Mr. Chairman, my name is Jack Warren Wade, Jr. I live at 10862 Weisiger Lane, Oakton, VA 22124. I am a self-employed tax consultant, advisor to the National Taxpayers Union, a director of the National Society of Tax Professionals, and author of 4 books on the IRS: "When You Owe the IRS" (Macmillan, 1983), "How to Reduce Your Withholding" (Macmillan, 1985), "Audit-Proofing Your Return" (Macmillan, 1986), and "The Power to Tax, A Critical Look at IRS's Collection Powers" (National Taxpayers Legal Fund, 1983).

From 1971-1975 I was an IRS Revenue Officer in the Richmond district, Bailey's Crossroads office. From 1975-1979 I was assigned to the IRS National Office as the program manager for the entire nationwide Revenue Officer training program. During that time I wrote and produced over 16 training publications on all phases of collection training.

I want to thank you for submitting the Omnibus Taxpayers' Bill of Rights Act. As a former IRS Revenue Officer, and a practicing Enrolled Agent with clients around the country, I can assure you that this bill is welcomed and long overdue. The organizations I represent today strongly support passage of additional taxpayers' rights and commend the Chairman for his concern and diligence in addressing taxpayers' rights.

The most recent poll by the Advisory Commission on Intergovernmental Relations found that the federal income tax is now thought to be the "worst tax -- that is, the least fair." It's important for the Internal Revenue Service to maintain respect for the federal government's administration of the tax laws. Much more can be done to fairly and efficiently administer the tax system.

General Accounting Office reports, congressional hearings, and private sector survey efforts all indicate that improvements can and should be made to safeguard taxpayers' rights, particularly in the area of collections.

The countless examples of abuses demonstrate that action needs to be taken now to protect taxpayers. Internal IRS policies have failed again and again. Why? Because of a flaw in the tax collection system. Even though there are many avenues of appeal for contesting an assessment of tax, there are no appeals and checks and balances built into the process for collecting the tax. If an IRS employee violates IRS policy, the taxpayer has little recourse.

Mr. Chairman, there are many fine people at the IRS, and many who are dedicated to their jobs and to the idea of protecting taxpayers' rights. Yet within the Collection Division there appears to be a cancer of policy subversions and embattled indifference, so prevalent and so onerous that only Congress can straighten it out.

I believe that the Omnibus Taxpayers' Bill of Rights Act is a first step in the direction of true reform. This bill is absolutely necessary because of the following facts:

Fact #1: The IRS has a long history of a negligent disregard for taxpayers' rights.

Even as far back as the mid-1960's taxpayers have been complaining of IRS actions that are abusive, arbitrary, and capricious. In February 1973 a number of witnesses appeared before a Senate Subcommittee and complained of abusive and arrogant IRS treatment. In January 1976 the Administrative Conference of the United States in their report on the "Collection of Delinquent Taxes" stated that ...

"Congress has provided little guidance on how the IRS should use its collection powers. Nor has there been much judicial direction supplied by the Courts. The result is a large body of discretionary authority ... that is not uniformly exercised and is open to administrative abuse. As a result, the exercise of the formidable collection powers at times poses troublesome conflicts between the right of the government to exact taxes and the property rights of the individual citizen."

In that report, the Administrative Conference recommended that the IRS "establish and promulgate in the Internal Revenue Manual affirmative and specific guidelines" ... "that will assure judicious and even-handed application of the levy power."

In 1980, the Senate Committee on Governmental Affairs, Subcommittee on Oversight of Government Management, chaired by Senator Carl Levin, held hearings on IRS collection policies and their impact on small business taxpayers. Almost 7 years ago, IRS's own Revenue Officers testified that many enforcement actions "were taken arbitrarily and unnecessarily, and in instances where the government may have suffered a revenue loss as a result " ... The Subcommittee report states that "these actions were taken to satisfy IRS managerial policies which emphasize closed case and enforcement statistics as premier indicators of effective collection efforts and individual performance, with no basis in actual taxes recovered." (p.2)

Senator Levin's subcommittee found that

(1) "IRS group managers abuse their supervisory review authority and require Revenue Officers to take harsh unnecessary enforcement actions contrary to the professional judgment and individual discretion vested in Revenue Officers." (p.4)

(2) "IRS violates its own policy by using closed-case and enforcement statistics to impose production pressures and quotas on its own employees." (p.4)

(3) "IRS's own Internal Revenue Manual and its policy statements ... provide little additional guidance on when to employ the levy authority." (p.7)

(4) "There are no specific criteria on when not to seize or on the other factors to be considered prior to seizure." (p.11)

(5) "It is disturbing that the supervisory review mechanism of seizures has been repeatedly perverted to require Revenue Officers to seize in cases where their personal knowledge of the facts and professional judgment require otherwise." (p.15)

(6) "Dramatic discrepancies between formal national policy and actual field practices occur." (p.16) "This distorted interpretation of national policy is not limited to group manager instructions ... The Subcommittee received information which showed consistent misinterpretations at even higher IRS managerial levels." (p.17)

(7) Regarding IRS policy which prohibits the use of statistics to evaluate employees or to impose production quotas, "Despite this prohibition, internal memoranda from IRS offices around the country show that group managers and other IRS management personnel have misconducted this national office policy."

In 1983 I wrote in my book, "The Power to Tax" that:

"While the Commissioner testifies to Congress about how well IRS policy and procedure protects taxpayers' rights, the managers in the field are quietly subverting national office policy by requiring their revenue officers to follow their policy, their philosophy of collection, and their whims and moods." (p.45)

In that book I wrote that Revenue Officer group managers, who are charged with the responsibility to "protect the revenue" and "protect taxpayers' rights" (e.g., they must approve a seizure first), are more concerned with gathering statistics for their own personal promotion. Thus "overzealous group managers have perverted the purpose of the seizure process by imposing their own [macho] values on their Revenue Officers, who are required to carry out their manager's marching orders for fear of losing their jobs."

In my book I gave numerous examples of how group managers impress the seizure mentality upon their Revenue Officers.

Fact #2: There are too many instances where there is no judicious use of the levy authority.

Revenue Officers are supposed to make seizures as a last resort. Almost all IRS Commissioners have said so. The General Accounting Office has said so. Everyone outside the IRS believes it to be so. The national office even trains new Revenue Officers to believe it. Yet the former director of the Collection Division, J.R. Starkey, once told Congress that "seizure may be the first alternative."

Revenue Officers are now under pressure again to make seizures solely to build statistics. They will use any little excuse they can to make a seizure in order to prove they are "enforcement minded." After all, only enforcement minded Revenue Officers get promoted, and now only "enforcement minded" group managers get promoted. These examples demonstrate that nothing has changed since the 1980 subcommittee report:

(1) Revenue Officer Keven Koscs in Manhattan levied on a taxpayer's bank account after she called to say she was too scared to come into the office, but that she had hired an Enrolled Agent to represent her, and the financial statement was already prepared and in the mail. Without telling her that he would do so, he wiped out her bank account to punish her for not coming into the office. He stated it was "district policy."

(2) Revenue Officer Penelope Lawson in Baltimore levied on a taxpayer's bank account after he came into the office with copies of canceled checks to show that he might not owe the tax. She was sympathetic and understanding and promised to do the necessary research and suggested the taxpayer call her back within 10-14 days to find out the results of the research. Even though she had not completed the research to prove whether in fact he owed the tax, she wiped out his bank account because he had not called her to check on the results of the research.

(3) The U.S. District Court of Maryland (Civil Action No. M-84-3171, 11/14/84) ordered the IRS to abate a jeopardy and termination assessment against James Dwight Snyder because there was no proof that it was reasonable. The court stated that:

"It appears that, as the plaintiff suggests, the defendant issued the jeopardy assessment to avoid paying to the plaintiff [taxpayer Snyder] a refund, which the parties, in the fall of 1983, apparently agreed was due the plaintiff for the years 1971 and 1972."

(4) Revenue Officer Joyce Marlowe of the Parkersburg district demanded that taxpayers Leland and Dorothy Sloan (U.S. District Court, So. Dist. W.Va. Charleston, 2-85-0151 5/23/86) make a large lump sum payment of his estimated taxes before she would allow him to enter into an installment agreement, although he had been making weekly payments of his estimated taxes for over 2 months. Because he disagreed with the amount she demanded he pay on his estimated taxes, and because he couldn't pay both his back taxes and her demand for a large lump sum estimated tax payment, she issued over 300 levies, effectively destroying his law practice while recovering for the IRS a mere $471.00 of the $15,357 he owed.

Following a complaint to his United States Senator and his District Director, the District Director promptly had all the levies released and the court noted that "a fair and equitable settlement was reached, as it was concluded that the enforcement procedures were excessive, unproductive, and destroying the Sloan's ability to pay tax liabilities."

Fact #3: Internal Revenue Manual procedures do not confer taxpayers any substantive rights.

(1) In the case of "Shirley A. Lojeski v. Richard Boandl, Revenue Agent, George Jessup, Revenue Officer, et al", (U.S. Court of Appeals, 3rd Circuit, 85-1289, 85-1354, 85-1586, 85-1587, 4/22/86, vacating and revising District Court), Revenue Officer George Jessup conducted jeopardy and termination liens against Thomas Treadway and nominee liens and levies against his friend, Shirley Lojeski, without IRS legal counsel approval, a requirement of the Internal Revenue Manual guidelines.

The IRS pleaded absolute immunity or qualified immunity at the trial. Ms. Lojeski contended that her constitutional rights had been violated because she had been deprived of her property ($22,000) without due process in violation of the Fifth Amendment.

While the Eastern District Court in Pennsylvania (C.A. #84-3591, 1/23/85) had ruled that the process due was defined by Internal Revenue Manual (IRM) guidelines which required IRS legal counsel approval before filing notices of lien and levy on the grounds of nominee liability, the IRS argued in the 3rd Circuit Court of Appeals that the IRS Manual only establishes an internal operating procedure, not a constitutional due process standard.

The 3rd Circuit Court agreed and overturned the lower court ruling stating that Ms. Lojeski "failed to show any detrimental reliance on the requirement that the IRS Regional Counsel approve the filing of notices of lien and levy based on nominee liability." Furthermore, the court ruled that the IRS had not violated her 4th amendment guarantee against warrantless seizures "for the simple reason that such actions violated no privacy interest."

(2) In the case of First Federal S&L Assn. of Pittsburgh, Plaintiff, v. Melvin & Mildred Goldman, and the IRS, defendants (U.S. District Court, West Dist. PA 85-1531, 7/29/86), the IRS levied on the Goldman's IRA account in violation of IRS policy which prohibits levies on IRAs "except when the taxpayer flagrantly disregards requests for payment." Similarly the IRS Manual concludes that levy should be made on these types of income only in flagrant and aggravated cases. It then defines the factors which are to be considered. The Goldmans contended that there was "no evidence of flagrant, aggravating, or bad faith conduct," on their part.

The IRS argued that it didn't matter if the IRS Manual guidelines were violated because "the IRM is an internal handbook and the instructions and guidelines contained therein are not mandatory and do not convey upon the taxpayer any substantive rights. The court found that:

"The procedures set forth in the IRM do not have the effect of a rule of law and, therefore, are not binding upon the IRS. The manual is not promulgated pursuant to any mandate or delegation of authority by Congress. Even if the manual was promulgated pursuant to a Congressional mandate or delegation of authority, the provisions applicable to this case are procedural in nature and do not convey upon the taxpayer any substantive right or obligation. Moreover, the provisions in the IRM are directory rather than mandatory. We conclude that the pertinent procedures of the IRM are not binding upon the IRS and convey no rights to taxpayers. Therefore, the Goldmans cannot challenge any alleged noncompliance with these procedures, and the levy of the IRAs, authorized by IRC Section 6331, was lawful."

Fact #4: Some districts do not issue Manuals to each Revenue Officer and many Manual guidelines are either ignored, violated, or discarded.

Under IRS's computerized Manual distribution system every Revenue Officer could be issued his own Manual. Without a Manual it's difficult to comprehend how a Revenue Officer is supposed to know what to do and what NOT to do in taking enforcement actions.

Some districts do not issue their Revenue Officers Manuals because they don't want the Revenue Officer to take the time necessary to keep it updated. Updating the Manual distracts from time that could be spent working on cases. In the Maryland district there is only one Manual per group of 12-15 Revenue Officers and it is usually kept behind the group manager's desk.

The Manual guidelines that are frequently violated are far too numerous to list but the most common ones are:

• Not contacting the taxpayer personally before filing a lien (IRM 5355.11:(2))

• Levying the taxpayer's assets before personally notifying him that enforcement action will be taken (IRM 5361)

• Not honoring a Power of Attorney on file (IRM 5188)

It is not uncommon for Revenue Officers to make personal contacts with taxpayers after they have even received a Power of Attorney from a representative. They will frequently fail to return the representative's phone calls and then use the excuse that "I tried to call but your line was busy," a known fabrication particularly if the representatives phone line is equipped with "call waiting."

Example: Kevin Koscs of Manhattan refused to return 5 telephone calls to a taxpayer's representative. Upon a complaint to his group manager, Mr. Shabowsky, the representative was told that a long distance representation from Virginia to Manhattan "couldn't be done" and that if the representative wanted to discuss the case with Revenue Officer Koscs, he "should be in Manhattan at the IRS office at 7:30 in the morning." Mr. Koscs later told the taxpayer that "IRS Collection Division didn't allow representation -- Enrolled Agents were only allowed in the audit division."

Fact #5: Even today supervisors push Revenue Officers to make seizures for the sole purpose of enhancing their enforcement statistics, even if it means violating the Internal Revenue Manual.

Many times seizures must be made because it is a necessary option, but sometimes a Revenue Officer will seize a house, paychecks, or car solely because the group managers seizure statistics are low for the month and the Revenue Officer can find an easy target.

In order to make sure that their Revenue Officers are enforcement-minded," group managers frequently give marching orders to impress their Revenue Officers with their "machoistic" tendencies. For example:

• One group manager in Virginia has told his Revenue Officers that a seizure is the first action to take on a case, instead of contacting the taxpayer first, a clear violation of Internal Revenue Manual sections 5181 and 5355.11:(2). He further states that if there is a levy source on file, then the Revenue Officer should first levy even though the taxpayer may not owe the tax, reasoning that the IRS could always release the levy later.

• However his collection division chief has bragged that he has never released a levy in his life. He has told his Revenue Officers that "once a levy is served, leave it."

• A Branch chief in Virginia told a Revenue Officer being interviewed for a promotion that he "Liked to see Revenue Officers make seizures without contacting the taxpayer first."

• Another group manager in Virginia keeps a chart of his Revenue Officer's enforcement statistics by ranking. He has told them that if they wanted to know what their ranking was, he would be glad to show them. The Revenue Officers in his group try to serve a lot of levies and make a lot of seizures so they won't be ranked last. The group manager is always showing his Revenue Officers comparative statistics of how well his group's statistics compare to other groups in the district. Everyone in the district is proud of their "high national ranking" for making a lot of seizures. No one knows or even cares how much money is collected. Because a regional analyst had told one group manager in Virginia that his group's seizure statistics were down, the group manager told each of his Revenue Officers to make 2 seizures by a certain date or they had better have a good reason.

Fact #6: There is NO avenue of appeals within the IRS Collection Division to challenge an arbitrary and capricious use of the levy authority.

If a taxpayer owes the tax and only wants to challenge the IRS's arbitrary and capricious use of the levy authority, he has no where to go. Section 7421(a) of the Code, commonly referred to as the Anti-Injunction Act, effectively prevents almost all taxpayers from challenging IRS collection actions.

Even administratively there is no formal appeals process within the IRS. Even though taxpayers can "appeal" to a Revenue Officer's group manager, this is an ineffective "appeal." Rarely does it ever accomplish anything. Very few group managers are going to override their Revenue Officer's enforcement actions, particularly when the group manager knows he needs the statistics.

Taxpayers should have an independent authority within the administrative channels to whom they can appeal their cases in certain circumstances. This should be outside the Collection Division, preferably in either the Appeals Division or within the Office of the Ombudsman. The taxpayers should not have to litigate and incur the risks and expenses of legal fees to protect themselves from arbitrary and capricious actions of overzealous Revenue Officers.

Example:

On August 14, 1984 Collection employee Robert A. Manners of the Atlanta district contacted taxpayers Richard B. and Virgins Harding about an unpaid assessment. Two days later their attorney contacted Mr. Manners and informed him that the assessment was being appealed and that enforced collection action should cease immediately. Despite this on November 23, Mr. Manners sent a subsequent demand for payment. On December 11, 1984 the taxpayers filed a lawsuit seeking an injunction against enforced collection activity. Yet, on December 21, 1984, after the lawsuit was filed, the taxpayers received another notice and demand for payment which stated that this was the final notice and the United States planned to levy on their assets within 10 days if the tax was not paid. On February 15, 1985 the assessment was abated, but the taxpayers were forced to file suit for recovery of their attorneys fees (U.S. District Court, No. Dist. GA, Atlanta Div. C84-2497A 5/25/86)

Fact #7: The IRS imposes a double standard on the public and the tax practitioner community.

The IRS director of Practice has issued proposed regulations requiring tax preparers to exercise "due diligence" in the preparation of tax returns. In certain situations, preparers must cite "substantial authority" for the positions they take on tax returns. Failure to do so may result in monetary fines, disbarment from practicing before the IRS, and a full scale audit of all the preparers' clients.

Yet, IRS employees are allowed to violate IRS rules, regulations, policies, procedures, and guidelines at will and without fear of recourse. The law is so overwhelming and sweeping in its power conferred upon the tax collecting authority that there are almost no checks and balances on the exercise of that authority.

Taxpayers need more protections from the arbitrary and capricious abuses of the IRS and IRS employees should be held accountable for their violations.

It is clear that the IRS is more interested in controlling, regulating, and punishing taxpayers and practitioners for their violations than they are in controlling, regulating, and punishing their own employees for comparable infractions. If this double standard continues to exist, the voluntary compliance system as we now know it could be in serious trouble.