Sometime-Bully IRS Gets Tough Audit

But Congress has no plans to simplify tax code, despite hearings on agency abuses.

Some Internal Revenue Service agents are loafer-shod thugs who pursue the weak, falsify assessments, hide behind pseudonyms, and in general pillage the American taxpayer.

At least, that's the implication of the dramatic stories a Senate panel has heard this week. Even IRS officials admit that examples such as the California woman who fought a false $11,000 tax bill for 17 years are horrific.

"No one should have to endure what these citizens describe as their experience at the hands of the tax system," said acting IRS Commissioner Michael Dolan in a statement.

Whether Capitol Hill can - or will - do anything to eliminate such abuse is an open question. Congress has already passed two big taxpayer-protection acts in the past decade, and they don't appear to have made the IRS squeaky clean. Prospects for further legislation are uncertain.

One reason: There's a dynamic tension within the US tax system. Most IRS officials don't set out to treat taxpayers unfairly. But they aim to squeeze as much revenue as possible out of a system in which tax evasion remains a major problem.

And the fiendish complications of US tax law make conflict almost inevitable. Congress itself created those laws, not the IRS.

"A great deal of the problems of the IRS come about because of legislation we have passed," said Sen. Daniel Moynihan (D) of New York this week.

Still, reform proponents have a number of ideas. Among the IRS changes now being floated in Washington are:

* Removing the IRS from the Treasury Department and making it an independent agency.

* Establishing an IRS oversight board composed largely of private-sector representatives.

* Scrapping thousands of pages of the US tax code and replacing them with a simple flat tax rate.

When senators asked former IRS historian Shelley Davis how she would change the agency, she said the first step should be simply to make the agency more open and accessible.

"Mystery breeds fear and mistrust among the American people," said Ms. Davis.

The US public has never been particularly fond of its tax collectors. In July 1794, 500 armed men angered by an excise tax burned down the home of a regional revenue inspector in western Pennsylvania.

This Whiskey Rebellion developed into the largest challenge to the authority of the federal government between the Revolution and the Civil War. It didn't end until 13,000 troops took control of the region.

More recently, there have been 3,200 assaults against or threats to IRS employees in the past five years, according to the agency.

This week's Senate Finance Committee hearings have grabbed the nation's attention by showing the other side of this coin, however. Fear of the IRS resonates with many taxpayers: Senator after senator at the hearings told of how their phone lines have been jammed for days with constituents who want to add their own tax horror stories to the list.

AMONG those who did tell their story to the panel, Katherine Lund Hicks tearfully related how her credit was destroyed after the IRS filed a tax lien against her - even though the agency had told her she owed nothing on the divorce-related tax bill in question.

Another woman said she and her husband paid $11,000 they did not owe to put an end to IRS enforcement actions, which could have closed her husband's optometry practice. The owner of a small construction company said he let the IRS keep $50,000 of a seized government payment check to settle a case because it would have cost far more to fight the IRS.

Yesterday, an anonymous IRS employee, hidden behind a screen and speaking through a voice distorter, told the Senate Finance Committee that the tax-collection service sometimes tried to conceal its abuses. "Does the IRS cover up abuses? The answer is yes.... The IRS protects itself, whether right or wrong," said the woman, who offered an inside view on the condition the committee protect her identity.

Five other anonymous IRS workers also testified, alleging unauthorized rifling of taxpayers' files, inconsistent collection practices, abuse of travel funds, and rampant mismanagement.

Such problems have been an issue in Congress before. In 1988, lawmakers passed a Taxpayer Bill of Rights that, among other things, barred the IRS from levying penalties attributable to its own bad advice. Another bill enacted in 1996 allows citizens to sue the IRS for reckless collections and requires the agency to notify former spouses when it moves to collect jointly owed taxes from the other spouse.

Finance Committee chairman Sen. William Roth Jr. (R) of Delaware says he's preparing a reform package, but it won't be introduced until next year.

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