A law until itself

A former New York Times investigative reporter explains how the IRS puts results above going after the real tax evaders.


Jeff Stein
April 4, 1997 6:38PM (UTC)

in 1989, ex-New York Times investigative reporter David Burnham provoked
headlines and congressional investigations with the publication of his exposi of the IRS, "A Law Unto Itself: Power, Politics, and the IRS." Burnham has stayed on the story and is about to unveil a Web site
detailing the methods by which the IRS decides who gets audited (or prosecuted) and
who goes untouched.

The Web site is a co-production of TRAC, the Transactional Records Access Clearinghouse, a non-partisan research organization in Washington, in association with Syracuse University. Available on the site are 35,000 pages of data gleaned from the IRS, the Justice Department and federal court files. Previously accessible only to journalists, the Web site will be open to the general public starting at 6:30 p.m., EDT this Saturday (April 12).

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As millions of Americans were feverishly working on their tax returns to beat the April 15 deadline, Salon talked with Burnham about why the IRS remains "a law unto itself."

You say honest taxpayers have reasons to fear the IRS. Why?

Because the IRS is a very uneven, erratic, badly managed,
sometimes political, sometimes corrupt organization.

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Even if I file my taxes accurately?

There are a lot of people who file accurately who get in a great deal of
trouble.

Like who?

Anyone from political enemies of the administration to ordinary victims of a screw-up. There was a couple in San Francisco who the IRS said they
owed a lot of money. They said they didn't. They went to tax court,
at which point the IRS machinery is supposed to stop. It did not.
They kept getting notices. Their lawyer told the IRS, "Stop! Stop!"
But they kept sending notices. All of the sudden they found their bank
accounts frozen, liens on their house and everything else. Later, when
they sued the IRS for improperly disclosing their tax information, the
IRS responded that it wasn't their fault; it was the IRS computer's
fault. There are literally thousands of stories of this kind.

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Time magazine
reported that IRS computers were in such bad shape that it was easy to defraud the tax system.

It depends on your perspective. Because of the payroll withholding
system, the IRS actually collects more money than any other tax agency in
the world. But because it's still so clumsy, it encourages
cheating.

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According to your data, the question of whether you'll be audited
depends very much on where you live.

Right. Now, one would expect that. For example, one would think that a
wealthy IRS district would have a high audit rate, and a poor district
would have a lower audit rate. However, people in Mississippi -- the
poorest district in the country -- are audited nearly as much as people
living in New York, which has the highest adjusted gross income in the
country.

How do you explain that?

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Maybe one
reason is that people in New York tend to have fancy accountants and
lawyers, and in the poor areas they're easy pickin'. So, the IRS goes after a lot of $10,000-a-year dirt farmers. How much are you going to recover from that? But then, the IRS has a quota system -- it has to come up
with a certain number of audits.

Your data also shows that, in general, the IRS audits more individual taxpayers than corporations.

Yep, that's sort of amazing, isn't it? It started during the
Reagan-Bush years, and has continued into the Clinton years.

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Is there any logic to it?

The IRS has some very interesting statistics
showing how much more compliance they get when they audit a poor person,
as opposed to a wealthier person. Now, of course, they would get a lot
more money per audit of someone earning over $100,000 than someone under
$25,000. But they get a lot more compliance -- more "cases completed"
-- with audits of poorer people. So that's who the bureaucrats go
after. There's pressure on them to close cases and get additional revenue.

Prosecutions and jail sentences for tax evasion
vary greatly by region also.

That's right. If you're convicted of a tax crime in Ft. Worth, Texas,
for example, the median sentence is seven times longer than if you're
convicted of a tax crime in Philadelphia. Now, it makes sense that Reno, Nevada,
is high on the list of tax prosecutions, given the gambling there, but
why is Asheville, N.C., also in the top ten? It doesn't make
sense. And we can't get the IRS to explain it to us.

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So what we have here is not so much a bureaucracy as an
"ad hoc-racy." I think it violates the constitutional protection of
equal treatment under the laws. And it's very bad for the country: It
encourages cynicism about government -- which in the long-run is bad for
all of us. In the short-run, it's very expensive and causes a lot of
pain to a lot of people.

One reason why the IRS has shifted resources away from
corporations and wealthy individuals is so that it can go after drug dealers. What's wrong with that?

Most good tax administrators say that the IRS should focus on collecting
the correct amount of money from taxpayers. That's what it's for. If
you want to go after drug dealers, you've got a DEA and an FBI. Use them. But look what's going on instead: The IRS pays more attention to
poor people and to drug dealers. The people who are getting less
attention are the more wealthy, the more comfortable and the well-off
business executives.

On your Web site, you say that we can't even be sure the IRS'
numbers are accurate at all.

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The information they provide the public is often
misleading. Seriously misleading. Comparing their data with
information available through the Justice Department and the courts, we
found that the IRS vastly exaggerates the number of people who are being
charged as a result of their investigations. They exaggerate even more
the number of people who are going to prison as a result of their
investigations. We know this because the case data from the Justice
Department figures and the courts match, but the IRS numbers don't. We
wrote a series of letters to the IRS asking them to explain the
discrepancies, but over and over again they've refused to meet with us.
At the same time, they've told reporters that our numbers are all wrong.
And it's worked -- it's scared a lot of reporters off.

How corrupt is the IRS?

It comes and goes. In the Truman years the IRS director was indicted; so was the Assistant Attorney General for tax matters, who went to
jail. In those years the heads of the district IRS offices were
political appointees. There was a big reform movement in the 1950s
and the IRS was turned over to the civil service.
Corruption returned in the 1980s, with senior IRS officials in Chicago hanging
out with organized crime, for example. Nancy Reagan played fast and
loose with the tax rules about receiving gifts -- relating to dresses she got from
designers. Eventually she was forced to pay a large sum in back taxes, although
there was also a lot of consideration given to prosecuting her,
because she did it knowingly. But it was bottled up in the Justice
Department under Dick Thornburgh.

How politicized is the IRS?

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It's often been used by presidents for political purposes. Herbert
Hoover did it; Roosevelt did it; Nixon of course did it. They all went
after their political enemies. During the Bush years, a wealthy Georgia
contributor escaped prosecution even though the local IRS office and
every prosecutor recommended it. That was unprecedented.
Conservatives claim that the Clintons are going after right-wing
foundations, and there's an investigation into that by the Joint Tax
Committee in Congress. Frankly, I don't think there's much evidence for
it. This administration is so unfocused ... It's not Nixon.

But the IRS itself can be very selective about what political organizations it goes after.

Absolutely. For years the Catholic Church violated the rules against
political activities by a tax-exempt institution -- by openly lobbying
on the abortion issue, supporting specific anti-abortion candidates,
taking out paid ads in newspapers and so forth. And the IRS put its
head in the sand. Then, just as a piece I wrote on it was about
to come out in the New York Times, church leaders rushed out an internal
memo telling its people what they could and could not do under the tax
law, and they stopped doing it. But not because of the IRS.

Another main point you make is that it's extremely
difficult to find out what the IRS is up to.

The IRS makes a strenuous effort to keep secrets. It cloaks that secrecy
in the rightful requirement to protect the privacy of taxpayer
information. But it goes way too far: It suppresses historical
documents and administrative data -- even memos on why they're moving an
office from one place to another. The Freedom of Information Act requires every
department to have a reading room where you can go look at stuff that's
been released, but when my partner Susan Long went down there, the IRS
locked the door and said the FOIA did not apply to them. Period. They
ignore FOIA decisions that go against them. They are quite a lawless
organization.


Jeff Stein

Jeff Stein is the coauthor, with Khidhir Hamza, of "Saddam's Bombmaker: The Daring Escape of the Man Who Built Iraq's Secret Weapon." He writes frequently for Salon on national security issues from Washington.

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