September 24, 1997
The Senate Finance Committee has been examining charges that the Internal Revenue Service (IRS) has become to aggressive in auditing and collecting back taxes from the American public. Today, the committee heard from a panel of people who said they were harassed by agents. Is the IRS a bad agency or is it just a few "bad apples?"
MARGARET WARNER: Now, we're joined by Robert Bennington, president of the National Art Defense Network, which represents taxpayers during IRS audits; Robert Tobias, president of the National Treasury Employees Union, which represents IRS workers; Mortimer Caplin, a tax layer who was commissioner of the IRS under Presidents Kennedy and Johnson; and David Keating, executive vice president of the National Taxpayers Union.
A RealAudio version of this NewsHour segment is available.
April 11, 1997
A panel discussion on the embattled IRS.
March 7, 1996: Paul Solman reports on the history of taxes--and anti-tax sentiments.
The NewsHour Economy Page.
How serious are the problems in the IRS?
And, Mr. Bennington, how serious a problem is the kind of abuse we heard about within the agency?
ROBERT BENNINGTON, National Audit Defense Network: It's a very serious problem. We have literally thousands of people who contact us and in dire straits. They're presumed to be guilty upon accusation by the IRS, and they don't know how to prove their innocence. They're threatened. They feel badgered, and it really is a pervasive problem where people live in abject fear of the IRS.
MARGARET WARNER: All right. But some of the accusations today were that even the way these people are chosen, that they're targeted if they're vulnerable because they're low income, lower educated, small business, and that, furthermore, employees are encouraged to even falsify evidence against them, if that's what it takes. Is that--is that overdrawn, or do you see a significant degree of that?
ROBERT BENNINGTON: The emphasis with IRS employees is to bring in collections despite the truth, despite justice. They are measured on how much revenue they generate every month, and like any employee, they want to do a good job. So it seems like they leave a trail of devastated families in pursuance of their goal, which is to bring in as much tax revenue as possible. And it just isn't necessarily a just system.
MARGARET WARNER: How do you see it? You represent the IRS workers. Is this--is this widespread?
ROBERT TOBIAS, National Treasury Employees Union: Well, I think that the commission to restructure the IRS looked at this issue and found few examples of IRS abuse. And I think that's significant.
MARGARET WARNER: And what is few?
ROBERT TOBIAS: Few. I don't know what few is but certainly not thousands and thousands. But any abuse ought not occur. And what I do agree with is that the Internal Revenue Service through its measures of executives particularly has created an atmosphere where productivity is king, as opposed to providing effective taxpayer service.
Measuring the productivity of the IRS.
MARGARET WARNER: But explain that because many people from the IRS have told this hearing and others that there is no--that policy of measuring employees by how much money they collected was eliminated 10 years ago.
ROBERT TOBIAS: It was eliminated as to the individual employee who goes out and does the work, but it was not eliminated for the IRS executives in a particular geographic area. And so they know how they are evaluated in relation to other similar executives and it trickles downhill.
MARGARET WARNER: Mr. Caplin, do you think this is a problem, that this kind of pressure has been created in the agency?
MORTIMER CAPLIN, Former IRS Commissioner: Well, I think it's a problem if there were any cases like this, but it has to be put in perspective. These are only just a handful. The staff of this committee has been working for a long, long time with the cooperation of the IRS to identify these half a dozen or so cases that are being brought before the committee. These are collection cases. They're not audit cases. The selection of people for examination for audits is done on sort of a formula, what they call DIF, a formula to determine which are likely to produce more revenue.
MARGARET WARNER: What's DIF stand for?
MORTIMER CAPLIN: I really can't tell you.
SEN. ROBERT BENNETT: Income score--
MARGARET WARNER: Okay.
MORTIMER CAPLIN: That's right. It's positive income, not just taxpayer income. They add to a lot of things that are excluded, and they put most of their audit focus on the returns that are more likely to produce revenue, so this idea of looking at a little taxpayer doesn't exist so far as the audit is concerned. And there too there's a lot of abuse on the Earned Income Tax Credit. When that was put into the law, when Congress used the tax law to take care of really the poorer people, they found oodles and oodles of cheating going on on that Earned Income Tax Credit. And that's led to that. But I do think that, again, if there are these abuses, they must be sought. They don't come from the top. The policy is clear but sometimes individuals will try to make their record look good.
MARGARET WARNER: Do you see it?
DAVID KEATING, National Taxpayer Union: Well, first of all, I want to say something about the commission. We were not charged with looking into abuses, so it wasn't surprising we didn't find any. And there was a great deal of pressure on us not to even look for them.
MARGARET WARNER: I should point out that the two of you were members of this commission.
DAVID KEATING: Right. We were both members. We both voted for the report. I would disagree. I think the problems start at the top, with the IRS management, and that's one reason why bills introduced in Congress reflecting the commission's report, HR2292--and what we need is some direction for the IRS at the top. It would be an IRS board to help the IRS improve in the areas where it needs to improve. And we need continuity of leadership, something that's been sorely lacking over the last 15 years, with commissioners and deputy treasury secretaries that come and go. So the problems, I think, come right from the top.
What are the solutions?
MARGARET WARNER: All right. I want to get the solutions, but let me just keep--there seems to be disagreement here about really how serious a problem this is. Mr. Caplin seems to be saying, you know, these are collection cases, there are--you didn't mention--a hundred to two hundred billion a year Americans evade taxes by that much. Is this a natural--let me just ask Mr. Bennington this--I mean, could this be a natural byproduct of having to have aggressive enforcement?
ROBERT BENNINGTON: The problem is, is the way that the tax law is enforced. If you're accused of--in an audit--I mean, I was supposed to look at your records--the average American, according to Wall Street Journal Radio, has to pay $5,000 just for legal fees to have their position represented, not counting the taxes, not counting interest and penalties. Right away, the American taxpayer is at a disadvantage. The IRS has unlimited resources; they have unlimited time; and you are expected to stop work, go down to the IRS, produce your position, so it's such an unfair situation. And you have very aggressive agents and perhaps the IRS's official position is that we don't pressure the agents to bring in revenue but we all know the truth is that there's a lot of pressure put on the auditors and agents to bring in additional revenue. That is that agent's job. And they're graded on their performance that way, so even if the official policy isn't that way, the result is you have a lot of taxpayers feeling that they're not being treated fairly by the IRS.
MORTIMER CAPLIN: I think that's wrong. They're not graded on the amount of tax they collect, the individual--
DAVID KEATING: That woman, Mrs. Long, said exactly that; that she was given one of the best performance recommendations and her immediate supervisor indicated she had done a great job collecting revenue.
MORTIMER CAPLIN: Well, you may find some random cases, but in terms of a basic policy--
DAVID KEATING: But they're collecting--they're collecting statistics nationwide on districts--
MORTIMER CAPLIN: On groups.
DAVID KEATING: On groups. And that's putting pressure, and that pressure feeds down to the front lines.
MORTIMER CAPLIN: Again, only in collecting.
ROBERT TOBIAS: The solution to the problem is to eliminate what's called the field office performance index. That's the index that has driven the atmosphere where I believe the few abuses have occurred. I don't agree with significant. I don't agree with large number, but it's clearly from that field office performance index.
MARGARET WARNER: Do you think, though, that you could aggressively go after tax cheats but not cross the line?
ROBERT TOBIAS: I think you can and you must. I mean, just like policemen go after people who violate the law and they speed, you have to go after people who are speeders, who are drunk drivers. That doesn't mean that the police have the right to abuse those that they're arresting or that they are seeking to enforce the law. And the same is true for the IRS. And it can be done. And it ought be done.
DAVID KEATING: Some of the most disturbing parts of today's hearings to me were that several examples where the government knew it was wrong, and they actually pursued the taxpayer. One man had $145,000 taken from his business. The government knew he didn't owe a penny yet, agreed to collect $50,000, plus he had to pay $50,000 in legal fees. Outrageous!
MORTIMER CAPLIN: --in any business who are going to violate rules and act just abnormally and wrongly. Tomorrow the acting commissioner will testify, and I'm sure he'll answer this. This is not a policy. You're bound to find some bad apples in the barrel.
DAVID KEATING: And the question is why don't they take some more actions against the bad apples?
MORTIMER CAPLIN: They are.
DAVID KEATING: The fact is it's very rare, and the pressure--I agree with Bob--the pressure--they're taking the wrong type of statistics. Does the IRS measure the customer service? It does a great job monitoring the telephone assistance because they can be monitored very easily, but the people on the front lines--
MARGARET WARNER: These are the people you call up if you say--
DAVID KEATING: Right. They can listen in on the telephone conversations. By and large, the reports we get are very positive, but it's on the front lines, where it's harder to monitor these sorts of things.
MORTIMER CAPLIN: You've got supervisors all around the line.
How do you guard against abuse?
MARGARET WARNER: Okay. What kind of discipline or investigation is there if an employee is engaging in the kind of thing that he just mentioned that was discussed today?
ROBERT TOBIAS: Well, right now there's--as a result of the taxpayer bill of rights two, taxpayers who feel abused can file a complaint with the IRS and those complaints are being investigated. And what we've found--much to the surprise of both the IRS and Congress--is that the reports that we're receiving are about two to one favorable to employees. They call and say the person that I dealt with is terrific. And that mirrors the other polls that are done; when people actually have a transaction with the IRS, they rate they IRS high, but if you poll people who have no transaction with the IRS, they fear the IRS. And so it's very easy to say the IRS ought be feared and it's easy to create an atmosphere of fear, but the people who deal with the IRS and are polled say the IRS does a great job.
ROBERT BENNINGTON: I would disagree with that. Again, I deal with a lot of people every month who have active existing problems with the Internal Revenue Service, and many of them, the vast majority, feel they've been treated unprofessionally, that they were threatened and intimidated. Just yesterday I was visiting with a dentist who had been in contact with a news crew about this exact issue. And one revenue officer actually admitted that this man owed $12,000. And while the news crew was there filming this man a different revenue officer called up and threatened this man that if he didn't agree to pay $200,000 in taxes, they were going to put a levy on his bank account and try and take his wages.
MARGARET WARNER: And do you--but do you--have your clients used this complaint line, or do you file complaints?
ROBERT BENNINGTON: Generally, we don't file complaints. We try and resolve the issue with our clients, and that way our clients are happy and feel like they don't have the burden of the IRS anymore, so it hasn't been our policy or procedure. Certainly, if a client asked me, we'd suggest that they do make a call if something was to happen.
MARGARET WARNER: All right. Let me get you to comment on something that David Keating suggested a few minutes ago, which is one of the solutions may be to have this independent board, a board made up of mostly private sector people, essentially oversee the IRS.
MORTIMER CAPLIN: Well, I think there's an awful lot of oversight going on today. There are six congressional committees. There's the GAO and the like. I think this idea of having a privatization of the IRS by having seven--
DAVID KEATING: --you know that's unfair--
MORTIMER CAPLIN: This group is independent. There's very limited reporting requirements they have. They make this annual report to Congress. The big thing is they are going to be running the IRS. They're going to control the budget; they're going to pick the commission of the Internal Revenue; they're going to fix the salary, and they're going to fire him.
MARGARET WARNER: Is that an accurate description of those four things?
DAVID KEATING: Some of it is accurate. Other parts are not. They do not control the budget. The budget--there is a recommendation for the budget from the board, that budget goes to the President, it goes to the Congress. The President and Congress decide. The board is appointed by the President, confirmed by the Senate. These people are government employees that are on the board. This is not a privatization of the IRS. And the difference is we have commissioners that come and go, treasury secretaries that come and go. There's never any strategic plan to improve the IRS. Yes, Congress looks at the IRS, but do they ever sit around and actually think of what to do? It just doesn't happen. They don't coordinate their oversight. We know that.
MORTIMER CAPLIN: For four years I was commissioner of the Internal Revenue. We had longtime Civil Service career people who are outstanding. I could put them up against the best and private industry. Now--talk about planning, there is continuous planning. You cite revenue procedure 6422 as really a model for running the agency. That was developed during my time by the Civil Service employees with my backing. That was established.
ROBERT TOBIAS: What would be the problem? You know, these hearings are not new. We had hearings like these in the mid 80's. We had hearings like this prior to the taxpayer bill of rights one. And the agency hasn't fixed itself; that is a problem. That is a significant problem that the agency has not taken responsibility to fix itself.
MORTIMER CAPLIN: Can I say something--
ROBERT TOBIAS: And it's not the agency. When you say it's not at the top, it's--those are the folks who created the field office performance index. It wasn't an RO, it wasn't a revenue agent.
MARGARET WARNER: Briefly.
MORTIMER CAPLIN: One thing is that the Treasury has really let the IRS run itself. I do think there's a new focus on it. I think the suggestion of having heavier oversight by the Treasury and an outside advisory board responsible to the secretary not to a board of directors, that's where I think we ought to go--
MARGARET WARNER: All right.
DAVID KEATING: The board of directors is responsible and can be fired by the president.
MARGARET WARNER: All right, gentlemen. We have to leave it there. Thank you all four very much.