' and universities' fiscal behavior should be closely monitored by the IRS.

This very rarely occurs.

It is almost unheard of for the IRS to audit 501(c)(3) institutions and even rarer for the IRS to keep an eye on salaries and perks.

That is until recently.

It wasn't the sleepy IRS that began to raise questions about questionable fiscal practices at a number of universities but grizzled Iowa Senator Chuck Grassley.

He stumbled onto upsetting information about compensation practices at New York University during Secretary of the Treasury nominee Jack Lew's confirmation hearing.

Lew had briefly been a senior administrator at NYU and, when he left to make his millions on Wall Street, was given a $685,000 golden parachute. Grassley also turned up information that NYU has been attempting to obscure the fact that Lew and others, including NYU's president John Sexton, had been given an array of perks that are, to say the least, questionable at a legitimate 501(c)(3) institution.

Senior administrators as well as some "star" faculty where offered below-market-rate loans to help them buy apartments; senior faculty and staff are able to live in downtown Manhattan apartments at well below market rents; and a number of senior administrators, including the dean of the law school and president Sexton have been give hundreds of thousands of dollars in subsidies so they could buy weekend country houses. In addition to Jack Lew, Sexton and law school dean Richard Revesz have been guaranteed lifetime annual high-six-figure bonuses after they retire. In Sexton's case, it is reported he will receive annually at least $600K above his pension when he leaves. His current salary and benefits package is nearly $2.0 million a year.

To the vast majority of the faculty, Sexton's retirement could not come soon enough.

Almost all of the schools and colleges of the university have voted no-confidence in him and the chair of the board of trustees, mergers-and-aquisition fixer Martin Lipton.

Among the things the faculty claim is that these corporate-like perks are not only being paid for by taxpayers through NYU's 501(c)(3) tax exempt status but by faculty and staff who have not seen their salaries and benefits keep pace with inflation and by increases in student tuition and fees--NYU's primary source of income. Since Sexton became president and the perks began to flow, tuition has risen well above the rate of inflation and scholarships, as a percentage of tuition, have declined.

During the ten years Sexton and his royal staff have been at the trough, NYU's ranking in US News & World Report has consistently fallen. Even the law school declined from 4th to 6th place and its once-esteemed Institute of Fine Arts is no longer number one. And, perhaps most significant, the undergraduate college has been slipping in standing during Sexton's tenure.

NYU and Columbia and many other elite institutions that are behaving in versions of the same manner are doing whatever they can to avoid giving Senator Grassley the information he is demanding.

We will see where this goes. From my experience as a dean at NYU and other institutions, what has been revealed about elite universities' financial practices is the tip of the iceberg.

But there is a simple solution--just as academic accrediting agencies from time-to-time place colleges on probation because they violate academic freedom or replace too many full-time faculty with less expensive and qualified part-timers (at NYU nearly 40 percent of undergrad courses are taught by adjuncts or graduate assistants), Senator Grassley could press the IRS to take a close look at NYU's books; and, if they find what the faculty is alleging, consider revoking NYU's tax-exempt status.

That would get their attention and quickly cause NYU and others engaged in similar practices to begin to reverse the decades-long trend to corporatize American higher education at taxpayers' and their students' expense.

July 8, 2013--Obama Agonistes

Sad to say, but the Obama presidency is over.

Yes, he may get us involved in knocking out Iran's nuclear facilities and this could lead to another ground war in the Middle East. That would be both perversely presidential and dangerously consequential. But unless a crisis is presented to us, or there is one we ourselves engender, Obama no longer matters.

The cascade of events and his behavior that rendered him ineffective began in Benghazi last September when our ambassador to Libya and three other Americans were killed. It wasn't the tragic murders that began to bring down Obama, but his administration's and his careless and perhaps deceitful handling of the narrative about what happened.

Then for at least a year, Obama's back-and-forth fumbling about what to do about the unraveling in Syria is a further example of his inability to have America exert influence or, more important, contribute to solving global problems. Admittedly, the situation there is likely intractable. The colonial and big-oil history of Western involvement in the region for more than 100 years, which included ignoring tribal and ethnic issues, is a classic case of proverbial geopolitical chickens coming home to roost.

Closer to home was and is the Internal Revenue scandal. "Scandal" is not too strong a term to describe the situation where the IRS, the most hated of the federal government's agencies, apparently targeted Tea-Party-related organizations seeking tax-exempt status. Once again, as serious as the deeds themselves was the ham-handed way in which the Obama administration handled the excuse-making and eventual staff changes.

Of course, perhaps worst of all, were the disclosures about the unfettered N.S.A. spying on American citizens at home and abroad. Yes, much or most of this may have been, is strictly-speaking "legal" and needs to be secret; but the casual way in which constitutional-scholar Barack Obama attempted to shrug off the facts that were emerging and the out-and-out dissembling, OK, lying by his national security team is beyond disappointing. And this gave his opponents, and the rest of us, further reason to be concerned about his ability to lead.

Speaking of his opponents, his domestic ones have effectively shut down any hope of legislative fixes to any of our daunting closer-to-home problems.

Because Barack Obama is inherently incapable of establishing personal relationships with congressional leaders of both parties--it is obvious that he even hates to have any of them over for a drink--do not expect comprehensive immigration reform. Tea-Party members in the House will assure that nothing comprehensive occurs.

Forget dealing with tax reform and sensible deficit reduction. Again Tea-Party Republicans are happy to do nothing and in that passive way see, to them, hated programs such as subsidized college loans and food stamps wither for lack of funding.

Forget doing much about climate change. Obama can make all the speeches he desires about this and other critical issues, but Republican opponents will continue to shrug him off.

Further, President Obama does not appear to have any international friends or partners. At the recent G-8 summit, when he attempted to sit down with Russian President Putin to talk about Libya and Iran, the pictures of them not relating to each other were worth many more than a thousand words.

And when the N.S.A. leaker revealed that the U.S. has been massively spying on our European allies, not one Western leader came to Obama's or America's defense. In fact, the head of the E.U. compared this outrageous behavior to what the Stasi did in East Germany during the Cold War.  To have the U.S. government compared publicly and angrily to the oppressive and barbaric East German communist regime may be hyperbole, but it is hyperbole engendered by Obama's passive behavior.

Then as a kind of piece de resistance, there was the announcement late last week, via a staffer, that the roll-out of Obama's signature, perhaps historic health care program's, Obamacare's implementation will be delayed for at least a year. This brought glee to Republicans who claimed, rightly, that the Obama administration is incapable of running even its most-favored initiative.

Lastly, at a very different level of concern, when my mother turned 105 last week, Rona attempted to get the White House to send her a letter of congratulations. She was able to get such letters from hapless George W. Bush when my mother's sisters Gussie and Fay turned 100; but my mom is still waiting for her letter from the current president.

Barack Obama may be gifted at delivering speeches and getting elected and reelected, but for running his administration, for leading the country, to acting effectively as the "leader of the free world," not so much.

So, it's on to 2016.