A Kinder, Gentler IRS-

Budget Cuts Make It Easier for Tax Cheats to Not Get Caught

Date:  4/09/2001


A Kinder, Gentler IRS
Budget Cuts Making It Easier For Tax Cheats To Not Get Caught
By John Martin
W A S H I N G TO N, April 9, 2001— Just three years ago, Congress was on the warpath about the IRS being too tough on taxpayers.
Losing Revenue, Losing Credibility   Blaming Congress' Original Intent  
In a 1998 congressional hearing, Rep. William Roth, R-Del., specifically said, "It is wrong to use these kinds of aggressive tactics…"

The IRS got the message, shifted agents from enforcement to service, put more effort into answering telephones and helping taxpayers understand the confusing tax code.

This year, when a Syracuse University study team, Transactional Records Access Clearinghouse, analyzed the IRS data, it found tax enforcement had suffered.

"They're doing a lot, lot less than they were doing last year, the year before last, 10 years ago," says David Burnham of TRAC. "Audits are profoundly down."

In 1989, the IRS audited one of every nine taxpayers who earned $100,000. But last year, it audited only one of every 204.

In 1992, the IRS took 2,519 taxpayers to court, but last year it filed just 641 cases.

In 1992, the IRS audited just over half of the largest corporations, but last year it audited just under a third.

On top of that, the IRS commissioner, Charles Rossotti, says the new budget gives his agency a little more money but still not enough to pursue tax cheats and protesters as vigorously as they did in years past. "We need to do better," explains Rossotti. "We can't continue the kind of decline we've had over the last 10 years. We need to turn it around."

Losing Revenue, Losing Credibility

By reducing its effort to catch tax cheats, the IRS could be opening itself up to more cheating and an enormous loss of revenue, says Charles Lewis, the co-author of a new book, The Cheating of America.

"The government is not collecting all the revenue that it ought to be collecting," says Lewis. "And by its own estimates — the IRS commissioner's own estimates — it's $195 billion a year. Well, that works out to $2 trillion over 10 years, which is bigger than the Bush tax cut. Or, put it differently, that is $1,600 that every taxpayer pays more in taxes because we're not collecting all the taxes from all Americans."

Lewis and other critics fear taxpayers will cheat on a massive scale if the IRS lowers its guard.

One way to gauge the effort is how the IRS treats tax protesters who don't pay taxes as a matter of principle.

"It's unconstitutional," explains Nick Jesson, an owner of an electronics company who refuses to pay taxes. "There is nothing in the Constitution that allows them to collect taxes from the American citizen wages."

Under the old IRS, Jesson and his company would have been taken to court almost immediately. Now, the IRS does not even call.

When asked if Marc Rich were to file his first tax return this year, what would be the chance he'd be prosecuted, Lewis answered, "Almost no chance."

"This is an emasculation of an agency's ability to collect taxes," says Lewis.

Blaming Congress' Original Intent

So who's at fault? A former commissioner, Donald Alexander, blames Congress: "Congress mandated the IRS come down lighter on taxpayers. And, indeed, [the] IRS has done just that."

One reason may be that IRS employees fear they will be sued. Congress inserted Section 1203 in the tax code to permit taxpayers to strike back, specifically saying IRS subjects are subject to dismissal if they act improperly.

But, Alexander says, "'acting improperly' is defined so broadly that agents [who] particularly [have] collection responsibilities are simply afraid to do anything."

In Congress' initial effort to remedy the situation in 1998, Alexander thinks they really hurt the IRS. "Congress instructed [the] IRS to be friendlier, more helpful, to be warm and cuddly," he says. "Now, I see no reason why [the] IRS shouldn't be friendlier to taxpayers, I think it ought to be helpful to taxpayers, it out to be respectful of taxpayers, but some people don't pay their taxes and won't pay their taxes unless the IRS makes them do so."

The IRS insists Americans are still basically honest, but it has no way of knowing for sure. And they have no way of finding out because Congress cancelled the random sampling program the IRS used to see whether people were paying their taxes. And with 10,000 fewer employees than a decade ago, there's no way now to figure it out.

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Last revision: February 07, 2012 08:55 AM
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