Tax Shenanigans

The IRS is frequently a target of rage by your average taxpayer and self-serving politicians. That's mostly because it's easier to bitch at the IRS then it is to get the real source of the problem-Congress-to do anything about it. But a couple of stories now out in the media-sphere indicate that the IRS is in fact up to no good, at least when it comes to how it deals with the poorest of taxpayers. First, we have a story about how the IRS appears to be deliberately shielding information on how zealously it goes after big-money taxpayers:

Records showing how thoroughly the Internal Revenue Service audits big corporations and the rich, and how much it discounts the additional taxes assessed after audits, are being withheld from the public despite a 1976 court order requiring their disclosure, according to a legal motion filed last week in federal court in Seattle.

Read carefully how it is the IRS thinks they don't have to provide this information:

Much of what the public knows about the efficiency, effectiveness and evenhandedness of the revenue service and other big federal agencies is based on the figures that Professor Long [who obtained the 1976 order] collects and posts.

In May 2004, the service told her that it would not provide the information and ordered its statisticians to stop answering her questions. It also advised her that if it ever did make the data public again, the information would cost $12,000 a month to receive electronic copies.

Professor Long, whose suit resulted in the court order in 1976, when she lived in Seattle, asked the federal court there to enforce that order, which instructed that the data be turned over without charge. Eric M. Stahl of Davis Wright Tremaine in Seattle, who is handling the case without charge, said the earliest hearing date would be Jan. 27.

The senior national spokesman for the tax agency, Frank Keith, wrote to Professor Long in June 2004 that he had lawyers examine her assertion that the agency was required to provide the data. After extensive research, Mr. Keith wrote, the lawyers concluded that no court order existed and that "accordingly, the I.R.S. is not in violation of any standing injunctions."

Professor Long responded by sending Mr. Keith a copy of the order. Mr. Keith said no one now at the agency was aware of it.

"We thought we were providing this information voluntarily," he said.

Are you buying that anymore then I am? And why would the IRS want to hide that information anyway?

Among other findings, Professor Long's information has shown that in 1999 the poor were more likely than the rich to be audited.

For us peons, it's hard to know exactly what motivated this change in practice. Given this administration's penchant for secrecy, it doesn't strain credulity to imagine that this change is politically motivated, with orders trickling down from on high. Certainly the Bush administration isn't interested in pursuing big-money corporate and wealthy taxpayers with as much zeal as we taxpayers might. But given that the 1976 court order is an indisputable fact, it's hard to say that it's anything but illegal to avoid releasing their audit data. Sadly, that's not the only thing the IRS is up to. If you happen to be a not-so-wealthy taxpayer whose return the IRS finds mildly suspicious, the IRS may decide to hold your return that year, and for years after, without finding it necessary to actually tell you about it.

Tax refunds sought by 1.6 million poor Americans over the last five years were frozen and their returns labeled fraudulent, although the vast majority appear to have done nothing wrong, the Internal Revenue Service's taxpayer advocate told Congress yesterday.

A computer program identified the refund requests as suspect and automatically flagged the taxpayers for extra scrutiny for years to come, the advocate said in her annual report to Congress. These taxpayers were not told that the I.R.S. criminal investigation division suspected
fraud.

The advocate, Nina Olson, said the I.R.S. devoted vastly more resources to pursuing questionable refunds sought by the poor - which under the highest estimate is $9 billion - than to the $100 billion in taxes not paid each year by people who work for cash and either fail to file tax returns or understate their income.

As for the suspected fraud in refund requests, Ms. Olson said her staff sampled the suspect returns and found that 66 percent were entitled to the amount sought or more. Another 14 percent were due a partial refund. She expressed doubt that many among the remaining 20 percent had committed fraud.

Unless taxpayers press for their refunds, Ms. Olson said, they "are not given an opportunity to substantiate their claims or to show that any overclaims identified were due to honest error rather than fraud."

In other words, unless you're willing to call the IRS, over and over again, write letters, send documentation in or threaten with a lawyer, the IRS probably won't tell you that you're under any investigation, and it certainly won't give you the money you're owed back.

Now this is just too bone-headed to be anything but the idea of a lazy beauracrat somewhere. Of course since wealthy taxpayers aren't usually waiting on refunds, or if they are have accountants and lawyers to sweat this, they can expect not to receive this sort of treatment. Only people who submit their tax returns in good faith, and wait patiently for their return without harassing dutiful IRS employees, can enjoy the privilege of having their money locked up somewhere nice and tight for months, year after year.

As I said above, the IRS unfortuantely draws most of the rage over taxes that should properly be directed at Congress. But for these two punches in the eye, the IRS has only itself to blame.