IRS Increases Pressure on Taxpayers
Recent Internal Revenue Service (IRS) data show the agency is returning to the more stringent enforcement levels of the early and mid-1990s, but the oversight committee in charge of the service is still not satisfied. The IRS is now under pressure from a variety of sources to squeeze more taxpayers harder and more consistently.
On August 3, upon release of the 2004 Annual Report of the IRS Oversight Board, IRS Advisory Committee Chairman Roger Harris said he wants the IRS to "touch more people" through enforcement action. He said he believes that effort is justified based on the report, which claims one in five people "now believe that [tax] cheating is acceptable."
This has added fuel to IRS Commissioner Mark Everson's quest to restore the IRS enforcement machine to what it was 10 years ago. During his confirmation hearings in April 2003, Everson promised the Senate Finance Committee he would restore IRS enforcement to "historic levels."
Bad News for Taxpayers
At a time when the IRS's enforcement activities are rising, the agency is being pushed and prodded to do even more. Anita Babb, an upper-level IRS enforcement manager, recently stated the agency is "getting back to basics" in its handling of collection cases. It is pressuring revenue officers to have "face-to-face meetings with taxpayers" and make them "aware of the consequences" of the IRS's collection powers.
IRS statistics show three disturbing trends:
- Customer service is down. During the reign of Commissioner Margaret Richardson under the Clinton administration, the IRS reduced its emphasis on taxpayer assistance. Richardson once stated that if faced with a choice between helping taxpayers comply with the law and after-the-fact law enforcement, she would opt for law enforcement every time ... and that's exactly what she did. This is chiefly what led to the congressional fervor for IRS reform in the late 1990s.
But even at the height of Richardson's rule over the IRS, the agency spent 265 staff years on taxpayer assistance during 1997, about the time Congress really began to pay attention to IRS abuse. In 2003, by contrast, the IRS spent just 75 staff years on taxpayer assistance--the lowest investment of time in helping taxpayers since before 1996. The IRS has moved away from the idea of helping people comply with an increasingly complicated tax code.
- Audit levels are rising. The face-to-face audit rates for all categories of 1040 forms increased in 2003, in keeping with Everson's promise, upon taking office, that he would increase the IRS's audit presence. Audit rates increased by 11 percent from 2002 to 2003 and by 25 percent since 2000.
The number of audits of tax returns reporting income over $100,000 jumped 40 percent between 2000 and 2003. Audits of business tax returns increased by about 24 percent in 2003 alone. This is a direct reflection of Everson's promise to go after more businesses.
The number of correspondence audits increased by 37 percent from 2000 to 2003--a dramatic increase given that correspondence audits account for more than 80 percent of the IRS's annual audits.
- The number of taxpayers declared delinquent, and the number of enforced collection actions, are on the rise. In the 1990s, nearly five million citizens were added to the roles of delinquent taxpayers annually. That number began falling in 1997 and bottomed out in 2000, at about 4.1 million. By 2003, however, the number rose to 5.5 million delinquent taxpayers. Remember, this is the number of new delinquencies in just one year.
And though the number of collection actions, including liens, levies, and seizures, dropped by nearly 90 percent after the 1998 Restructuring Act, the number has risen steadily since the decline was arrested in 2000.
The number of liens filed has increased by 227 percent since the low-water mark in 1999. The number of property seizures by the IRS has increased by 439 percent since 2000, and the number of wage and bank levies has skyrocketed by 665 percent since their low point in 2000.
More Resources for Enforcement
Despite these increases, enforcement action has not returned to its 1996 level. The agency has asked for more funding and manpower, and the Bush administration has accommodated those requests. In the recent IRS budget passed by the House Appropriations Committee on July 22, the IRS will receive $10.3 billion for 2005, $107 million more than the agency had in 2004.
Statements made and actions taken by Commissioner Everson since taking office indicate he will be inclined to spend the money on hiring more tax collectors, implementing more audits, issuing more wage and bank levies, and other enforcement actions, rather than on taxpayer assistance or education. As a result, some Washington insiders have said of the commissioner, "enforcement seems to be his middle name."
Dan Pilla (firstname.lastname@example.org) is executive director of the Tax Freedom Institute and author of 11 IRS self-help defense books. His latest book is The IRS Problem Solver (Harper Collins). He is also editor of the Confidential Tax Bulletin, a monthly newsletter available at http://www.taxhelponline.com.