As the national economy surged during the 90s, the IRS’ staff was reduced by 17% and its mission shifted from enforcing the tax laws to “customer service.”
One by-product of the “leaner and friendlier” IRS was the decision to stop pursuing collection of back taxes from more than a million tax delinquents. This has resulted in billions of dollars in uncollected taxes being written-off with no further attempts to collect.
During the 1990s, popular opinion turned sharply against the IRS, and Congress took the agency out to the woodshed for an attitude adjustment. Taxpayers, who claimed to have been humiliated and mutilated by the Internal Revenue Service, testified about the “Gestapo-like” treatment they had received at the hands of the men and women who are charged with the unpopular job of enforcing the tax laws. Notwithstanding the fact that most of the testimony before Congress was later recanted or proved to be false, the die was cast and the agency’s hands were slapped. It was ordered to concentrate on “customer service,” similar to Wal-Mart.
This all sounds so good that we can hardly control our exuberance. There’s only one little problem with the “new, improved, economy-size” IRS acting like Little Bo Peep nurturing the sheep; the tax laws are not getting enforced. It is true that we have a self-assessment tax system. However, some people have trouble self-assessing themselves without subtle encouragement from the government. When the threat of audit declines, the incentive to selflessly assess ourselves takes a nosedive. Greed is basic to human nature. Always has been, always will be.
In a recent story in The New York Times, an anonymous IRS agent is quoted as saying that more than a third of the three million Americans who are behind on paying their taxes have had their cases sent to an inactive file. This occurred since the IRS decided in June 1999 not to try to collect their old accounts. For just last year, that decision effectively wrote-off $2.5 billion in taxes owed by 668,018 taxpayers. By contrast, in 1998, only 98 taxpayers had their cases sent to the inactive file.
Since 1992, IRS enforcement actions have fallen by two-thirds for audits and by 99% for seizures of property to pay back taxes. In April of this year, the IRS Oversight Board, created by Congress to supervise the agency, issued a report saying that the IRS was seriously underfunded. I believe that conclusion is a colossal understatement.
Nobody likes an I-Told-You-So — but I told you so.
When Congress was holding the IRS hearings several years ago, I went to the defense of the IRS. In several columns relating to the issue, I said that, in over 30 years of dealing with the Internal Revenue Service, I had never experienced any of the treatment being presented to Congress. Frankly, I was pleased and felt somewhat vindicated when it was later determined that most of the congressional testifiers were untruthful. Some IRS agents are very professional, others leave something to be desired, but on the whole, they are pretty effective at what they do. Or at least they were before Congress hog-tied them with a new Mary Poppins mission statement.
It has been suggested that if you haven’t been audited recently and don’t know anyone who has, the temptation to cheat can be overwhelming. After all, why not play the “audit lottery” and take your chances. Experts have opined that about 5% of tax returns need to be audited to establish the proper level of apprehension to sustain reasonable compliance. The IRS now audits less than 1% of tax returns.
The IRS is one government agency that pays for itself. The yield in additional taxes far exceeds the cost of the agency. If our acclaimed self-assessment system is to survive, we must adequately fund the agency charged with collecting the tax. This is not to say that we wish, or would allow, the IRS to become a monster preying on the tax-paying public. However, they were not so disposed back before they were effectively de-fanged and compliance was at a much more acceptable level then.
It takes a brave soul to defend a much maligned government agency. But truth is truth and the IRS has gotten a bad rap of late. Our citizenry demands more and more of government and the only place to get the funds to provide for our every whim is taxes. If compliance with the tax law drops precipitously, there is no option but to require the honest taxpayers to pay more to compensate for those who cheat.
I pay my fair share of taxes and have no desire to have that fair share increased to cover the dishonesty of those who don’t take financially supporting our government seriously. Think about that while you’re gloating over the chaining of the Internal Revenue Service.
Thought for the Moment — In everyone’s life, at some time, our inner fire goes out. It is then burst into flame by an encounter with another human being. We should all be thankful for those people who rekindle the inner spirit.
— Albert Schweitzer
Joe D. Jones, CPA, is publisher of the Mississippi Business Journal. Contact him at firstname.lastname@example.org.