IRS Will Review Complaints, End Quotas for Audits

After the Internal Revenue Service had been battered in three days of Senate hearings--including new allegations by five of its own agents Thursday of illegal and unethical abuse of taxpayers--acting IRS Commissioner Michael P. Dolan outlined a series of immediate responses.

Acknowledging that the agency is in serious trouble, Dolan said that he is ordering a nationwide review of every complaint filed by taxpayers over the last three months to help clear up a backlog of frustration that boiled over at three days of hearings this week.

Answering criticism that IRS agents are illegally required to meet quotas in conducting audits and seizing taxpayers’ assets, Dolan said that the agency will stop using such goals.

In another major departure from historic IRS practices, each of the agency’s 33 district directors--including Los Angeles District Director Steve Jensen--must be available one day each month to meet with taxpayers to resolve problems.

The Senate Finance Committee hearings on taxpayer abuse “have been very painful,” Dolan said. “It distresses me a great deal to see the mistakes we have made and their impact.”

Dolan reiterated his earlier apologies for IRS mistakes that had hurt taxpayers and said that the new allegations raised Thursday by IRS employees have been turned over to the Treasury Department’s inspector general for investigation.

The five IRS agents, testifying behind a screen and with their voices disguised by a machine, said that they had witnessed a large number of routine abuses against taxpayers. The agents had as much as 35 years of experience at the agency and had conducted audits, collections, criminal investigations and performed internal security work.

Each of the agents said that abuses have grown worse in recent years. Among the most pervasive problems, they said, are quotas set for conducting audits and seizing property from taxpayers. Such quotas were specifically outlawed in recent years by a Taxpayer Bill of Rights, meant to protect citizens from overzealous IRS agents.

But Sen. William V. Roth Jr. (R-Del.), Finance Committee chairman, produced a report issued last year in the San Francisco district that showed its employees were not producing enough dollars of revenue per hour in taxes and fines and that a “general improvement is needed.” The report showed a goal and the regional average, neither of which San Francisco IRS workers had achieved.

Dolan said such statistical measurements may create the appearance of quotas and he is ordering the agency to immediately stop distributing comparative performance statistics to field offices.

Nonetheless, he argued that the IRS has an obligation to collect performance data under the Government Performance and Results Act, a law that Congress passed to force federal agencies to measure how well they are performing.

Roth called Dolan’s comments “window dressing” for the violations, which Dolan denied.

Among abuses described by the agents was the IRS review of the tax records of jurors and potential witnesses in government tax cases.

Under questioning, Dolan said that the IRS never has condoned browsing in tax records. Earlier this year, Congress made it a crime for IRS employees to look at tax records for unauthorized purposes. Dolan noted that in the last three years the IRS has disciplined 475 employees for misuse of authority or rude conduct.

One of the agents who testified Thursday is a criminal investigator in an internal security unit at the IRS charged with rooting out internal corruption. The agent said that the IRS has “whitewashed” known criminal misconduct by employees as part of a larger effort to improve the agency’s public image.

The agent said that allegations made against IRS managers and officials with the National Treasury Employees Union have not been investigated, prompting Sen. Phil Gramm (R-Texas) to demand an inquiry into that charge.

Dolan said that in the next 45 days he will call every senior IRS manager to a meeting to review the allegations raised in the hearings and to develop ways to better protect taxpayer rights and improve his agency’s level of service.

In an interview after the hearing, Roth said he is pleased that Dolan has recognized that the agency has serious problems. But Roth said that the steps Dolan outlined amount to little more than a first step in changing the culture at the IRS.

Roth said that his office has received more than 1,700 calls, letters and faxes from taxpayers with problems, reflecting the large scope of the agency’s problems.

Despite Dolan’s contrite demeanor before the committee, some agency officials criticized much of the testimony by the anonymous IRS agents as vague and unsubstantiated. By contrast, the IRS admitted errors in handling the cases of four taxpayers who testified Wednesday about mistreatment by the agency.

The stakes of the issue are enormous, since most experts agree that Americans voluntarily pay taxes based largely on their perception that the system is operating fairly.

“It seems to me this system is going to break down if people perceive the system isn’t fair,” Gramm said. “But the picture we have is that the system is not fair and in recent years it has grown less fair.”

One radical restructuring of the IRS suggested by experts at the hearings--and endorsed by several committee members--would split the agency into two parts: a service agency that would collect tax returns and provide tax advice and an enforcement agency that would audit taxpayers and collect delinquent taxes.