The Internal Revenue Service penalizes a taxpayer $46,806 for an alleged underpayment of ten cents. Armed IRS agents storm the homes of a restaurant owner and his manager because of unsubstantiated charges from a fired ex-employee that the men were drug dealers. A taxpayer is driven to suicide by the IRS’s hounding after it had disallowed business losses he had claimed ten years earlier.
Those are some of the horror stories told in this powerful book by Senator William Roth of Delaware, co-author of the 1981 Kemp-Roth tax cut, and his executive assistant, William Nixon. They wrote The Power to Destroy in the belief that “real change will take place within the IRS only when Americans are fully aware of how the agency works and possess the knowledge necessary to protect themselves.” The best protection against the IRS would be its non-existence. Although Roth and Nixon are not aiming for that ultimate objective, their book, by showing the IRS’s fangs in all their viciousness, may help to catalyze a true tax rebellion.
As the most powerful agency in America the IRS cuts a huge swath through our lives. Property seizures have increased 400 percent since 1980 and every day 300,000 households receive IRS demands for more information or notifications of audits. As chairman of the Senate Finance Committee, Roth is one of the two members of Congress empowered to conduct a full-scale investigation of the IRS. (The other is the chairman of the House Ways and Means Committee.) In 1996, as evidence of abuses mounted, Roth decided to undertake the first thorough investigation of the IRS inhistory. The book mostly reports on the findings of his committee.
The authors do not say that the IRS is staffed exclusively with abusive people who thrive on power—although there are some—but rather that the culture of the IRS drives its employees to treat taxpayers as exploitable resources. Within the IRS, incentives push agents to try to wring all they can out of taxpayers. As Roth and Nixon write, “despite laws against the practice, goals and quotas still drive the performance of auditors, groups, divisions and even districts.” Career advancement hinges on how much revenue one can bring in, how many cases one can close, and so on. Therefore agents can and do take advantage of the indecipherability of the tax code and the natural fear most people have of the IRS. Moreover, IRS training encourages employees to “see taxpayers as liars and cheaters” who are guilty until proven innocent.
That mindset produces several consequences, including padded tax liabilities and penalties and use of Bureau of Labor Statistics data to impute income through agency-generated “substitute returns” (when an agent believes that a nonfiler should have filed) or to inflate income to the level the agent thinks is “right.” And of course some agents are quick to resort to brutal property seizures, liens, and levies to collect money, and plain threats and harassment.
Small businesses are favorite targets. Like any predator, the IRS likes to go after those who are least able to fight back. Large companies can afford high-priced legal counsel that can argue relentlessly over the interpretation of the tax code; small ones usually can’t, and tend to cave in under an IRS onslaught. Many small businesses have been driven to bankruptcy by the IRS.
Roth and Nixon point out that Congress is partly to blame for this terrible state of affairs. Frequent changes in the tax laws have spawned a nightmarishly complicated tax code, creating difficulties for taxpayers. Thus the authors argue, modestly, for a far simpler tax code.
The Internal Revenue Service Restructuring and Reform Act of 1998, enacted following Senator Roth’s hearings, was designed to curb the abuse of taxpayers, such as shifting the burden of proof from the taxpayer to the IRS in some circumstances and restricting the use of liens and property seizures. Nevertheless Congress, with its spending addiction, likes the extra revenues that IRS zeal produces.
Get this revealing book, read it, and pass it on. The tax nightmare you prevent may be your own.
John Attarian is a freelance writer in Ann Arbor, Michigan. He has recently completed a book on Social Security.