My name is Darren Larsen. I am an attorney in private practice in Southern California, specializing in tax controversies and bankruptcy matters. From 1981 through 1994, I was employed as an attorney in the Office of Chief Counsel for the Internal Revenue Service in three different districts. I served my last three years in the position of Assistant District Counsel, including extensive duty as Acting District Counsel. I was personally involved in matters concerning all functions of the IRS: Examination, Collection, Criminal Investigation and Disclosure. From 1986 through 1994, I represented the IRS in Bankruptcy Court as a Special Assistant United States Attorney in the Alaska District and the Central District of California. I frequently served as a nationwide instructor for attorneys and managers as well as for IRS training and continuing education. I was a member of a joint Chief Counsel - IRS national task force on bankruptcy procedures through which I visited several districts throughout the country. Because of my particular expertise concerning IRS collection issues, I maintained close relationships with many individuals in the IRS, particularly revenue officers and managers in the Collection Division.

I speak to you today as a tax professional who has spent many years representing the Internal Revenue Service in court and working with and advising IRS personnel on their cases. Over the past 2 1/2 years I have also had the opportunity to deal with the IRS as a taxpayer's representative. My feelings toward the IRS as an institution are mixed.

While it is sometimes easy to express frustration and even outrage at IRS conduct, I must state at the outset that there are many outstanding individuals currently employed by the IRS who have superior technical knowledge, commendable devotion to their jobs and a commitment to fairness. At the other end of the spectrum, however, are those employees whom I have encountered both as a government attorney, and as a practitioner, who lack technical skills, lack any sense of justice or fairness, and are interested only in remaining employed to receive a paycheck. That having been said, I will now move on to more specific examples of problem areas within the IRS as an institution.

As an attorney for the IRS, I was often appalled by the lack of technical knowledge on the part of the front line managers. I knew group managers who had the responsibility to review and sign off on administrative summonses who did not know the basic requirements for content of the summons or the rules for service. The less experienced revenue officers unfortunately learned from these managers and consequently made mistakes. I knew one manager who did not understand the distinction between a lien and a levy. The revenue officers who knew the manager had these shortcomings were forced to use other resources for assistance. I was also dismayed at some of the "on-the-job instructors" who were lacking in some of the legal fundamentals and passing on their incompetence to newer revenue officers.

In addition to simple lack of knowledge, I also knew of revenue officers who understood the legal and procedural requirements for certain actions but consciously bypassed them. Specifically, I dealt with a revenue officer over a period of several years who, on more than one occasion, issued nominee or alter ego levies without the required pre-review. Typically he would receive payment of the tax and that would be the end of it. If there was a problem, only then would he go through the required steps. He was a "good" revenue officer in that he collected a lot of tax and closed a lot of difficult cases and, consequently, he was given a great deal of latitude in how he worked his cases. He felt justified in taking shortcuts because he felt he had good instincts and got what he felt were the right results, i.e.- payment of the tax. When he was later promoted to group manager, the revenue officers in his group were allowed to work their cases in a similar manner, as long as they didn't make a mistake. There was often a prevailing notion in the collection groups that if a summons or some other procedure was not exactly handled in accordance with the law that the taxpayers probably would not know the difference. And, if the taxpayer didn't comply and there was a problem down the road, it could always just be done over. The same attitude was taken with respect to other actions: if someone's watching, I'll take the time to do it right, otherwise I will do it the easiest way because it's unlikely my manager or the taxpayer will catch it.

In one district in California, IRS Collection managers blatantly disregarded the law with respect to ownership of personal residences because they felt it was unlikely many taxpayers would know that the law protected them. In California, if married people hold title to real property as joint tenants it is presumed, under State law, that they do hold as joint tenants rather than as community property. The presumption may be overcome by a factual showing that the couple actually intended it to be community. The difference for IRS is significant: when only one spouse owes tax, only 1/2 of joint tenancy property may be seized, while 100% of community property may be seized. In the district, the IRS took the position that all joint tenancy property would be presumed to be community, and it would be up to the taxpayer to prove otherwise. The result was the IRS treating 100% of a personal residence as being subject to the tax lien and insisting on payment accordingly, whether by seizure and sale or by settlement. The reality is that most taxpayers do not know the law regarding community property and they rely upon the IRS to "do the right thing." However, in this situation the IRS was taking advantage of the ignorance of the general public on a technical legal issue to the detriment of the non-owing spouse. The IRS advisors and managers I spoke with admitted knowledge of the State law, but justified this policy by stating that people usually think their property is community anyway so this is just more expedient. It's the "mindset" that allowed this to go on that concerns me.

While reviewing the procedures followed in many districts in handling bankruptcy cases, it became apparent that in some offices the IRS was ignoring the law regarding the automatic stay in bankruptcy and the discharge injunction. Because it was not designated as a program area, and training was insufficient, some managers devoted few -- if any -- resources to stopping collection action upon filing of a bankruptcy petition, to monitoring bankruptcy cases for issuance of the discharge order, to properly adjusting taxpayer accounts after issuance of a discharge, or to the releasing of liens after discharge. This inattention to the most basic of tasks was also detrimental to the collection of the revenue.

As a taxpayer representative, I am now even more aware of how important it is for the IRS representatives to follow the procedures established by the IRS and the law in collecting taxes. For the most part, taxpayers are intimidated by the IRS and will do whatever is asked of them. Because most taxpayers do not know much about tax law they rely on the IRS with respect to many issues and put their trust in them as public servants. Even if the taxpayer feels the IRS is not acting properly it is often too costly to hire representation to contest the action. The end result is that some taxpayers are paying more tax than they rightfully should and some individuals are paying tax which they are not actually liable to pay. I do believe that if a taxpayer presses an issue and takes it up through the system, and if that taxpayer is right, he or she will ultimately prevail. It's just that the process is costly in terms of fees, time and aggravation. It is important for the IRS to avoid procedural shortcuts and treat the taxpayers fairly up front, so that mistakes are not made and taxpayers are not put in the position of choosing whether to pay the wrong amount of tax or pay for assistance to fight it out. Either way the taxpayer loses.

As an organization, the IRS has excellent technical resources which it does not use to its best advantage. Tax collection is a complex process given the number of applicable federal and state statutes. Revenue officers can be expected to require assistance in some cases. The Special Procedures function is designed to provide technical assistance to the tax collectors in the field, and in those districts where it is given the staffing and finding it needs, it has proven to be very valuable. However, each district is given the discretion to determine how its own Special Procedures will be staffed and how it will operate. In some districts, Special Procedures is under-achieving because the advisors have little experience and little support. Some districts view Special Procedures as a dumping ground for revenue officers and even managers who have had problems elsewhere. Some districts view Special Procedures as less important than the field groups so they rotate revenue officers in for only 18 months at a time. Consequently there is little institutional expertise. New advisors have nobody to train them. The field revenue officers have little confidence in their advisors. On the other hand, the districts with excellent Special Procedures have advisors who have worked in their program areas for many years, they work well together and learn from each other, and they are respected by the field officers. They maintain close communication with the field and provide effective assistance. The excellent Special Procedures staffs typically have close working relationships with District Counsel and have programs which allow them to stay current on developing issues. The IRS would be well served by requiring all districts to step up the level of the Special Procedures staffs so that the IRS, nationwide, can more effectively and justly collect the taxes owed.

In conclusion, the IRS in my view has much room for improvement in the way it deals with taxpayers when collecting delinquent accounts. While there are many positive, productive forces and individuals at work inside the organization constantly trying to make improvements, some of the chronic problems remain. The IRS is there to enforce the tax laws. However, the IRS is also there to ensure that the law is applied fairly and consistently. The IRS representatives wear two hats: they are adversaries of the willfully non-compliant taxpayer, but they are at the same time public servants. There is no excuse for cutting procedural corners or establishing presumptions which place citizens at a practical or economic disadvantage. Better training of revenue officers, as well as managers, and an intolerance of blatant violations of the law would go a long way toward improving the overall quality of tax collection and improving the level of public trust in the IRS.