BOOK REVIEW : One-Man Audit of IRS Shows Its Workings, Failings

A Law Unto Itself: Power, Politics and the IRS by David Burnham (Random House: $22.50; 420 pages).

I will show you fear in a handful of tax returns.

“With the probable exception of a handful of agencies in the Soviet Union and China,” David Burnham writes in “A Law Unto Itself,” “there is little question that the IRS today is the single most powerful bureaucracy in the world.

“As a corollary . . . the IRS has become the single most powerful tool of social control in the United States. . . . (Thus) the IRS has developed into the largest, the most computerized, and the least examined law-enforcement agency in America.”

With more than 120,000 employees, Burnham points out, the Internal Revenue Service is five times larger than the FBI. Its power to gather intelligence on taxpayers, to assess fines or seize assets without court proceedings, to grant or deny tax-exempt status to charitable and educational organizations, and to generally hover over the lives of American citizens is what makes the IRS the most dreaded of American institutions. Burnham turns the tables on the IRS and performs a grueling one-man audit of its workings and failings.

Burnham is a combat veteran of investigative journalism--his reporting for the New York Times on the revelations of Frank Serpico prompted an official investigation into police corruption; it was Burnham whom Karen Silkwood was on her way to meet when she died in a mysterious car crash, and Burnham is the author of “The Rise of the Computer State,” a particularly fitting companion volume to his study of the increasingly high-tech arsenal of the IRS.

A good deal of “A Law Unto Itself” consists of everything you always wanted to know about the IRS but were afraid to ask. Burnham tracks the tax-collection process from withholding to audit to criminal prosecution for tax fraud, toting up the impressive statistics of the annual tax crunch--1 billion income reports by employers, banks, even gambling casinos; 100 million tax returns; 23 million civil penalties imposed on those taxpayers by the IRS.

His discussion of who gets audited, for example, is fascinating in a grim sort of way. About 50,000 American taxpayers are randomly selected as “fiscal guinea pigs” who undergo an intense and meticulous audit to provide statistical data for the computers that pick out the most likely candidates for the 1 million routine audits that are performed every year. And then, Burnham points out, there are audits that are prompted by tips from “former spouses, business competitors . . . newspaper stories about an opulent life style, and even IRS agents’ personal grudges against individual taxpayers.”

Burnham says U.S. tax law is so complex that even accountants and the IRS do not always understand it. He reports on a 1988 survey in which 50 tax preparers were given the same data about a hypothetical American family--they came up with 50 different tax bills. And a 1975 study by the GAO found that one of five answers given to taxpayers by IRS personnel was wrong.

Some of Burnham’s horror stories are familiar enough. Other stories are astounding, if only because of the audacity and ingenuity of the IRS. In one surveillance project, for example, IRS agents wrote to several Swiss banks on unmarked stationery to request information about numbered accounts; when the banks replied, the IRS noted the postage-meter serial numbers on the envelopes; then they sifted through stacks of incoming air-mail envelopes at the New York Post Office to detect the names and addresses of taxpayers who were receiving mail from the same Swiss banks. One hundred taxpayers were identified and audited. A handful were prosecuted.

Burnham has uncovered a few incidents of corruption within the IRS--bribery, influence-peddling and tax-cheating involving IRS personnel; “Kafkaesque bullying . . . (of) organizations that have fallen out of favor,” including political and religious dissidents and ethnic minorities; the use of the IRS by Presidents and other powerful politicians to persecute their political enemies. Burnham reaches back to Herbert Hoover to illustrate how a President can set the IRS on a particularly obnoxious critic or adversary.

But the real bite in “A Law Unto Itself” is its condemnation of what Burnham perceives as institutional arrogance, insensitivity and “tired cynicism” on the part of the tax-collecting bureaucracy. “Slime” or “deadbeats” is how the public is known to IRS agents, Burnham says. The most effective intelligence-gathering and enforcement programs “are biased against the individual and in favor of business.” The IRS is too casual about “the financial, medical, and other personal secrets of every taxpayer.” And Burnham even lambastes the IRS for sloppy bookkeeping:

“What must cause senior IRS officials genuine, mitigated, red-faced chagrin is their inability to balance the books of the IRS,” Burnham taunts. “This is truly the gang that can’t count straight.”

April 15 is approaching, and we can look forward to the customary flurry of publicity about tax cheats; it’s the IRS’s way of reminding us of our solemn obligations as taxpayers. “A Law Unto Itself” is an equally healthy reminder that the IRS too is not above the law.