The Wall Street Journal
Copyright (c) 1997, Dow Jones & Company, Inc.
Friday, April 11, 1997
The IRS Files
By James Bovard

On the morning of April 2, 1994, 20 heavily armed Internal Revenue Service agents and state
Alcoholic Beverage Control agents stormed into one of the best-known restaurants on the
Virginia Beach, Va., waterfront -- the Jewish Mother. Federal agents in flak jackets waved their
pistols in the air and yanked forks out of the hands of customers. The agents then proceeded to
ransack the restaurant, even tearing booths apart. A truck pulled up and all the restaurant's
business records were loaded up.

Simultaneously, another team of IRS and ABC agents attacked a second Jewish Mother
restaurant, in Norfolk. And two other teams of agents raided the homes of restaurant manager
Scotty Miller and owner John Colaprete. Mr. Miller emerged from a shower to see a 9mm. pistol
pointed at his head. He was prohibited from calling a lawyer while government agents "literally
ripped [his] residence apart to find contraband" and "seized every scrap of paper they could find
in the home," according to court papers filed last year.

The raid was the result of unsubstantiated allegations by a former restaurant employee and
convicted criminal -- Deborah Shofner -- who later pleaded guilty to embezzling $30,000 from the
restaurant. After the restaurant fired her and contacted police about the embezzlement, Shofner
went to the IRS and the state beverage control board and claimed that the restaurant -- a fixture in
Virginia Beach for 20 years -- was dealing with "Jamaican hit squads," had bags of cocaine
stacked five feet high on the premises, and was laundering large amounts of money. The IRS
knew of the woman's criminal record but made no effort to verify her charges.

Five months after the raid, a big rent-a-truck pulled up outside the restaurant, and three IRS
agents entered the restaurant and threw much of the seized "contraband" on the floor, once again
making a "shambles" of the place. Many of the restaurant's records and a valuable watch given to
Mr. Colaprete by his father were never returned. No apology was given; instead, the owners were
informed, "The investigation is over; there will be no charges." The restaurant owners and Mr.
Miller are suing the 10 IRS employees and the 11 ABC agents for $20 million. The federal
government itself is immune, according to Justice Department attorney Stuart Gibson, under the
doctrine of sovereign immunity.

This raid should give pause to many Americans. Harvey Shulman, a Washington tax attorney,
testified last year that "snitching to the IRS has become a 'competitive tool' for some companies to
make baseless charges against their competitors." And the IRS generously rewards informants.

In recent years, especially under the leadership of Commissioner Margaret Milner Richardson,
IRS agents have been indoctrinated to see taxpayers as liars. In 1995 and 1996, IRS agents were
trained with a new game called "Culture Bingo." One of the most damning "lessons" of the
training was the doctrine: "Taxpayers seem to live better than I do." The IRS appears to be
officially seeking to maximize the resentment or hostility agents feel toward the taxpayers they
audit. The American Institute for Certified Public Examiners noted of the course materials: "Every
ethical issue presented finds the ethical result to be pro-IRS and anti-taxpayer. There is not one
scenario where an IRS agent might act unethically against a taxpayer's interest."

"Culture Bingo" is designed to help IRS agents get into the swing of auditing the spending habits
and lifestyles of taxpayers -- thereby radically transforming the nature of routine tax audits.
According to Commissioner Richardson, the new approach "audits the taxpayer, not just the tax return."

Under the "economic reality" test, a citizen is practically presumed to be a criminal unless he can
document all his expenditures for the previous year. IRS agents are demanding that people tell
them how much cash they had on hand at any one time a year or two before, whether they have a
safe deposit box and what it contains, how much they spend on groceries, where they eat out,
what toys they buy for their children, what books or jewelry they purchase, etc. In some cases,
IRS agents have even shown up unannounced to inspect people's homes; in other cases, they have
demanded to know what people keep in their bedroom drawers.

If a taxpayer falsely reports his income, he can be sent to prison for several years for tax fraud.
But if an IRS employee misrepresents tax law in order to commandeer more of a citizen's bank
account, he can get a bonus and maybe even a promotion.

Roughly two million Americans are audited each year. IRS auditors are rewarded based on how
much additional taxes they impose on people, not on whether they follow the law. The IRS's
"Program Letter for Fiscal Year 1997" states that tax examiners will be evaluated according to the
total "proposed additional tax and penalties" they recommend for imposition on taxpayers, as well
as "total dollars protected as a result of disallowing claims for refund."

Such incentives may help explain the IRS's abuse of Vince Han, a Chicago-area small-
businessman. As a 1993 Tax Court decision noted, an IRS agent contacted Mr. Han and his wife
to arrange an audit; at the second meeting -- at Mr. Han's house -- the agent's supervisor arrived
on the premises and shouted: "You have to pay $70,000 now -- if you don't pay it, you are going
to jail!" Actually, Mr. Han owed the government nothing. The IRS auditor didn't bother reading
key documents Mr. Han provided and instead merely asserted that Mr. Han "was not an honest
taxpayer." It took a four-year legal struggle for Mr. Han to clear his name and recover some of
the heavy legal costs he incurred.

When individuals appeal audit findings to the IRS Appeals Office, the office sustains only 30% of
the additional taxes assessed during audits. In other words, 70 cents of each dollar of additional
taxes that auditors demand is found by the IRS itself to be unjustified. In percentage terms, the
IRS apparently "cheats" more often during tax audits than average Americans cheat on their tax
returns. But under a truly bizarre incentive system, IRS auditors receive bonuses for assessing
additional taxes regardless of whether those findings are upheld by appeals officers.

Unjustified Demands

Because of its shabby record-keeping and reliance on inaccurate computer- generated penalty
letters, the IRS probably makes more than 10 million unjustified demands for additional tax
payments or penalties a year. Yet because so many people are intimidated by a threatening IRS
letter, the IRS collects billions of dollars each year in unjustified charges. Worth magazine
reported: "According to a confidential agency report, only IRS demands for $25,000 or more are
checked by humans for mistakes. IRS computers spit out bills charging lesser amounts with
reckless abandon. . . .."

While the IRS does not have the time to verify information in penalty notices, many IRS
employees do have time to snoop in other people's tax returns. A General Accounting Office
report issued Tuesday found that over 800 IRS employees in recent years have wrongfully
browsed through the tax returns of celebrities, acquaintances, relatives and others. After similar
investigations in 1993 and 1994 found smaller numbers of violators, the IRS management
promised to institute reforms to protect the sanctity of Americans' confidential data. But a third of
the IRS employees caught wrongfully browsing other people's tax records received no punishment

Congress has a choice of bringing the IRS to its knees -- or letting the IRS continue to bring the
American people to their knees. Commissioner Richardson announced in 1995 her hope that
taxpayers "will come to know us as a genteel, Gulliver-like giant." Instead, many Americans
perceive the IRS like Godzilla on a bad day -- and it is time to bring the monster down.


Mr. Bovard is the author of "Lost Rights: The Destruction of American Liberty" (St. Martin's, 1994).


The Wall Street Journal
Copyright (c) 1997, Dow Jones & Company, Inc.
Friday, April 25, 1997
Letters to the Editor: You're Presumed Guilty Until Proven Innocent

Reading the following sentence in James Bovard's April 11 editorial-page commentary "The IRS
Files" made me stop cold: "Under the 'economic reality' test, a citizen is practically presumed to
be a criminal unless he can document all his expenditures for the previous year" (emphasis added).
This is exactly what industry has been dealing with for years out of the Environmental Protection
Agency and its regulations. In the words of one infamous Region IV EPA official, "Document,
document, document!" Whatever happened to presumed innocent until proven guilty?

I would be one of the first to argue that our justice system has evolved into one that protects the
criminal much more than the victim. And I'm glad to see the current move toward victim rights.
But being mistreated, dragged through the reputation-ruining mud and often fined to boot (more
likely because you chose to settle out of court rather than pay several times that amount fighting
to prove your innocence) makes George Orwell's "1984" and/or Ayn Rand's "Atlas Shrugged"
more than just good literature.

Jim Woodford

Springboro, Ohio


IRS thuggery as reported by Mr. Bovard, provides some taxpayers with moral justification for tax
avoidance or evasion. Congress has begun to pay attention to the growing outrage with the IRS,
and several bills have been proposed to tinker with it. But only one current idea in Congress
proposes to eliminate the IRS and its 100,000 employees.

The flat tax does nothing to eliminate the IRS. The only proposal that can eliminate the IRS is the
Schaefer-Tauzin National Retail Sales Tax, soon to be introduced. It replaces the income tax (and
several other taxes) with a retail sales tax and eliminates the need for the IRS.

George Bamberg

Madison, Ohio