[ Pobierz całość w formacie PDF ]
above, a taxpayer might not report the income shown on W-2 and 1099
forms submitted to the IRS with the taxpayer s Social Security number.
Other programs that lead to audits are tips from informants, criminal
activity, targeted programs, and random auditing. For example, if the police
20 GETTING A POOR RETURN
break up a drug ring, the IRS can examine returns of those involved and
assess tax liability for the unreported, albeit illegal, income. Certain profes-
sionals such as lawyers and professors are often targeted through programs
because of the likelihood of their use of tax avoidance. Finally, random
audits are also used. Through a program originally known as the Taxpayer
Compliance Measurement Program and since replaced with the National
Research Plan audits, randomly selected people and business are required to
prove every detail on their tax returns. The IRS then uses this information
to create its DIF score. If the audit shows a defi ciency, then the agency can
assess interest and penalties in addition to the defi ciency. All enforcement
agencies are prone to make errors. The IRS confronts almost countless daily
decisions on how to interpret the complexities of tax law and devise rules
and procedures to collect taxes. If their decisions are too lenient toward
potential tax evaders, the amount of tax collected would fall and reduce
the revenue needed to fund the operations of the U.S. government. If the
decisions are too stringent, they impose unnecessary burdens on taxpayers.
Where to draw this line is a matter of judgment and it is these judgments and
the subsequent court treatment that can affect the level of compliance.
Drawing this line is not easy, and evidence exists showing that a
signifi cant proportion of IRS post audit claims are incorrect. Congressional
hearings in 1997 and 1998 focused on several instances of IRS abuse in
auditing and collection, although many of the worst alleged abuses were
never proven (Johnston 2000). One individual who has studied the IRS
for several years, David Burnham (1989), argued that IRS auditors who
spend their lives working for the IRS develop a rather peculiar view of the
world and hold two particular convictions. The fi rst is that any individual
who comes to their attention is guilty. The second is the perception that
their duty is to assert and maintain the position of the IRS on all issues.
Given these perceptions, perhaps it is not surprising that a 1979 General
Accounting Office study found IRS examiners made technical errors in more
than one-third of the cases, and that in over sixty percent of the cases, the
agents failed to follow agency procedures.
Improper auditing does not minimize the problem of tax compliance.
In fact, in subsequent hearings, the IRS argued that the rules instituted to
curb auditor abuse hampered collection and led to unwarranted dismissals
of agents (Johnston 2000). However, when improper auditing, actual or
perceived, is combined with the verifi ed lack of tax compliance and then
added to partisan and ideological confl ict over tax policy, the IRS audited
taxpayer relationship is bound to be hostile and adversarial. The need to audit
combined with the potential for abuse and differing policy interpretations
inevitably lead to disputes between the agency and individual taxpayers.
When confronted with a post-audit assessment, taxpayers can pay, ap-
peal, or sue in response. Many take the last course. The IRC is a litigated
COURTS AND THE IRS 21
area. In 1992, for example, taxpayers fi led 2,296 cases in the Federal District
Courts and 30,345 in Tax Court (MacLachlan 1995 p. 16). A signifi cant
percentage of Supreme Court cases during the Warren Court years involved
controversies over the IRC. These controversies accounted for high per-
centages of all cases on the docket during the Burger and Rehnquist years,
respectively (Epstein et al. 1992, pp. 553 54). This heavy Supreme Court
docket of tax cases is remarkable considering the assertion of one scholar
that the Supreme Court is reluctant to take such cases because of the jus-
tices lack of interest and the issue complexity (Perry 1993). It is also the
heaviest litigation load of any federal agency. For example, in comparison,
the Securities and Exchange Commission (SEC) reported fi ling 1,605 ad-
ministrative complaints and 413 civil suits, for a total of 2,018 actions from
July 1, 1999, to June 30, 2000, while the Federal Trade Commission (FTC)
reported a total of 107 actions in the U.S. District Court for one quarter
of the 2006 fi scal year.1
ADMINISTRATIVE APPEALS AND TRIAL COURTS:
OPTIONS AND ODDS
Internal Appeal [ Pobierz całość w formacie PDF ]
zanotowane.pl doc.pisz.pl pdf.pisz.pl szamanka888.keep.pl
above, a taxpayer might not report the income shown on W-2 and 1099
forms submitted to the IRS with the taxpayer s Social Security number.
Other programs that lead to audits are tips from informants, criminal
activity, targeted programs, and random auditing. For example, if the police
20 GETTING A POOR RETURN
break up a drug ring, the IRS can examine returns of those involved and
assess tax liability for the unreported, albeit illegal, income. Certain profes-
sionals such as lawyers and professors are often targeted through programs
because of the likelihood of their use of tax avoidance. Finally, random
audits are also used. Through a program originally known as the Taxpayer
Compliance Measurement Program and since replaced with the National
Research Plan audits, randomly selected people and business are required to
prove every detail on their tax returns. The IRS then uses this information
to create its DIF score. If the audit shows a defi ciency, then the agency can
assess interest and penalties in addition to the defi ciency. All enforcement
agencies are prone to make errors. The IRS confronts almost countless daily
decisions on how to interpret the complexities of tax law and devise rules
and procedures to collect taxes. If their decisions are too lenient toward
potential tax evaders, the amount of tax collected would fall and reduce
the revenue needed to fund the operations of the U.S. government. If the
decisions are too stringent, they impose unnecessary burdens on taxpayers.
Where to draw this line is a matter of judgment and it is these judgments and
the subsequent court treatment that can affect the level of compliance.
Drawing this line is not easy, and evidence exists showing that a
signifi cant proportion of IRS post audit claims are incorrect. Congressional
hearings in 1997 and 1998 focused on several instances of IRS abuse in
auditing and collection, although many of the worst alleged abuses were
never proven (Johnston 2000). One individual who has studied the IRS
for several years, David Burnham (1989), argued that IRS auditors who
spend their lives working for the IRS develop a rather peculiar view of the
world and hold two particular convictions. The fi rst is that any individual
who comes to their attention is guilty. The second is the perception that
their duty is to assert and maintain the position of the IRS on all issues.
Given these perceptions, perhaps it is not surprising that a 1979 General
Accounting Office study found IRS examiners made technical errors in more
than one-third of the cases, and that in over sixty percent of the cases, the
agents failed to follow agency procedures.
Improper auditing does not minimize the problem of tax compliance.
In fact, in subsequent hearings, the IRS argued that the rules instituted to
curb auditor abuse hampered collection and led to unwarranted dismissals
of agents (Johnston 2000). However, when improper auditing, actual or
perceived, is combined with the verifi ed lack of tax compliance and then
added to partisan and ideological confl ict over tax policy, the IRS audited
taxpayer relationship is bound to be hostile and adversarial. The need to audit
combined with the potential for abuse and differing policy interpretations
inevitably lead to disputes between the agency and individual taxpayers.
When confronted with a post-audit assessment, taxpayers can pay, ap-
peal, or sue in response. Many take the last course. The IRC is a litigated
COURTS AND THE IRS 21
area. In 1992, for example, taxpayers fi led 2,296 cases in the Federal District
Courts and 30,345 in Tax Court (MacLachlan 1995 p. 16). A signifi cant
percentage of Supreme Court cases during the Warren Court years involved
controversies over the IRC. These controversies accounted for high per-
centages of all cases on the docket during the Burger and Rehnquist years,
respectively (Epstein et al. 1992, pp. 553 54). This heavy Supreme Court
docket of tax cases is remarkable considering the assertion of one scholar
that the Supreme Court is reluctant to take such cases because of the jus-
tices lack of interest and the issue complexity (Perry 1993). It is also the
heaviest litigation load of any federal agency. For example, in comparison,
the Securities and Exchange Commission (SEC) reported fi ling 1,605 ad-
ministrative complaints and 413 civil suits, for a total of 2,018 actions from
July 1, 1999, to June 30, 2000, while the Federal Trade Commission (FTC)
reported a total of 107 actions in the U.S. District Court for one quarter
of the 2006 fi scal year.1
ADMINISTRATIVE APPEALS AND TRIAL COURTS:
OPTIONS AND ODDS
Internal Appeal [ Pobierz całość w formacie PDF ]