Ever since last fall's hearings on abuses by the Internal Revenue Service,
the IRS has labored to
present itself as kinder, gentler and self-reformed. The effort seems to be working: The push to
place the IRS under the rule of law seems stalled on Capitol Hill. Meanwhile, American citizens
continue falling victim to the vast powers the agency has granted itself.
Consider the case of Carol Ward. In 1993 Ms. Ward, a Colorado Springs businesswoman,
incensed when, during a meeting between her son and IRS auditor Paula Dzierzanowski, Ms.
Dzierzanowski began asking questions about her family's children's clothing stores that Ms. Ward
felt showed gross ignorance. Ms. Ward taunted the auditor: "Based on what I can see of your
accounting skills, you'd be better off dishing up chicken-fried steak on an interstate somewhere in
Three weeks later, the IRS responded by seeking to impose a financial death
penalty on Ms.
Ward. On April 19, 1993, IRS agents swarmed into Ms. Ward's three stores, proclaimed that she
owed $324,889 in taxes, froze her bank accounts, shut down the stores and confiscated their
inventory, and allegedly informed some of her customers that Ms. Ward was suspected of drug
smuggling. The IRS even sought to seize the house owned by Ms. Ward's 74-year-old mother,
claiming that it was somehow related to Ms. Ward's purported tax dodging.
Prior to the seizure, the IRS had made no finding that either she or other
family members who co-
owned the stores owed any taxes. The IRS violated federal law by seizing the assets without first
formally giving her a notice of deficiency of taxes.
Ms. Ward hotly denied that she owed any taxes and demanded an audit. After
the examination --
which covered seven years of Ms. Ward's tax returns -- the IRS concluded that she owed only
$3,400 in additional taxes, barely 1% of the amount the agency had already confiscated. However,
before the IRS would accept her $3,400 check and return her assets, the agency insisted that she
sign a statement promising not to sue the IRS for violating her rights. The seizure occurred
shortly before Pope John Paul II came to Denver in 1993, and an IRS official told Ms. Ward that
if she "played ball," the IRS would return her merchandise in time for her to sell baptismal gowns
for the pope's visit.
Ms. Ward refused to sign such an agreement, complaining that "you don't
have to surrender your
constitutional rights in order to pay your taxes." After Ms. Ward publicly protested the IRS's
treatment of her, IRS District Director Gerald Swanson and an assistant appeared on a Colorado
Springs talk show and illegally disclosed information from her tax return. Ms. Ward called up
during the talk show to dispute the officials' allegations that she still owed $324,000 -- after the
agency had determined her tax bill was a tiny fraction of that amount.
Eventually, the IRS relented and took her check. After Ms. Ward continued publicly
about the IRS abuses, IRS officials sought to vilify her by repeating the same accusations their
agency's own audit had disproved. IRS agent James Scholan, who participated in the raids that
shut down Ms. Ward's stores, wrote a letter to the Colorado Springs Gazette declaring that
people like Ms. Ward and her son "are the biggest problem our society faces" and denouncing her
as a "classic deadbeat freeloader." IRS officials also illegally disclosed information from Ms.
Ward's tax return to the television program "Inside Edition."
Five months later, the IRS returned about 75% of the merchandise it had seized.
"They gave us
back three stores full of summer clothing just in time for Christmas," Ms. Ward says, adding:
"They took almost $3,500 out of the stores' cash registers and they gave us receipts for it -- and
they have never applied it to taxes or given it back to us."
Ms. Ward wanted her day in court -- but because her finances were exhausted
by the initial
seizure and the struggle to get her business back on its feet, and because of statutory limitations
on legal fees for winning parties, she could not find a lawyer until after the statute of limitations
had expired for the wrongful seizure. Eventually, however, she sued the IRS for wrongful
disclosure of her personal tax information.
Last June, Federal Judge William Downes slammed Mr. Scholan for acting with
disregard" for the law. Judge Downes awarded Ms. Ward $325,000 in compensatory and punitive
damages, plus attorneys' fees, and warned the IRS that "reprehensible abuse of authority by one of
its employees cannot and will not be tolerated."
When the IRS loses in federal court, the Justice Department routinely uses
stalling tactics to
prevent citizens from collecting judgments. The Justice Department has filed a motion to deny
fees to Ms. Ward's lawyers. And, as Denis Mark, Ms. Ward's lead trial counsel, observes, "If the
government chooses to file an appeal, this case might be dragged out for many more months or
years." Of the three agents who the judge found violated Ms. Ward's rights, one has retired, one is
still on payroll in the same position, and the third has been promoted to chief of IRS collections
for the state of Colorado, according to information the IRS recently provided to Sen. Pete
Domenici (R., N.M.).
Even if Ms. Ward ultimately prevails in court, her case will by no means signal
a halt to the IRS's
abuses. Bob Kammen, a Phoenix tax attorney and a National Taxpayers Union counsel, observes:
"The unfortunate aspect of the Carol Ward case is that it gives people the mistaken impression
that there is some actual recourse. You have to assume that for every case like that . . . there are
probably 50 to 100 cases where the [lawyer's] advice to the client is: You cannot afford to take on
the federal government."
As congressmen fret over whether reforming the tax law to end such abuses might
affect federal revenue, they should remember the human costs of the IRS's heavy hand. Ms. Ward
is full of rage against Washington. Says she: "The fact that I won in court does not remedy the
fact that my entire family has been bankrupted and destroyed."
Mr. Bovard writes frequently on the IRS. Portions of this article are adapted
from a piece he
wrote for the March issue of Reader's Digest.