The Post--Al Crenshaw: "Nowhere for Tax Cheats to Hide", 7/1/01...
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washingtonpost.com
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>>>Nowhere for Tax Cheats to Hide
IRS Tempers Feel-Good PR Campaign With Enforcement
By Albert B. Crenshaw
Washington Post Staff Writer
Sunday, July 1, 2001; Page H02
Nearly four years after the Senate Finance Committee painted the Internal Revenue Service as an American gestapo, the agency is beset with so many tax protesters, scofflaws and con artists that it is going to considerable pains to remind everybody that it really will come after you if you don't pay what you owe.
How true that is is hard to gauge, but it is a departure from the agency's public relations emphasis of the past several years.
In the months and years following the hearings, the agency made many changes in its operations and its pronouncements -- all designed to present a nice-guy image. Property seizures were cut back, rules changed, training increased. It even changed its mission statement to emphasize "service," "integrity" and "fairness."
Audit rates reached historic lows.
After that, some taxpayers -- perhaps not surprisingly -- have been more aggressive in their efforts to take a personal tax cut. The Internet is teeming with sites that purport to offer ways to avoid paying tax. Many of those sites claim to have found "hidden" provisions of law that exempt ordinary Americans from income tax if they take a few simple steps.
There are no such provisions, and most of the purveyors know it, but they are happy to prey on the credulous -- or those who know the truth but are willing to try, hoping that overburdened IRS won't catch them.
The IRS isn't sure how bad things are, since Congress killed its program of random, highly detailed "taxpayer compliance" audits it once used to keep up with trends in taxpayer evasions and errors. But the agency clearly is worried, and is doing its best to convey the impression -- and, honest taxpayers should hope, the reality -- that its enforcement system is alive and well.
Whenever the agency has a legal victory -- such as a criminal indictment or a tax-shelter ruling in its favor -- it makes a point of it, saying, in effect, "Hey, it really could happen to you."
Last week, Commissioner Charles O. Rossotti called attention to penalties handed out by the U.S. Tax Court against taxpayers who use the court to try to delay the inevitable once the IRS has nailed them.
"The courts are for resolving unclear issues of law, not a forum for repeating arguments that the courts have already rejected," Rossotti said in a statement put out by the IRS press office. "Taxpayers intending to use the court as a soapbox should consider the potential cost."
The court can whack such folks with penalties up to $25,000, and the judges are becoming increasingly fed up with frivolous arguments that they hear and reject over and over.
For example, the IRS noted that last month the Tax Court penalized two California residents in separate cases for trying to avoid taxes through the use of trusts.
On June 21, the court penalized Charles and Francesca Sigerseth of El Macero $15,000 after concluding that their case was "a waste of limited judicial and administrative resources that could have been devoted to resolving bona fide claims of other taxpayers."
On June 7, the court found that Andy Hromiko of Roseville, not his trust, was the true earner of income. It noted that he had made "shopworn arguments characteristic of the tax-protester rhetoric that has been universally rejected by this and other courts," and fined him $12,500.
Some taxpayers' efforts are mind-boggling.
Last year, the IRS said, one Darlow Madge, who was already in a federal prison camp in Duluth, Minn., for tax evasion, went to court contending that he wasn't a taxpayer; that his income from selling hospital supplies wasn't taxable and that only foreign income is taxable. On Dec. 7, the Tax Court hit him with the maximum $25,000 fine after having warned him that continuing with his frivolous arguments would likely result in a penalty, according to the IRS.
The IRS is also having some success in imposing penalties and getting them sustained in court.
Last week, the court gave the back of its hand to a Texas dentist who was contesting a $40,000 tax deficiency and an $8,000 penalty. The dentist, the court said under the heading "inherently improbable claims," contended "that every expenditure he made during 1996 was business related."
"Operating under his untenable premise, [the dentist] deducted payments to his children, ages 11 and 13," which turned out to just match his child support obligations, "as dental lab contract services expenses. He deducted the cost of his apartment and 100 percent of his automobile expenses," plus "payments for laundry, sunglasses, a bicycle, 'erotic' Playboy tapes, children's videos and tax protest materials."
Based on this and other evidence, the court concluded that the IRS's "accuracy-related penalty is fully justified."
While few of us enjoy paying taxes, the average American should applaud the IRS's efforts and the Tax Court's backing of them.
Why?
Because the average American -- who works for wages, earns interest and dividends, and deducts mortgage interest -- has little chance of getting away with anything for very long. Those income sources and deductions are reported to the IRS, and the agency matches the reports with tax returns.
The agency's geriatric computers make this system less than perfect, but it's working on fixing that.
Tax rates are based on what Congress and the president think is needed to run the country. If everyone pays what they owe, rates can be lower and still provide the desired revenue. But if some people don't pay, rates must be higher, and Joe Six-Pack, whose income and deductions are document-matched, will pay the full amount, while protesters and cheaters will go their merry ways unless the revenuers catch them.
© 2001 The Washington Post Company <<< |
