When Chief Justice John Marshall wrote, "The power to tax involves the power to destroy," he was referring to the imposition of taxes, but he could just as well have been referring to the collection of taxes. Today the tax collection powers of the IRS are virtually without limit. Without a court order, revenue Officers - the tax collectors of the IRS - can seize and sell practically everything a citizen owns.

Perhaps the most ominous and frightening reality of all, under powers legally granted by Congress, the IRS can assess taxes and seize property immediately without any warning, or notice. They can do this not only when the taxpayer hasn't filed a tax return, but even when the tax year hasn't ended.

"The Power to Tax" is a critical look at these collection powers and their impact on the civil liberties of taxpayers. Written by a former revenue officer, it dramatizes the need for taxpayer protections by exposing the administrative and legislative weaknesses that allow abuses, harassment, and violations of IRS policy and procedures to occur.

Actual case histories and Congressional testimonies from other revenue officers support specific and constructive recommendations for reform. These ideas not only outline an action plan for the IRS, but suggest legislative initiatives that would truly protect all taxpayers from the arbitrary and capricious actions of overzealous revenue officers - a force of government employees who literally possess the right and the power to destroy at will.

AUTHOR'S BACKGROUND

Jack Warren Wade, Jr., an ex-IRS Revenue Officer from 1971-1979, was once in charge of the entire nationwide revenue officer training program, and has written more than 16 training publications on tax collection and enforcement. He is the author of "When You Owe The IRS," (Macmillan, 1983, hb, and Viking-Penguin, 1984, pb), "Audit-Proof Your Tax Return," (Macmillan, 1986, hb, New American Library, 1987, pb), and "How to Reduce Your Withholding and Increase Your Take-Home Pay," (Collier Macmillan, 1985, pb.). He has also authored more than 76 articles on IRS policies and procedures which were published in Tax Savings Report, a monthly newsletter published by the National Taxpayers Union.

INTRODUCTION

Several years ago IRS employees laughed about taxpayers' rights. It was generally felt that the taxpayer had two rights: the right to file his tax return and the right to pay his taxes. Any rights in between belonged to the IRS. Very few IRS employees considered the delinquent taxpayer to be any better than a common criminal.

Stories of IRS abuses still make the rounds of IRS of offices. Most abuses were not always overt or illegal, but subtle, verbal expressions of IRS employees flexing their legal muscle. There were also cases of out-and-out harassment and psychological intimidation, like the revenue officer who would point his finger at a delinquent taxpayer and say, "Now let's talk about that money you stole from the government." Supervisors even encouraged this kind of behavior.

The Watergate crisis became the turning point in the way the IRS treated taxpayers. Public attention was focused not only on how the agency was manipulated for political purposes, but also on how individual employees treated individual taxpayers. The IRS underwent intense scrutiny from the public, the media, and Congress. Congress made it clear that the IRS must change its policies. The agency was now compelled to accept the premise that delinquent taxpayers did have rights.

The taxpayers' rights movement is still in its infancy, mainly because the tax industry and business community have not spoken out vigorously on these issues. In response to this lack of leadership in taxpayers' rights issues, Congress has been the primary initiator in developing and protecting taxpayers' rights. Most of the major changes came about as the result of a study done by a congressional agency, the Administrative Conference of the U.S., on the operations and practices of the IRS. This study, released in January 1976 to the Ways and Means Committee, focused on five major topics: the audit and settlement process, the collection of delinquent taxes, civil penalties, the IRS summons power, taxpayer services and complaints, and tax return confidentiality.

The agency's recommendations were numerous. Most were either adopted administratively by the IRS or incorporated as legislative changes in the Tax Reform Act of 1976. The Act expanded the rights of taxpayers in the following ways:

• monetary exemptions from levy on wages, salaries, and other income to prevent the IRS from seizing a taxpayer's entire paycheck;
• the right to intervene in the summons enforcement process when a summons was served upon "a third-party recordkeeper";
• administrative review and court appeal of jeopardy and termination assessments.

The IRS took the Administrative Conference report seriously. They studied each recommendation intensively and adopted most of them. The changes in the Collection Division's operations were made through the "Collection Initiatives Project" under Division Director Tom Davis. Here are some examples of the changes.

• Installment agreements were made automatic for individual income taxpayers who had never been delinquent before and who owed less than a certain amount.
• Taxpayers must be personally notified before a federal tax lien is filed or a seizure action is to be taken against the taxpayer's property.
• Seizure action must first be approved by a group manager, and a seizure of a personal residence must be approved at a higher level.
• Seized property must be released if the minimum sale price is not expected to meet the expenses of seizure and sale.

The Collection Division made a sincere effort to protect taxpayers from overzealous enforcement personnel. All employees were trained in taxpayer relations to increase their awareness of their actions. The responsibility for collection was shared with management officials in the hope that it would prevent arbitrary and capricious seizures and that such action would occur only when necessary and proper. The national office began training revenue officers to educate and counsel the taxpayer. Training materials were required to say that "all administrative actions must occur before a seizure is to be made."

Then in February 1977 the U.S. Supreme Court issued a decision in G.M. Leasing v. U.S. that profoundly affected the manner in which seizures could be made. For the first time the Supreme Court extended the Fourth Amendment prohibition against "unreasonable searches and seizures" to the tax code. From then on, the IRS would be required to obtain a court writ before a seizure could be made of a taxpayer's property on private premises.

Unfortunately, the old ways of doing things die hard. Some field personnel refused to adapt to the new policies and procedures. The old-timers refused to let the "firm enforcement policy" go without a fight. This became evident at hearings in July 1980 held by the Senate Subcommittee on Oversight of Government Management. The purpose was to assess the impact of IRS's collection policy on small businesses. Testimony from private citizens and revenue officers revealed that in certain districts, taxpayers' rights and adherence to new policies and procedures were ignored by the management in those districts. Even though there were no major administrative or legislative changes as a result of those hearings, they did prove the need for continuous surveillance of IRS administrative actions and for further study of the issues of developing and protecting taxpayers' rights.

Within the past two years the media has further dramatized the need for increased taxpayer protections Parade magazine,on April 12, 1981, ran a cover story detailing how IRS agents "terrorized" a family in Maryland, and ran "roughshod" over a couple in Alaska. In the fall of 1981, CBS's "60 Minutes" ran a story titled, "Pay Up Or Else," and millions of Americans heard one of the IRS's own revenue of officers refer to the IRS as America's new "gestapo."

It is clear that the IRS has a long way to go in managing its own agency; so does Congress in expanding the issue of taxpayers' rights. Even though many "Taxpayers' Rights" bills have been proposed, their major features are at cross purposes with each other. None of the bills attempt to correct administrative deficiencies. Even though some safeguards were incorporated in the Tax Equity and Fiscal Responsibility Act of 1982, there is much more that needs to be done.

The purpose of this report is to dramatize the need for further reform by explaining how the collection process works and identifying the weaknesses that lead to potential abuses, harassment, and violations of IRS policy and procedures. A section has been included to identify significant changes that would help to remedy some of the administrative problems within IRS's Collection Division operations. The last section includes recommendations for legislative initiatives.

Incorporated into this report are examples of abusive behavior and the ways in which revenue officers violate their own policies and procedures. We will also look into why this occurs, which is helpful in understanding the basic problems. The incidents in this report are just the tip of the iceberg; more problems exist than those identified and discussed here. Hopefully, the information presented here will not only provide an understanding of delinquent tax collection, but also serve as substantive evidence that much more work needs to be done in developing taxpayers' rights issues and that additional protections can only come through legislation designed to protect the civil liberties of taxpayers.