Tax counselor vs. tax cop
A kinder, gentler Internal Revenue Service may not be entirely a blessing for most taxpayers.
At least for those taxpayers who strive to pay their fair share of taxes.
For tax cheats, weakened IRS enforcement could be just dandy.
Already, at seminars for private tax advisers, legal experts are talking about how to take advantage of new provisions for protecting taxpayers from IRS abuse put into the IRS Restructuring and Reform Act of 1998.
In taxing estates, for instance, there can be disputes over property valuations. IRS agents, to save time, sometimes negotiate a value for tax purposes. The 1998 act, however, gives taxpayers new rights of due process, involving delays, and of appeal outside the IRS to the courts. Desirable as this appears from a rights standpoint, the taxpayer can more easily delay collection. This strengthens their bargaining position with the IRS.
"People will exploit that to their use," says Charles Davenport, a law professor at Rutgers University. So IRS agents may "settle for a few dollars."
Most wage earners, of course, can't negotiate with the IRS. Taxes are deducted regularly from their pay by their employers.
But a host of taxpayers have extra income that some do not report on their tax forms. Or a taxpayer may claim false deductions.
Tax experts estimate federal income tax revenues would rise 17 percent if every tax dollar was paid.
Some suspect this percentage will climb with the 1998 act.
Even now, IRS agents are clearly so frightened by the law's provision that an agent found guilty of abusing a taxpayer while collecting revenue can be terminated without a right of appeal. There has been a sudden drop-off in IRS enforcement actions.
Filing of tax liens, which make sure that back taxes are paid when a property is sold, is down from 544,000 in all of fiscal 1997 to 98,000 in the first half of fiscal 1999. Levies and garnishments of bank accounts and paychecks are down from 3.6 million to 458,000 in the October-March period. Seizures of property have plunged from 2.8 million to 108.
Other factors in the decline include the new appeals process and the switch of IRS personnel from enforcement to providing taxpayers with the information they need to pay their taxes.
IRS Commissioner Charles Rossotti told the Joint Committee on Taxation last week that the agency can meet the congressional mandate to provide better taxpayer service without hurting enforcement
"I do not believe this mandate implies or requires less effective tax collections," he said.
But he was concerned enough to assure the IRS's 98,000 employees, in a memo with their March paychecks, that their positions were safe unless they willfully abused taxpayers' rights. And he issued new regulations on how to handle the new law.
Some former tax commissioners, though, do worry about the law's impact on tax collections. So does Joel Slemrod, a tax expert at the University of Michigan's business school in Ann Arbor. He sees a danger that law-abiding taxpayers may start seeing themselves as "suckers" if they get the feeling tax evaders are multiplying. Those actually paying their taxes properly are the ones who make up for lost tax revenues.
Tax enforcement brings in only 2 percent, or about $34 billion, of the $1.7 trillion in revenues collected by the IRS. So some slippage in enforcement may not in itself be disastrous from a revenue standpoint.
"I'm not ready to scream that the sky is falling," says Christopher Bergin, editor of Tax Notes, an Arlington, Va. nonprofit publication. But he suspects the 1998 act did go "too far" in its move away from compliance toward taxpayer rights and service.
In the 1980s, Congress saw the IRS as a profit center, raising $10 for every $1 added to the IRS budget. The 1998 act emphasizes tax counselor over tax cop. But it didn't add a single new buck to the IRS budget for either job. That could be costly to Uncle Sam.
* David R. Francis is the Monitor's senior economics correspondent.