Three hundred and twenty days ago, the Internal Revenue Service launched an investigation of one of its own lawyers over things he allegedly told media outlets, including The Washington Post, about a multibillion-dollar corporate tax credit scheme involving a source of energy informally known as black liquor.
The Treasury Inspector General for Tax Administration, which examines criminal allegations, questioned William Henck on Sept. 11, 2015, wrote a report and gave it to the IRS chief counsel to decide whether any wrongdoing took place.
Henck is still waiting to find out what the inspector general recommended — and what, if anything, the IRS is going to do about it. He was told by the inspector general’s office that its report, completed at least six months ago, can’t be shared with him. The matter now rests in the hands of the IRS chief counsel. The IRS has declined to comment on the matter, and the Treasury, which oversees the IRS, said it is up to the agency and would not comment.
The circular series of no comments appears to leave Henck in a Kafkaesque limbo — not knowing the status of the investigation, which he says weighs heavily on him. The source of the allegations remains secret, the report remains secret, and current disciplinary proceedings, if any are underway, remain secret.
Tom Devine, legal director of the Government Accountability Project, said actions like this have a “chilling effect” on whistleblowers like Henck, who had discussed a highly questionable tax policy issue with Senate Finance Committee staff and the media.
“This thing staying open without end, and with him twisting in the wind and in the dark, personifies how this can be used effectively to silence whistleblowers,” Devine said.
Henck’s situation appears to be unusual. In its 18th annual “Report on Professionalism,” the office of the chief counsel for the IRS said that it received 67 referrals from the inspector general during 2015. In 66 of those, the allegations were either unsubstantiated or dealt with, usually with counseling.
The number of cases still pending? One. Henck.
“This ongoing harassment seems calculated to intimidate Mr. Henck and prevent him from making further disclosures to Congress,” said Jason Zukerman, Henck’s attorney. “This is no way to treat an employee who has loyally served the agency for 29 years and is dedicated to the agency’s mission. Indeed, his dedication to the agency’s mission prompted him to blow the whistle.”
Desperate for a resolution, Henck gave The Post permission to see any private information on him, flattering or unflattering, and The Post has contacted Treasury, IRS, and IRS inspector general several times since late May. On July 6, IRS spokesman Matthew F. Leas had only this to say: “The IRS takes the protection of taxpayer and employee information very seriously. Federal disclosure laws prohibit the IRS from commenting on personnel matters concerning specific employees.”
Henck thinks the IRS is retaliating for his decision to publicly question one of the agency’s policies. That policy concerned refundable biofuels tax credits, created to foster new technologies but which ended up being claimed by big paper companies that had been burning a pulping byproduct known as black liquor since the 1930s.
Defying normal practice, the IRS did not issue written guidance at first and did not oppose the paper companies’ claims. Congress did not act either. As a result, the paper companies, which were losing money during the 2009 financial crisis, ended up receiving $8 billion or more in direct payments from the Treasury. The Post published several articles on the subject. Many tax experts, including Martin Sullivan, a former Treasury official and chief economist of the nonprofit group Tax Analysts, condemned the black liquor credits.
Henck was quoted in The Post in a July 19, 2013 article. He drew attention to the fact that while the paper companies initially treated the biofuel tax credits as taxable income, they later amended their returns to treat the payments as tax-free. Henck did not believe the payments should be treated as tax-exempt, but he was overruled by Andy Keyso, the IRS associate chief counsel. Again there was no written guidance issued. The difference cost the Treasury another $2 billion.
At no time did Henck discuss any individual company with The Post, but he said that is one of two issues the inspector general for tax administration wanted to discuss when it questioned him more than 10 months ago. The other issue TIGTA agents raised concerned a document with all taxpayer information blacked out that Henck shared with a television reporter, who used it on air. The only thing legible was Henck’s own criticism of the tax policy.
“If the IRS had evidence, then presumably it would have taken swift action, such as placing Mr. Henck on administrative leave,” Zuckerman said.
“This whole sorry episode has had a devastating impact on my health and my family,” Henck wrote in a May email to Brendan Soden, the TIGTA agent who contacted him on Sept. 4 last year. That was the day Henck’s younger son played the opening football game of his senior year in high school. He graduated more than a month ago.
“You people and chief counsel management have joined forces in letting me twist slowly in the wind,” Henck wrote.
This is not Henck’s first brush with his superiors at IRS. In 2003, he went to the Wall Street Journal to protest the IRS’s failure to treat synthetic fuels cases as tax shelters that would cost the government billions of dollars. He alleged the IRS allowed companies to spray “Elmer’s glue” on ordinary coal to make it look like a synthetic fuel.
Henck said at that time that the IRS conducted a tax audit of him and his wife. An examiner found no problem with the Hencks’ returns, but in a highly unusual move, the agency kept the audit open anyway. As The Post was preparing to write about the inquiry in 2004, the IRS closed the audit.
Henck has also made allegations that the IRS general counsel’s office has bent to the will of lobbyists from corporations with large stakes in tax rulings.
Henck says that he believes strongly that in discussing the black liquor credits, he was doing his duty to protect American taxpayers.
“As I stated in the interview, I did my duty as a federal employee to report misconduct that cost the government at least two billion dollars and which resulted in secret law that was an improper windfall for lobbyist-represented taxpayers,” Henck wrote. “The treasury was being looted and I had a legal and moral obligation to try to prevent it. Once my efforts to report up were ignored, I reported out. I took an oath to this country and I take that oath seriously.”