Just in time for Tax Day, the for-profit tax preparation industry is about to realize one of its long-sought goals. Congressional Democrats and Republicans are moving to permanently bar the IRS from creating a free electronic tax filing system.Last week, the House Ways and Means Committee, led by Rep. Richard Neal (D-Mass.), passed the Taxpayer First Act, a wide-ranging bill making several administrative changes to the IRS that is sponsored by Reps. John Lewis (D-Ga.) and Mike Kelly (R-Pa).In one of its provisions, the bill makes it illegal for the IRS to create its own online system of tax filing. Companies like Intuit, the maker of TurboTax, and H&R Block have lobbied for years to block the IRS from creating such a system. If the tax agency created its own program, which would be similar to programs other developed countries have, it would threaten the industry’s profits.
This week, federal prosecutors indicted former Speaker of the House Dennis Hastert.
Hastert is charged with two federal crimes: structuring financial transactions to evade IRS reporting requirements in violation of 31 U.S.C. section 5324(a)(3) and lying to the FBI in violation of the notorious 18 U.S.C. section 1001. Both charges reflect the breadth of federal prosecutorial power.
The indictment has mostly inspired chatter about what it doesn’t say. Hastert is charged with structuring withdrawals of less than $10,000 (so that they would not be reported to the IRS) so that he could pay off an unidentified person for Hastert’s unidentified past misconduct. What past misconduct, or threatened accusation of misconduct, could lead Hastert to pay $3.5 million? The indictment doesn’t say, but it has been drafted to imply that the allegation of past misconduct relates to Hastert’s job as a teacher and coach in Yorkville, Illinois. Hastert isn’t charged with doing anything to the accuser, and the accuser isn’t charged with extortion.
As Radley Balko has pointed out, structuring (or “smurfing”) charges are extremely flexible. They demonstrate the reality of how Americans targeted by the Department of Justice can be charged. We imagine law enforcement operating like we see on TV: someone commits a crime, everyone knows what the crime is, law enforcement reacts by charging them with that crime. But that’s not how federal prosecution always works. Particularly with high-profile targets, federal prosecution is often an exercise in searching for a theory to prosecute someone that the feds would like to prosecute. There is an element of creativity: what federal statute can we find to prosecute this person?
We’ll learn more about the reasons for Hastert’s payments in the course of the case (or through Department of Justice leaks calculated to harm him). I suspect we’ll find that the investigation happened like this: the feds heard that Hastert was paying someone off based on an accusation of old misconduct, determined that the misconduct was too old (or out of their jurisdiction) to prosecute, and started subpoenaing records and interviewing witnesses until they found some element of what he was doing that was a federal crime. In other words, they targeted the man, and then looked for the crime.
The problem with this scenario is that federal criminal law is extremely broad. Practically speaking, it gives federal prosecutors vast discretion to determine who among us faces criminal charges. If you think that you’re safe because you’ve never committed a crime, you may learn to your surprise that you’re wrong.
The rational response to this situation is clear: don’t trust the feds, don’t talk to the feds. But Dennis Hastert, like many accomplished people, believed he could talk his way out of the situation. When the FBI came to interview him, he didn’t refuse to answer and call his lawyer. According to the indictment, he confirmed in response to an FBI agent’s question that he was withdrawing cash in order to store it because he didn’t feel the banking system was safe. For that, he’s been charged with lying to federal agents.
I’m not sure what to make of this, or even what it means. The IRS has a standard called IDES: International Data Exchange Service: “The International Data Exchange Service (IDES) is an electronic delivery point where Financial Institutions (FI) and Host Country Tax Authorities (HCTA) can transmit and exchange FATCA data with the United States.” It’s like IRS data submission, but for other governments and foreign banks.
Buried in one of the documents are the rules for encryption:
While performing AES encryption, there are several settings and options depending on the tool used to perform encryption. IRS recommended settings should be used to maintain compatibility:
- Cipher Mode: ECB (Electronic Code Book).
- Salt: No salt value
- Initialization Vector: No Initialization Vector (IV). If an IV is present, set to all zeros to avoid affecting the encryption.
- Key Size: 256 bits / 32 bytes Key size should be verified and moving the key across operating systems can affect the key size.
- Encoding: There can be no special encoding. The file will contain only the raw encrypted bytes.
- Padding: PKCS#7 or PKCS#5.
ECB? Are they serious?