What Was so Lavish About the IRS Employee Conference?

The conference was called “lavish” and “shameless.” Could it pass an IRS audit? Here’s what experts say.

The conference was called “lavish” and “shameless.” Could it pass an IRS audit? Here’s what experts say.
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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.