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The IRS Mess

By From the June 1998 issue

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In hearings last September, senators lashed out at the Internal Revenue Service, IRS agents testified anonymously behind screens, and TV cameras recorded the plight of citizens cruelly abused by the agency. People who take Congress seriously might have thought that the IRS was on the verge of extinction—or at least that the agency had finally gotten the message that it had no license to tyrannize the American people.

What has happened to the IRS since those heavily hyped hearings?

• The IRS made it much easier for informants to share in the money collected from people they accuse. Such payments were already on the upswing, doubling between 1995 and 1996, according to the Wall Street Journal. Informants will now collect 15 percent of the windfall, instead of 10 percent.

• The IRS canceled plans to reduce its staff by 800 job slots. According to the agency's chief of management David Mader: "We recognized with the additional commitments for customer service...we are going to need additional staff years to accomplish all of that." However, the problems highlighted in the hearings were due not to staffing shortages but to malicious policies and personnel.

• In February the Clinton administration called for a $534-million (6.4-percent) increase in the IRS budget.

• In late April, the Senate Finance Committee held more hearings in which both victims and agents of the IRS described how the agency violates the law. In dramatic testimony, former Sen. Howard Baker described how an IRS agent fabricated evidence against him. New IRS Commissioner Charles Rossotti showed up on the final day to argue that the IRS's estimate of its total losses from taxpayer noncompliance has doubled in recent years—the implication being that he and his agency are not about to surrender.

Last November 5, the House voted 426-4 to enact the "Taxpayer Bill of Rights." This bill offers some useful changes, yet the mere fact that almost all the House members supported it suggests that it does not fundamentally decrease the government's power. Republican congressional leaders weakened key provisions of the legislation to gain the Clinton administration's endorsement of it.

Some provisions of the "reform" bill are ludicrous. For instance, taxpayers may now make out their checks to the Treasury Department instead of the IRS. Former IRS Commissioner Margaret Richardson says the change "could have a very positive psychological impact and help lessen the antagonism" between citizens and the IRS. Perhaps if Congress allowed citizens to make out their tax payments to "Uncle Sam," public approval of the IRS would reach 100 percent.

The legislation also creates an oversight board, with a seat at the table guaranteed for a representative of the IRS employees union. (Needless to say, the union is supporting the House reform version, which speaks volumes about the bill's lack of seriousness.) And the legislation imposes new, costly mandates on taxpayers — calling for 80 percent of all tax returns to be filed electronically within ten years. Is it now an IRS rule that every taxpayer must own a computer? Will the cost be deductible?

The Senate IRS reform bill, written and championed by Delaware Sen. William Roth, goes much further to limit IRS power, but even its provisions can boggle the imagination. For instance, Roth wants the law to "require the IRS to provide an accounting and receipt to the taxpayer (including the amount credited to the taxpayer's account) when the IRS seizes and sells the taxpayer's property." That such a stipulation should be necessary suggests how contemptuously the IRS has been treating the average citizen. The Senate bill would also ban the IRS from confiscating people's homes if their tax liability is less than $5,000 — not exactly a radical limit on the agency's power. Finally, the Senate bill also authorizes healthy pay increases for top IRS officials.

Earlier this year, seeking to force the next two Congresses to be more resolute than the present assembly, House leaders hailed a bill to dismantle the current tax code by the year 2002. Yet even this expression of wishful thinking is apparently too controversial: The House is now expected to vote merely for a nonbinding resolution calling for phasing out the tax code. As Republican resolve on tax reform withers, shocking new details of abuses and deceit by the tax collectors continue to emerge.

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