In carrying out its mission, the IRS holds nearly all the cards. Frank Chodorov wrote that the IRS “has a war against society on its hands, and to win that war it must make use of the artifices of war, such as espionage, deception, and force.”10 Lord Acton’s dictum comes to mind: power tends to corrupt, and absolute power corrupts absolutely.11 The “S” in IRS may stand for “service,” but let’s face it: service is not what the agency provides, despite its public rhetoric about the taxpayers’ being its customers. The IRS has more power to control the activities of the American people than any other agency of government.12 Its power also makes it irresistible to political leaders who might like to make life difficult for the people who cross them.
A case in point is the use of the IRS by presidents to harass political opponents. In early 1997 the Washington Post reported that President Nixon sought a “ruthless son of a bitch” as head of the IRS so he could go after his enemies.13 It wasn’t the first time a president used the agency for political gain. Unpopular tax-exempt organizations have also felt the brunt of the IRS’s powers. (As this is written, conservative organizations are being audited.) Such use of the IRS is obviously improper.14 It should be emphasized, however, that the IRS is not dangerous primarily because of its power to engage in political investigations. Outrageous as those violations of civil liberties are, scarier are the routine, everyday threats against citizens that are not politically motivated. They are inherent in the tax system, although that fact is unappreciated.15
The IRS Arsenal
The IRS’s arsenal of weapons against the taxpayers is truly awesome. The IRS has the usual panoply of criminal law-enforcement powers at its disposal. But that is only the beginning of the story. It files a relatively small number of criminal charges each year against taxpayers. More significant are its unique civil powers. David Burnham says, “Over the years, the IRS’s quiver has been stuffed with a much larger number of very sharp enforcement arrows than have been granted to any other law enforcement agency in the United States.”16 That in itself indicates how important revenue raising is to the lawmakers, who are responsible for the IRS’s power.
Because of the long Anglo-American legal tradition protective of individual rights, when the government suspects someone of a crime, it must comply with many requirements intended to keep citizens from being victimized by capricious conduct. The state must specify charges and follow long-standing procedures designed to safeguard liberty. Most important, it must assume the burden of proof. A criminal suspect is innocent until proven guilty beyond a reasonable doubt. The suspect has no legal burden to demonstrate his innocence. The Fifth Amendment to the U.S. Constitution protects his rights. The placement of the burden on the government derives from the principle that a negative cannot be proved. A world in which the government could charge someone with a crime and then demand that he prove he did not commit it would be a nightmare.
Unfortunately, that nightmare is real with respect to the IRS. Its power to bring civil, along with criminal, charges relieves it of much of the burden that the FBI and the local police force shoulder. The IRS has the power to charge taxpayers with civil violations and then, without outside review, impose huge fines, seize property, and place liens on assets. A citizen has the legal right to challenge the IRS — however expensive that process might be. But he may not get an injunction to halt IRS action while he has a hearing. Moreover, the onus is on him to prove that he committed no offense. Thus, the traditional burden of proof is turned on its head. According to surveys, the legal burden, the expense, and the complexity of the law discourage taxpayers from filing appeals.17 As a matter of principle, this is an outrageous state of affairs in a country that prides itself on being free. It is made worse by the fact that the IRS bases many civil cases on erroneous calculations and other carelessness. The IRS doesn’t get audited very often. But when it has been audited, its error rate, not to mention its rate of noncompliance with its own procedures, has been large.18
Burnham, author Martin Gross, and journalist James Bovard tell many hair-raising stories of how callous or corrupt tax agents have made life a living hell for taxpayers who had done nothing wrong. The government’s own General Accounting Office estimated in 1990 that the IRS made more than 50,000 erroneous levies on citizens and firms annually. It seems the IRS too often neglects to record tax payments. Thus the IRS may seize a bank account because it didn’t realize a taxpayer had already paid what was demanded of him.19
Burnham writes that “because IRS supervisors have little time to review the actual day-to-day decisions of revenue officers, and because the legal guidelines laid down by Congress are almost never precise, and because judicial approval is not required before the IRS acts, and because Congress has sharply limited the light of the courts to review IRS enforcement actions after the fact, there is significant room for abuse in how the IRS exercises those powers.20 Note that Burnham refers to the courts’ limited oversight of the IRS. The traditional checks and balances on which the U.S. government was initially founded have been largely suspended in the case of the IRS, which is often “policeman, prosecutor, judge, and executioner.”21 That’s not how the American system was supposed to work.
Citizen Recourse Limited
The recourse available to citizens who have been abused by government has long been severely restricted by the old doctrine of sovereign immunity, which limits the right to sue the state. In tax matters the right to sue has been virtually nonexistent; the IRS was specifically excluded from the Federal Tort Claims Act, which permitted some suits against the government. The 1988 Taxpayers’ Bill of Rights permits some taxpayer suits against the IRS. But the right to sue is still subject to strict limitation. For example, a wronged taxpayer has to show that the tax agent was reckless or malicious, elements that at best are very difficult to prove. The bill provided some other small safeguards for taxpayers. But James Payne was unimpressed. “My reading of this law,” he writes, “indicates that most of its provisions are advisory and that IRS officials can ignore them if they so choose.”22 Broader protections for taxpayers could not pass because members of Congress and others believe such measures would undermine the IRS’s ability to keep the money rolling in. That in fact is what IRS commissioners and their predecessors unfailingly say when they testify against giving taxpayers more legal protection.23
In 1996, a somewhat broader Taxpayers’ Bill of Rights did pass the Congress, which, among other things, expanded the Office of Taxpayer Advocate to give it more authority to resolve taxpayer difficulties. But Gross warns that it “cannot change the basic problem with the IRS system.”24 David Keating, president of the National Taxpayers Union, which lobbied for the bill of rights, conceded that “the job of protecting taxpayer rights is far from finished.” Keating added that “vague, complex tax laws allow abuses, and allow the IRS to make a plausible case against anyone.”25
As a result of Senate Finance Committee hearings in the fall of 1997, Congress was once again looking at IRS procedures and taxpayer rights. The hearings, which presented the testimony of victims of IRS abuse, led the House of Representatives to overwhelmingly pass a bill calling for an overhaul of the agency. Among other things, the bill would shift the burden of proof in court cases (not audits) to the IRS. However, taxpayers would still be required to cooperate with “reasonable” requests of the agency. The bill would create an eleven-member board of private citizens to oversee various aspects of the IRS, such as long-range planning. It would also increase the authority of the Office of the Taxpayer Advocate.26
It must be pointed out that such reforms are inherently limited, given the mission of the IRS, which is to collect a huge amount of money from the American people. Moreover, the law of unintended consequences must not be ignored. Shifting the burden of proof to the IRS sounds like a pro-taxpayer step, but it could backfire. If the IRS is to sustain its burden, it will most likely be permitted wide latitude to subpoena records from taxpayers and third parties. In the end, it sti
ll may be difficult to tell who really has the burden of proof. The danger of this “reform” is a further indication that the core of the IRS is intrinsically abusive of citizens and is therefore not something that can be fixed with halfway measures.
Even some people within the IRS think the agency is overbearing and oppressive. IRS managers who were surveyed in the late 1980s “generally viewed” the agency as “too authoritarian” and “dictatorial.” Part of that attitude has resulted from agents’ having enforcement quotas to fulfill, though that practice has in theory been eliminated.27 Agents have also been rewarded on the basis of how much property they seize from taxpayers. “The IRS imposes almost no controls over its own agents’ property seizures,” James Bovard writes.28
As a result, in the 1990s the IRS was imposing more than thirty million penalties and more than three million levies on bank accounts and wages annually.29 Numbers of that magnitude, not to mention the IRS’s frightening error rate, are what prompted a few members of Congress to provide the meager protection that has been passed.30
James Payne points out that the power to seize bank accounts and property instills in IRS agents an arrogance completely out of keeping with a free society and limited government. He catalogues IRS practices, such as seizing assets leased but not owned by taxpayers, that are intended purely to inflict pain, since they may not even produce revenue for the government.31
Unsurprisingly, the IRS dislikes oversight from the Congress. A1991 survey indicated that three out of four managers at the agency feel justified in lying when they testify in Congress. Bovard cites a Roll Call report that said that “only 47 percent of the managers feel the need to be ‘completely honest’ when testifying before a Congressional committee — and the number drops to 24 percent when appearing before a committee chaired by a ‘critical or headline-seeking chairman.’”32 This is simply another case in which tax agents have “rights” that are denied other citizens. Anyone else who lies while testifying under oath is subject to sanctions. Here’s another case of special treatment: taxpayers may not give a false name to tax authorities. Yet tax agents are permitted to lie about their identity to the taxpayers.33
Apparently, the IRS doesn’t like anyone looking over its shoulder. When its own staff historian tried to examine internal agency records, she was investigated and hounded out of her job. Shelley L. Davis discovered that the IRS had been destroying records in violation of the law. She recalled that during her seven years at the IRS, “I saw how the agency operates in an autocratic, fear-driven environment, with shocking disregard for the well-being of those it so much likes to call its ‘customers’ in other words you, the taxpayer.” In the name of protecting taxpayers, she said, the IRS denies citizens access to information on how it operates. She calls the IRS “the government’s most secretive agency.”34
Civil Liberties Ignored
It would be helpful now to see up close how awesome the IRS’s power is over the average citizen. This has been described in horrifying detail by historian Ronald Hamowy in “The IRS and Civil Liberties: Powers of Search and Seizure,” on which the summary that follows is based.35
Hamowy begins by noting that “the protections afforded each American from arbitrary government action are nowhere more attenuated than in the case of enforcement of the tax laws.”36 The core of the problem, as suggested above, is that the information the IRS needs to carry out its mandate originates in private, peaceful income-producing exchanges between consenting persons. They are expected to report the fruit of those activities to the IRS, which is why the authorities like to claim the system is “voluntary.” But the authorities also know that people prefer to keep their income rather than to give it to the government. So Congress and the courts have reasoned that if the IRS is to do its job, it must have mechanisms for obtaining personal information that no other agency of government needs or has. That explains the disparity in powers between the IRS and every other agency.
The laws require taxpayers to keep records about their financial activities, without specifying the form those records must take. The IRS can demand and use those records against a taxpayer. Thus, as already noted, the Constitution’s Fifth Amendment protection against self-incrimination, which applies throughout the criminal law, does not exist in the tax law. Of course, the lack of records can also be used against the taxpayer. For example, if the IRS assesses a taxpayer’s net worth as part of a prosecution, the taxpayer has an unpleasant choice. Should he submit a net-worth statement, he’d better have records documenting every part of his financial history. Incomplete records leave him at the mercy of the IRS. But if he chooses not to submit a statement, he is equally at the mercy of the agency, since the IRS is presumed to be correct in its assessment. The taxpayer would have no way to rebut the IRS’s claims about his tax liability.
There was a time in American history when such power evoked revulsion. In 1885, the landmark case Boyd v. United States prompted a Supreme Court justice to write that “any compulsory discovery by extorting the party’s oath, or compelling the production of his private books and papers, to convict him of a crime, or to forfeit his property, is contrary to the principles of a free government.… It may suit the purposes of a despotic power; but it cannot abide the pure atmosphere of political liberty and personal freedom.”37
It is different today. The IRS’s broad power covers not only the taxpayer but anyone else who possesses his records or other information deemed relevant — however remote. If an IRS agent issues a summons for records, it could be a criminal violation to refuse to produce them, punishable by a $1,000 fine and up to a year in prison. Before 1964, the IRS could simply arrest a person who refused to comply with a summons. The law has since been changed so that the IRS has to ask the court to hold him in contempt. That allows the subject to appear at a hearing while not under arrest.
The point of limited government is to restrict power in order to protect the rights and privacy of the people. In the United States one might expect some severe limits on what the IRS can do in investigating the taxpayers. But Hamowy found that “for the most part, the powers of the IRS are bounded by no effective restrictions, not even by that afforded by the constitutional guarantee against unreasonable searches and seizures.” He also notes that “in the area of federal tax law, individual rights, in practice, do not take precedence over administrative authority.”38
Paper Restrictions
Even the few restrictions written into the law turn out to be barely any restriction at all. Again, the government’s need for revenue takes precedence even over the letter of the law. For example, the IRS’s authority to examine records appears to be limited to “relevant” materials. Under the rule of law, the government is not supposed to be able to indiscriminately demand a citizen’s private papers and then go hunting for crimes. A tax agent’s summons for records, like a normal search warrant, is supposed to reasonably describe what is sought. But the courts have interpreted that restriction practically out of existence. A summons, say the courts, need not describe the documents sought in detail; it need only specify enough information to permit the taxpayer or other custodian of the records to identify them. And what is “relevant” has been held to include records that “might throw light” on the accuracy of a tax return. The courts have also said that it is not within their province to judge whether a tax investigation is proper. That’s the IRS’s business alone. Their concern is “only whether the documents sought are reasonably likely to relate to such an investigation.”39
This means that if the IRS follows a few guidelines, it may engage in fishing expeditions with the taxpayers’ records. Indeed, the courts have said that “some exploration or fishing necessarily is inherent and entitled to exist in all documentary productions.”40
That sounds like a blank check. The court’s interpretation of the law comes down to this: if the IRS is deemed to have issued its summons for records in good faith and not for the purpose of harassment, it can see virtually any rec
ords it wishes. The courts, the traditional bulwark between the citizen and the state, will not interfere. If the taxpayer believes the IRS did not act in good faith, the burden of proof is his.
As noted, another area where the IRS has unprecedented powers arises out of its authority to bring both criminal and civil cases. Under the protections of the Fourth and Fifth Amendments (prohibiting unreasonable searches and seizures, and forced self-incrimination), the IRS should not be able to summon records in a criminal investigation. But what if a civil case, where those protections don’t apply, turns into a criminal case at some point? The same taxpayer conduct can bring both civil and criminal charges. At first the courts said that a civil summons could not be used to amass evidence for a criminal case. Such a use of the summons, a court ruled in 1953, would “diminish one of the fundamental guarantees of liberty.”41 But a later court rejected that reasoning and ruled that the mere possibility of a criminal proceeding did not make use of the summons improper. Another federal court upheld the summons even though it was aware that the IRS advised agents to keep quiet about the criminal investigation in order to induce self-incrimination. Later, the U.S. Supreme Court, in the 1971 case Donaldson v. United States, approved the so-called dual-purpose summons as long as it is issued in good faith and before a recommendation for criminal prosecution.
That rule was weak enough. But it got weaker. In 1978, the U.S. Supreme Court, ruling in United States v. LaSalle National Bank, reversed the circuit court of appeals and said that the good-faith requirement, as Hamowy summarized it, “is to be understood as having reference not to the statements or acts of any single agent but by an examination of the institutional posture of the IRS itself”!42 In other words, bad faith has to be imputable to the whole agency or its policies. That of course would be impossible to prove to a court’s satisfaction. How would a taxpayer gather evidence for such a charge?
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