Mr. Chairman and members of the committee, thank you for requesting my testimony. I
very much appreciate the opportunity to appear before this distinguished body.
The record clearly demonstrates that the lack of effective oversight of the Internal
Revenue Service -- by Congress, the courts, reporters, tax practitioners, and other
concerned individuals -- has done grievous harm to the American people for many years.
While it has become a cliche, it nevertheless remains a basic truth: the price of liberty
is eternal vigilance.
Because we have routinely failed to hold the IRS accountable for its actions, the
agency has too often operated in abusive, sloppy, unresponsive, improperly political and
occasionally corrupt ways that are a threat to our society.
The IRS's continuing problems are costly to the nation in two ways. First, a badly
managed agency does not collect as much as might be expected of the relatively small, but
still significant, portion of the federal taxes owed by noncomplying taxpayers. The second
cost is harder to measure, but probably more important. A badly managed agency is unfair:
substantial numbers of individual citizens are erratically subject to wrongful actions.
Such treatment contributes to the growth of a corrosive public cynicism that undermines
public confidence in government in a fundamentally dangerous way.
My belief that strong oversight can have positive impact on government is not
theoretical. It is based on direct experience. As a reporter who has investigated large
powerful bureaucracies like the New York City Police Department, the National Security
Agency, the FBI and the IRS for the last 30 years, I have seen clear and certain examples
where public exposure of serious government problems has led to genuine improvements in
government operations. We need the New York Police Department, we need the FBI, we need
the IRS. But when such powerful organizations are allowed to operate without continuous
constructive review, history tells us that almost certainly they will go wrong, sometimes
in very serious ways.
The IRS, of course, is the subject of the committee's hearings. More than ten years
ago, I began an investigation of that agency that led to the 1989 publication of "A
Law Unto Itself The IRS and the Abuse of Power". This book was a unique and highly
praised examination of the agency's historic and continuing failure to well serve the
American people. To my astonishment, shortly after its publication, Fred Goldberg, the IRS
commissioner at the time, told a national television audience that my critique of the
agency had got it right.
Perhaps one reason the commissioner did not condemn my book is that it did not heap
blame on the Bush Administration alone. My research, in fact, found that the IRS has
suffered mishaps and misadventures under almost every president, Republican and Democrat,
going back at least to Herbert Hoover. I found authoritative government documents clearing
showing numerous multiple abuses:
- Herbert Hoover, irritated by political criticism of his budget-cutting policies by an
organization of weapons manufacturers, ordered a secret FBI investigation of the group
that was partly based on supposedly confidential tax information.
- Franklin Delano Roosevelt regularly used the IRS as a political hit squad. He ordered
the agency to mobilize its enforcement powers against former Treasury Secretary Mellon,
Senator Huey Long, the singer Paul Robeson, Republican Representative and neighbor
Hamilton Fish, Father Charles Coughlin and many others.
- During President Truman's watch, a massive and long-festering IRS corruption scandal
erupted during which hundreds of agency officials and agents were implicated, including
one secretary of treasury, one commissioner and one assistant attorney general. A good
number were convicted and sent to prison for taking bribes or forced to resign from
government service.
- With the full knowledge of President Kennedy and his brother, the IRS Commissioner of
that administration established a program to go after "extremist organizations."
Although the memos describing the program said the extremists of concern were on both the
right and the left, it appears that all of those who lost their tax exempt status in
connection with this program were fundamentalist conservatives who had been criticizing
the president.
- President Nixon, among other abuses, established within the IRS the SSS -- the Special
Service Staff -- to use tax records to track "dissident groups and individuals."
One of the impeachment counts approved by the House Judiciary Committee involved the
president's misuse of the IRS.
- During the Reagan years, the IRS forgot the lesson of the Truman era, and cut back on
agency efforts to discover and punish corruption. The result was what appears to have been
a mini-surge in willingness of IRS officials and agents to use their governmental powers
for private gain in cities like Philadelphia, Chicago and Los Angeles.
Although it may not at first be obvious to you, my point here is not that the IRS is
inevitably a corrupt and badly-run organization. On the contrary, growing out of the
exposure of the problems of both the Truman and Nixon Administrations came periods of
serious public concern and genuine reform.
This truth -- that large and powerful organizations desperately need outside review by
informed critics -- is one that Congress has often ignored. As the chairman and members of
the Senate Finance Committee know, the historical record proves that oversight of the IRS
has rarely been a major concern of this committee. It must be acknowledged -- and it
should be celebrated -- that the breadth and depth of this hearing on the basic
performance of the IRS is unusual, although perhaps not unprecedented. I contend that the
record of the House Ways and Means Committee and the Joint Tax Committee and the General
Accounting Office is not much better. For Congress, re-writing tax laws and imposing new
sanctions to enhance the collection of tax dollars have almost always overwhelmed concerns
about the fairness and effectiveness of the IRS.
In America, however, oversight is not a Congressional monopoly. Thanks to the First
Amendment of the Constitution, news organizations are free to investigate and publicize
the failures of government. But when it comes to the IRS, the media has rivaled Congress
in its failure to audit America's largest and in some ways most powerful enforcement
agency. More than twenty years ago, two very good reporters from the Philadelphia Inquirer
undertook a ground breaking and prizewinning investigation of the IRS. Very recently, the
New York Times has assigned David Cay Johnston to focus on the agency and its enforcement
activities. Other than that -- and the flurry of IRS reporting after Watergate -- coverage
of this agency that touches the lives of almost every American has for many years been
largely ignored by both print and television reporters in some ways, the lack of effective
oversight is not all that surprising. The IRS is a very large and very complicated agency
that is not easy to understand. And there are many people -- especially within the beltway
-- who truly do not understand that the nitty-gritty of how the government rubs up against
individual citizens is more significant in many ways than the grandest and most publicized
federal "initiative." A couple of years ago, the senior lobbyist for a major
national organization in Washington made the astonishing statement to me that he was only
interested in government "policy," not government "enforcement."
This curiously obtuse attitude was a central reason why Susan Long, a professor at
Syracuse University, and I decided in 1989 to form the Transactional Records Access
Clearinghouse (TRAC). Our basic idea was that if Congressional committees, reporters,
public interest groups, scholars and businesses were able to obtain comprehensive
information about the day-to-day activities of federal enforcement agencies, they would
undertake serious oversight studies. Since that time -- with the support of Syracuse
University, the Knight Foundation, the Rockefeller Family Fund and The New York Times
Company Foundation and other organizations -- TRAC has obtained internal administrative
data tapes from the Justice Department and a number of federal enforcement agencies and
provided it to the public in new and innovative ways.
In the spring of 1996, and again in 1997, for example, TRAC created a special site on
the World Wide Web that gave viewers all over the nation many thousands of pages of maps,
charts, graphs and tables about the civil and criminal enforcement activities of the IRS.
The address is http://trac.syr.edu/tracirs. For the first time ever, TRAC's site gives
taxpayers, reporters, public interest groups, and scholars easy access to comprehensive
and authoritative information about how, where and when the IRS is enforcing the law. With
this information, it now is possible to examine and question the basic policies of the
agency.
- DATA FACTS: From 1980 to 1995, IRS criminal enforcement underwent a dramatic shift in
emphasis. In 1980, more than three quarters of all IRS prosecutions were aimed at
individuals accused of traditional tax crimes like failure to file or the filing of a
fraudulent return. By 1995, less than half of IRS prosecutions involved traditional tax
violations, with crimes like money laundering, drugs and currency violations taking their
place. From 1988 to 1995, civil audit rates for individual nonbusiness taxpayers with
incomes over $100,000 declined by a factor of four.
- POLICY QUESTIONS: The sharp decline in IRS activities against wealthier individuals and
traditional forms of tax violations is a striking change in national tax enforcement
policy that has gone on under the Reagan, Bush and Clinton administrations. Why were these
changes instituted? Was this important shift the product of conscious decisions by top
policy makers or an accident? Is there any evidence that the change has resulted in the
collection of more revenue? Or less?
- DATA FACTS: Government data show wide variations in the civil and criminal enforcement
patterns of the IRS, some of which appear to make very little sense. The taxpayers in
Manhattan, Brooklyn and Las Vegas, for example, all have something in common with
taxpayers in northern Florida and the comparatively rural areas around the North Carolina
cities of Greensboro and Ashville. In 1995, on a per capita basis, they all ranked among
the ten most active districts when it came to the prosecution of IRS criminal cases. On
the civil side, taxpayers in the IRS's San Francisco district, Mississippi, Idaho and New
York City stood the highest chance of being audited. One curious fact about the taxpayers
in these very different districts concerned their income. New York had the highest
adjusted gross income and Mississippi had the lowest.
- POLICY QUESTIONS: Does the IRS have an effective national program to make sure that
areas with the most problem taxpayers have most enforcement resources? Or is the effort in
fact a random one involving the relative energy levels of different district managers ?
Has the combined impact of various forms of IRS enforcement actions -- notices, audits,
criminal indictments -- ever been studied? Given the high cost of moving IRS staff, has
the agency developed a plan to continually use the natural forces of attrition to shift
auditors and examiners to areas where they are most needed?
- DATA FACTS: In March 1996, TRAC mounted its first web site on the patterns and trends of
IRS criminal enforcement. The information was based on data obtained from the Justice
Department under the Freedom of Information Act. Although both the IRS and the Justice
Department were given access to the site before it became publicly available, neither
raised any questions. When news organizations began to publish articles based on the data,
however, spokespersons for both agencies questioned the validity of the government's own
information. The curious tactic of impeaching your own material prompted us to separately
ask the agencies to meet with us to resolve whatever problems they had with our data
analysis. Both refused. At this point, we undertook a new study in which we compared --
where it was possible -- the enforcement information from the Justice Department, the
courts and the IRS. This study found that the portrait of criminal tax enforcement painted
by the Department and court data were highly consistent. Surprisingly, however, the
department and court data patterns were very different than reported by the IRS. In 1995,
for example, the IRS claims it sent twice as many persons to prison as was recorded by the
department and the courts. This discrepancy -- and several others -- led us to conclude
that important information provided the public in the IRS's annual report about its
criminal enforcement effort was "substantially misleading and inaccurate."
- POLICY QUESTIONS: Why is the IRS, of all agencies, unable to properly balance the books
on what is in fact a low-volume part of its activities? Given the failure of the IRS to
account for its criminal enforcement activities -- even with parallel information
available from the Justice Department and the courts -- what faith can be placed in its
accounting of civil audits? If the IRS enforcement information is in fact seriously
flawed, how can Congress judge its basic competence? Has the General Accounting Office
ever conducted a detailed audit of IRS enforcement counts published each year in the
agency's annual report?
The hard numbers are there. The good questions are there. All that has been lacking are
skeptical Congressional Committees, reporters, scholars and tax practitioners willing to
invest the time and energy to understand the numbers and to ask questions.