Senate Panel Preparing to Take IRS to Task

One of Congress’ most powerful committees is preparing a major broadside against the Internal Revenue Service next week--complete with IRS agents testifying under black hoods that the organization routinely abuses and mistreats taxpayers.

The Senate Finance Committee will begin three days of hearings Tuesday that promise to disclose some of the most explosive evidence of IRS wrongdoing in more than a decade.

“There are very, very serious problems in the agency,” committee Chairman William V. Roth Jr. (R-Del.) said in an interview. “This whole situation cannot be tolerated.”

The IRS’ top official, acting Commissioner Michael P. Dolan, acknowledged in an interview that Roth’s investigation has turned up some notable instances in which taxpayer cases were handled improperly.

Yet Dolan also disputed any suggestion that the IRS has tolerated or condoned dirty tricks on taxpayers.

The hearings come at a highly critical juncture for the troubled agency, as the Clinton administration fights efforts by Republican and Democratic reformers in Congress who want to wrest control of the IRS from the Treasury Department and turn it over to an outside board of business executives.

Criticism of the IRS has been growing during much of the past year, reflecting its antiquated computer technology and the increasingly convoluted body of tax laws that it must enforce. Such problems have only magnified the potential for taxpayers to become entangled in bureaucratic snafus, critics say, as well as the potential for a few rogue IRS agents to subject taxpayers to abusive treatment.

Never before has the Senate Finance Committee, whose central mission is to keep the government fully stoked with tax revenues, held three days of oversight hearings into IRS abuses. And not since the late 1980s has Congress delved with such vigor into the agency’s dirty laundry.

IRS officials, meanwhile, are braced for the worst: a three-day attack on the professionalism, competence and ethics of an agency that has been trying to recast itself in a modern image.

IRS officials have said repeatedly over the past year that the agency intends to become an efficient consumer service organization, keeping taxpayers satisfied while collecting $1.3 trillion annually.

But the evidence coming from Roth’s witnesses--who range from investigative authors to anonymous revenue agents and wronged taxpayers--is going to tell a more chilling tale.

Among the allegations will be that innocent taxpayers can become trapped for years in the IRS juggernaut through administrative errors, unable to purge mistakes from the agency’s computer system.

One of the star witnesses will be Katherine Lund of San Bernardino County, who for the past 10 years has lived through the kind of bureaucratic nightmare with the IRS that would trigger panic in the heart of any American taxpayer.

IRS agents, acting in error, repeatedly levied Lund’s bank accounts and the wages of her husband, Orange County prosecutor James Hicks.

Every time Lund tried to pay off the IRS, the agency would return the money and claim she didn’t owe anything. Then another branch of the IRS would start dunning her again.

In 1991, for example, Lund and Hicks borrowed $8,194.73 to pay off the tax debt, but in 1992 the IRS refunded the money. Lund then asked the IRS to audit her, but the agency declined and said it “didn’t know what to do with the money.”

The matter appeared to be dead until 1996, when the IRS rolled out a lien on Hicks and Lund’s financial accounts. The agency obtained a levy for 90% of Hicks’ wages, though Orange County later refused to honor the levy.

“I prosecute welfare fraud,” Hicks said. “Some of the people I prosecute feel the same way about me that I feel about the IRS. But I guarantee you I treat my cases better. When somebody says they paid, I sit down with them and go over it.”

Out of desperation, the couple filed for divorce this year--not because they wanted to end their marriage but to protect Hicks’ wages from the errant collection tactics of the IRS.

After Roth’s committee began looking into Lund’s case earlier this year, IRS officials in Washington reviewed the case. In an extraordinary admission, the IRS last week owned up to its mistakes in a contrite letter to Lund.

“It is apparent that you tried to satisfy this tax liability on two separate occasions and because of administrative errors on our part you were unable to do so,” wrote Marilyn Soulsburg, IRS district director for Orange County. “I apologize for all of our incorrect actions and for the distress and inconvenience that you have experienced.”

But Lund said in an interview that she remains unnerved by the experience and convinced that the IRS will come after her again in future years to collect the same old debt. She said the couple have put $8,000 aside in a certificate of deposit for the day they expect tax collectors to come back.

Dolan, the acting IRS commissioner, is legally barred from discussing individual cases, but he acknowledged in general that people can fall into a computer twilight zone that results in a tangle.

In some cases, individuals’ records are moved from the IRS central computer, known as the master file, to a paper system that results in later bouts of confusion.

“They do happen,” Dolan said. “In the cases we have looked at with the committee, there were those kinds of mistakes made. There were those kinds of impacts on taxpayers. That should not have occurred.”

Dolan said the IRS is taking the lessons from the committee’s investigation across the country in an effort to rectify such errors, even though any organization as large and complex as the IRS is bound to make some mistakes.

“We are trying to be explicit with our apology,” Dolan said.

IRS critics say a part of the problem involves pressure placed on IRS collection officers to impose as many liens, levies and seizures on taxpayers as possible.

“Revenue officers are being pushed by their superiors to undertake more seizures in order to achieve promotions within the system,” said Robert Scriebman, a tax attorney and author of several books on taxes who will be testifying next week.

Scriebman recently filed suit against IRS officials in Los Angeles, alleging that they used perjured declarations to seize the business of Joe Schwarz, a repairman for boilers used in dry cleaning establishments. The suit alleges that Schwarz was in Las Vegas on the day IRS officials swear they talked to Schwarz.

David Burnham, who authored the book on the IRS “A Law Unto Itself” and now runs a watchdog group at Syracuse University, said his research shows that IRS enforcement practices are grossly inconsistent across the nation.

Burnham’s research suggests that audit rates of wealthy Americans have plunged while the agency focuses its audits increasingly on lower-income Americans who are less able to defend themselves from the agency.

Whether the Roth investigation is part of a larger political agenda, as some observers in Washington believe, is unclear. Senate Majority Leader Trent Lott (R-Miss.) is a strong supporter of the investigation--in addition to being a possible presidential contender.

But Roth says that there are no ulterior motives for his probe and that he has no position on whether the IRS should be removed from the Treasury Department’s control. Rather, he is troubled by his perception that taxpayers are not getting fair treatment.

“IRS agents are servants of the taxpayers,” Roth said. “They should be treating these people with respect.”