A Gallup Poll released last week found that two-thirds of
Americans believe that the Internal Revenue Service abuses its
power. Yet few people realize exactly how much arbitrary power
politicians and judges have granted IRS agents over other Americans.
The IRS has become the authoritarian means to paternalistic ends.
People can fall under the IRS's sway even when they believe they
are dealing with their own tax accountant. The IRS has conducted
hundreds of undercover operations in recent years in which IRS
agents have been officially permitted to masquerade as professionals
and to entice other citizens to violate tax laws. The IRS admitted
in 1989 that it was using 900 controlled informants (double agents)
and that 40 of those informants were accountants.
IRS undercover and other agents are practically given official
permission to scorn the law of the land. The IRS's official manual
states: "In receiving unsolicited information for the first time
from an informant, the Service may accept the information and, in
accordance with its value, may pay for such information even if it
may have been obtained illegally by the informant." A federal
appeals court ruled on Dec. 30 that evidence illegally seized by an
FBI agent can be used by the IRS in a tax prosecution.
The IRS has multiplied its use of force against U.S. citizens in
recent years. Since 1980, the number of levies -- IRS seizures of
bank accounts and paychecks -- has increased fourfold, reaching 3.3
million in 1992. Unfortunately, the IRS makes tens of thousands of
unjustified seizures each year, according to the General Accounting
The most frequent reason for the wrongful levies is the IRS's
failure to accurately record citizens' and businesses' tax payments.
The GAO noted: "IRS procedures require that levy notices be reviewed
for completeness and readability prior to mailing. This process,
however, is normally limited to a check of the name and address
appearing on the levy." This is a pathetic standard of review for
seizing private citizens' savings.
IRS officials have sweeping discretionary power to financially
destroy people's lives. Take, for example, the case of Melvin
Powers. In 1983 the IRS decided to investigate Mr. Powers's 1978 and
1979 tax returns. Mr. Powers was a Houston builder and owner of five
office buildings; he had only an eighth-grade education. The IRS had
made no effort to examine Mr. Powers's tax returns during the three
years of the statute of limitations. Six weeks before the statute
expired, an IRS agent asked Mr. Powers to sign a waiver of his
statute of limitations, allowing the IRS to investigate him for
another three years. Mr. Powers willingly agreed. In 1986, the IRS
disallowed almost all of Mr. Powers's business deductions for 1978
and 1979 and demanded $7,145,266.71 in back taxes, interest and
Shortly after the IRS's assessment, a bankruptcy court trustee
"seized all of [Mr. Powers's] operations, caused [Mr. Powers] to
vacate his office premises, and took possession of his books and
records for all years," as a 1993 Tax Court decision noted. Then, in
early 1991, the IRS reversed itself and conceded that Mr. Powers
actually had legitimate losses for the years under scrutiny and thus
owed no taxes for those years. After IRS officials canceled the $7
million tax bill, Mr. Powers successfully sued the IRS to cover his
legal costs for the case. U.S. Tax Court Judge John Colvin noted
last year that the IRS "contends that there is a basis in law for
the notice of deficiency because the notice of deficiency is
presumed correct" and that the IRS "made no attempt to obtain
information about the case before" demanding a $7 million payment.
Amazingly, the IRS declares that it is entitled to impose
penalties or seize property for overdue taxes even after the agency
admits sending tax deficiency notices to the wrong address. Turn to
the case of Clayton and Darlene Powell.
The Powells moved from Adelphi, Md., to Mitchellville, Md., in
late 1987, and filed a tax return with their new address in early
1988. A few weeks after the IRS received the Powells' new address,
the agency sent a notice of deficiency for their 1984 tax return to
their old address. The local post office -- though it had the
forwarding address -- returned the notice to the IRS. Though the
three-year statute of limitations had expired on the Powells' 1984
return, on Dec. 28, 1988, the IRS sent a notice to their new address
giving the couple 10 days to pay $6,864 in back taxes, interest and
penalties or have their property seized. The Powells paid and then
sued the IRS to get a refund.
The federal appeals court ruled that "the Powells are entirely
innocent" and ordered the IRS to issue a refund. The IRS then
appealed the decision to the Supreme Court, contending that as long
as the IRS mailed a tax deficiency notice to a taxpayer's "last
known address," the taxpayer must be presumed to have received the
notice -- even when it is indisputable that he did not receive it.
The Justice Department, in its brief on this case, noted that the
IRS "issues more than 2 million notices of deficiency each year and
approximately 240,000 of those notices were returned undelivered
during the past year." The Justice Department whined that requiring
the IRS to actually notify citizens of tax assessments before final
seizure notices would impose "unmanageable detective burdens" on the
IRS. "This case threatens to create a 'window of time' during which
the Internal Revenue Service may be helpless to protect its rights
in pursuing delinquent taxpayers," the Justice Department fretted.
The Supreme Court denied the government's request to re-examine
the Powell case. Yet even though the IRS lost in federal appeals
court on this issue and paid back the Powells, the agency has
formally chosen to disregard that court's verdict -- to follow a
policy of "nonacquiescence," in legal terms. The IRS believes the
court made a mistake and thus that the agency has no obligation to
respect its decision. This means average taxpayers will have to
spend thousands of dollars in legal costs to re-achieve the basic
rights that the appeals court sought to give them. The Powell case
epitomizes the IRS perspective that the citizen has an unlimited
obligation to comply with its demands -- even when the IRS fails to
inform the citizen of its demands.
Supreme Court Justice George Sutherland declared in 1933, "The
powers of taxation are broad, but the distinction between taxation
and confiscation must still be observed." Unfortunately, this
distinction is increasingly lost to the average taxpayer facing the
full force of government revenue collectors.
Mr. Bovard is the author of "Lost Rights: The Destruction of
American Liberty," just out from St. Martin's Press.