Have you received your federal tax forms? For many households around the United States, the new forms have already arrived in the mail. We mention this because the mail boxes of America are involved in another way in tax matters this year, besides receiving the latest IRS forms. That is, the IRS is now starting to use private mail-order lists in order to track down tax cheaters.
Here's how it works: The IRS has acquired computerized printouts of some 2 million households in the US. The lists come from the direct-mail marketing community - firms that put together marketing lists of households based on income and other financial data that can be used by mail-order firms to target sales programs. The lists were acquired despite the refusal of three major firms in the direct-marketing field to cooperate with the IRS, as well as over the objections of the Direct Marketing Association, the industry's primary trade group.
The IRS will match the direct-mail marketing data containing income estimates against its own computer lists to determine whether households may be underreporting income or not paying taxes.
As we have said earlier on these pages, the IRS is more than justified in seeking to identify tax cheats - persons and firms that either deliberately underpay taxes, or fail to pay them at all. The underground economy - where transactions are made in cash or on a barter basis - is estimated at between $90 billion and $100 billion, half the federal budget deficit.
There is a larger principle, however, that should not be overlooked. The public will support the IRS in going after tax dodgers if it perceives that IRS methods are aboveboard and fair. If the public begins to feel threatened by IRS investigation procedures, support could quickly evaporate.
There are a number of problems in using direct-mail listings. The Federal Privacy Act sets out the rule that information collected for one purpose cannot be used for another purpose without informing the individuals involved of the change in use. And what about the responsibility of private marketing firms? Why should they be information agencies for the government?
A final element is worrisome. Information on mailing lists is often wrong. Should such often-erroneous lists be used to initiate possible federal income tax inquiries or audits?