What Would The IRS Do If This Happened To You?
You’ve just arrived home from work. As you walk through your front door, your wife hands you a cocktail.
“Honey, we’ve got to talk,” she tells you as she pours herself a double. “I was balancing the checkbook today, and guess what. We’re missing $6.5 trillion from our account.”
“No problem,” you respond, as you take a sip from your cocktail. “I’ll just call up Federal Reserve Chairman Janet Yellen tomorrow. I’m sure she can help us make good on the shortfall. After all, the Fed has the authority to create money out of thin air.”
Of course, this scenario would never occur. While the Fed can create monetary reserves “ex nihilo” — literally, “out of nothing” — it acts on behalf of the US Treasury, not private citizens.
On the other hand, if you’re the Pentagon, losing $6.5 trillion is just another day at the office.
Indeed, in a report released in June, the Defense Department’s inspector general admitted that just one branch of the military, the Army, made $6.5 trillion in wrongful adjustments to accounting entries. In many cases, the Army had no receipts or even invoices to support those expenditures.
Incredibly, according to the report, in some cases the Army simply invented the adjustments out of thin air.
Just like the Fed.
In case you are wondering, this isn’t exactly a new problem. Back in 2001, former Department of Defense Secretary Donald Rumsfeld made this astonishing admission:
“According to some estimates, we cannot track $2.3 trillion in transactions.”
At the time, that amount represented more than $8,000 for every person living in the US. For the “lost” $6.5 trillion, the loss per US resident exceeds $20,000.
Obviously, $6.5 trillion is a lot of money. But what’s amazing is that almost no one in the Land of the Free is talking about it.
When was the last time you heard Hillary Clinton or Donald Trump criticize military spending or call on the Pentagon to clean up its books? The last time I remember anything like this was in 1968, when former Senator Eugene McCarthy (D-MN) ran for president on an anti-Vietnam War platform that included deep cuts in military spending. He lost the Democratic nomination for the presidency to then-Vice President Hubert Humphrey.
You can imagine the reaction of the IRS if you’re audited and it discovers you had $6.5 trillion in unreported income that you suddenly “lost.” Heck, even unreported income only one-billionth that size — $6,500 — could get you in trouble with the taxman.
I’d wager that $6.5 trillion is just the tip of the iceberg. How many trillions have the Air Force and Navy lost? What about expenditures by other federal agencies?
Now, it’s true that the military has unique difficulties when it comes to keeping track of expenditures. After all, US military forces are stationed in more than 150 countries. That fact, combined with the sheer scale of the Pentagon’s budget — $573 billion in 2016 alone — makes nailing down spending to the nearest penny or even the nearest dollar next to impossible. But it should be able to do better than the nearest $6.5 trillion.
Where did it all go? I don’t have a clue, although in 2004, the Pentagon flew nearly $12 billion in shrink-wrapped $100 bills into Iraq. It then distributed the funds with almost no oversight — 363 tons of $100s in all. In 2011, Pentagon officials admitted they had no idea what happened to at least $6.6 billion of the cash.
It turns out that this cash actually came from Iraqi oil sales, surplus funds from the UN oil-for-food program, and seized Iraqi assets. But whatever its origin, it demonstrates the incredibly lax oversight the Pentagon exercises over multi-billion-dollar operations.
And consider what would happen if you decided to do something similar. Anyone entering or leaving the US with more than $10,000 in cash must complete a Treasury Form 105. And if you fail to do so? In that event, you face:
Civil and criminal penalties, including under certain circumstances a fine of not more than $500,000 and Imprisonment of not more than ten years, are provided for failure to file a report, filing a report containing a material omission or misstatement, or filing a false or fraudulent report. In addition, the currency or monetary instrument may be subject to seizure and forfeiture.
But that’s just not how it works at the Pentagon nor throughout the federal government. I’ve never heard of anyone being held accountable for the loss of the $6.6 billion in cash, must less the “missing” $6.5 trillion. Those who create the money out of thin air make the rules, and the recipients of those funds break them with impunity.
Maybe it’s time to consider your “Plan B.”
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