Return of the `audits from hell': IRS Commissioner Charles Rossotti once pledged to champion taxpayer rights, but instead Americans find themselves facing the resurrection of random audits

0 Comments | Insight on the News, July 29, 2002 | by John Berlau

When he was confirmed in 1997 as President Bill Clinton's second commissioner of the IRS, Charles Rossotti promised a new agency that would emphasize service and uphold taxpayer rights. Speaking to the Senate Finance Committee right after it had held hearings on gross abuses of taxpayer liberties at the agency, the new commissioner told the senators that "the IRS must do a far better job of serving taxpayers."

Rossotti, who cofounded the Fairfax, Va.-based information-technology company American Management Systems after serving a stint at the Pentagon as one of Robert McNamara's "Whiz Kids" emphasized how he would reform the IRS with private-sector principles of customer service. "At an absolute minimum" he said, "we must not allow the kind of unacceptable treatment of taxpayers that was described by the taxpayers at your hearings several weeks ago. But I think we should aspire to something far more than the minimum" he insisted. "We know that the vast majority of taxpayers file their returns and do their best to pay the taxes they owe, and I just think we owe these taxpayers first-rate service in return."

Nearly five years later this Clinton appointee still is serving in the Bush administration. And he has gone so far as to bring back the old IRS practice of subjecting thousands of innocent taxpayers to audits for "research" purposes, one of the practices that spurred the congressional hearings.

At the time of his confirmation the Senate Finance Committee's then-chairman William Roth (R-Del.) believed Rossotti would become a champion of taxpayer rights. But Rossotti recently told the Joint Committee on Taxation that he wants to "begin a dialogue with Congress about certain changes" to provisions of Roth's 1998 IRS Restructuring and Reform Act that was designed to protect taxpayers from agency abuses. Rossotti and other IRS officials say provisions of the Roth reform are hurting the agency's ability to collect revenue. Among these are termination of IRS employees who intentionally violate taxpayer rights, assurance of due process for taxpayers before their assets can be seized and protection for the "innocent spouses" of derelict taxpayers.

Rossotti ultimately is a "computer guy" who cares little about taxpayer rights, says Daniel J. Pilla, president of the Tax Freedom Institute, an association of tax professionals, and in the mid-1990s a consultant to the congressionally created National Commission on Restructuring the IRS. Pilla and other civil libertarians particularly are concerned about the intrusions of the so-called National Research Program, which the IRS has announced it will begin this fall with 50,000 random audits of individual taxpayers to build a database to better target its audits.

"This approach will give us the tools we need to help ensure the fairness of the American tax system," Rossotti declared in an IRS press release. "Ultimately, this project will help all taxpayers by giving the agency timely, accurate information about tax compliance." The IRS claims that this new data ultimately could result in fewer audits of innocent taxpayers--once it knows where the tax cheats are. The press release noted that "the IRS has not conducted updated research on the distribution of errors in returns for more than 13 years, a period when the economy and the tax law have changed dramatically."

But there was good reason why those fishing expeditions were stopped, say critics, who call them invasive and grueling for taxpayers and say they did not yield nearly as much useful information as promised. In 1988, the last year such audits were performed under the old Taxpayer Compliance Measurement Program (TCMP), 54,000 taxpayers were subjected to exhaustive "line-byline" audits wherein they had to prove each item in their tax returns was accurate. These often were called "audits from hell," and the IRS frequently required those subjected to them to produce highly personal documents, including marriage papers and birth certificates for their children.

In 1995, the IRS wanted vastly to expand this program to audit some 153,000 citizens and businesses but was slapped down by the newly elected Republican Congress. The House speaker at that time, Newt Gingrich (R-Ga.), compared the TCMP audits to the Spanish Inquisition and noted the frequent IRS error rate concerning how much people owed. Fred Goldberg, U.S. commissioner of internal revenue under President George H.W. Bush, testified that the TCMP had proved "intrusive, burdensome and expensive." After Congress cut the 1996 budget for the IRS by almost $1 billion, the agency got the message and "postponed indefinitely" the TCMP audits.

But now there's a different atmosphere on Capitol Hill, and the IRS is taking advantage. The war on terror has muted criticism of law-enforcement agencies, and the IRS likely will get a 5 percent budget increase next year for a total of almost $10 billion. Recalling that the IRS was able to nab Al Capone and other criminals on tax-fraud charges when other agencies failed to put them behind bars, many hope the agency can be used to go after terrorists and their nonprofit fronts.