If dubious prosecutions continue to mount, they could backfire on the regulatory agencies and further diminish sinking public confidence in government. Ask the folks at the IRS.
In 1997, Congress held a series of hearings where the American people saw the Internal Revenue Service almost literally on trial. They saw a parade of witness [sic] come before Congress to testify about the naked abuse of power over at the Internal Revenue Service.
We saw current and former IRS agents who had to testify in secret because they feared for their lives. We saw ordinary citizens, taxpayers, who talked about how an audit turned their entire lives upside down, with some of them suffering great financial loss that will never be recovered. We saw a government agency totally out of control, lacking accountability, an agency where one is guilty until proven innocent.
We saw and heard all this and we acted to put a stop to it. We enacted sweeping reforms of the IRS to make it more efficient and taxpayer friendly….
This Halloween, the Republican Congress is unmasking the IRS for what it really is: a bureaucratic monster stalking the American taxpayer….
Senator William Roth, who chaired the hearings, also co-authored a book that “vividly recreate[s] the stories of the victims of the Internal Revenue Service using exclusive interviews with those who have been unjustly audited, foreclosed, prosecuted, and worse.”
The government subsequently investigated many of the horror stories and found them to be unfounded or exaggerated—a standard risk in relying on anecdotes as the basis for legislation—but the investigation was not completed until after Congress had reacted to the show. [GENERAL ACCOUNTING OFFICE, GAO REPORT ON ALLEGATIONS OF IRS TAXPAYER ABUSE (May 24, 1999), LEXIS, 2000 TNT 80-13; see also Joe Spellman, Conference Panel Ponders Finance Hearing Horror Stories, 83 TAX NOTES 1854, 1854–55 (1999) (discussing the hearings generally and mentioning the situation of John Colaprete in particular)]
A separate investigation held by an independent commission made up of federal law enforcement personnel with financial management expertise, reviewed the IRS’s Criminal Investigation Division (CID), including its caseload, investigative methods, organizational structure and personnel policies and practices in 1999.
The commission found that CID agents do not systematically abuse their authority to seek search warrants, that the agents’ undercover practices conform with those of other federal law enforcement agencies, and that they are properly trained to use their weapons.
What company ever succeeded in working better and smarter by pointing at its own employees and saying, ‘They are the problem.’ None. For obvious reasons.
I was convinced that you, the federal employees, were not the problem but that you were the solution, and that you are the solution.
(Just kidding; we are talking about Clinton and Gore. They threw the IRS employees who were being smeared by the Republicans to the wolves. They were “the problem” rather than “the solution.” Gore’s promises were inoperative within four months.)
I took particular interest in the recent congressional hearings into the problems of IRS policy and some specific examples of taxpayer abuse. Like most Americans, I was genuinely angered by the stories of our citizens harassed and humiliated by what seemed to them to be an all-powerful, unaccountable, and often down right tone-deaf agency.
It is clear that we have more to do. The IRS should be above reproach. Americans who work hard and pay their taxes deserve to be treated fairly, and no one should ever have a home, a car, a livelihood threatened by unaccountable actions of government. Abuse or bullying or callousness by officials of our government are unacceptable whenever and wherever they occur. If they occur once, it’s once too many. But especially in connection with the IRS, it is important that they be rooted out.
Let me say that it’s important, too, for the American people to know that the IRS is made up overwhelmingly of hard-working and dedicated people who put in long hours in public service. The vast majority of them do their jobs well, and the vast majority of them were just as outraged by the case studies profiled in the congressional hearings as other Americans were.
It is clear that in spite of our best efforts in the past, there remain significant problems and challenges at the IRS. That’s why last May the Vice President and the Secretary of the Treasury initiated their effort to deal with problems, many of which have been a long time in the making, but which have to be addressed and addressed now.
Their initiatives will take significant steps toward ending abuses, protecting taxpayers and making the IRS more customer- friendly.
Let me say, I can’t go over all 200 recommendations, although I hope that most of them will be widely reported to the American people. But let me give you just a few. The package of reforms says to every taxpayer, first, you will have a tax collection agency that is reinvented so that it serves its customers and taxpayers every bit as well as the best private companies serve their customers. As the Vice President said, reinvention begins with a ban on the use of dollar goals to evaluate IRS employee performance — goals that can give some IRS agents the wrong incentives — just as parking ticket quotas can give police officers the wrong incentives.
Fourth, we will strengthen the government and oversight of the IRS. The steps I have taken today are building on the reforms already put in place and described by Secretary Rubin. In order to strengthen public accountability, I am seeking legislation to establish a new IRS board of trustees with the majority of members from the private sector. This board will review IRS performance on customer service, strategic plans, performance measures, and citizen advisory panel recommendations to ensure that taxpayers do, in fact, receive the treatment we say they deserve. The board would report independently, and at least annually, to the Secretary, the President, and the Congress. It will provide the private sector input we need.
In conclusion, let me say that I believe the attention given to this issue and the information made public by Congress has served the public and the public interest well. We have an opportunity to build on the reforms already put in place and to use this moment to extend them further, so that the IRS achieves its purposes and serves the public in the spirit of the best institutions, both public and private.
He starts by depicting the IRS as “out of control” when he started, based on some sensational hearings Senate Finance Committee Chair William Roth held in 1997 and 1998 about IRS “horror stories.” The hearings seem to have been unfair to the IRS. Jeff Trinca, who served as chief of staff of the National Commission on Restructuring the IRS, has called the hearings “a circus added at the end of a year of a lot of hard work.” The sensational stories had “a slippery foundation,” former Commissioner Mortimer Caplin has said, but the corrective stories were told quietly and only after the damage was done. Rossotti indeed seems to know this. In his section “Public Allegations, Secret Vindication,” he tells over and over again of exhaustive investigations of the accusations against the IRS that lead to its exoneration, kept secret, however, to protect taxpayer confidentiality (pp. 160- 161). The major indictment of the IRS seems to be that it measured how well agents were doing their jobs by revenue collected. Collecting revenue, however, properly measured, should be understood as the virtue of the IRS and not its crime.
What’s missing [from the new IRS mission statement]? In the new mission statement the words ‘collect taxes’ do not appear.
Rossotti concedes that “traditional enforcement statistics were declining’” during his tenure (p. 125). Indeed they were. IRS seizures dropped from 10,090 in 1997 to 174 in 2000. From 1996 to 2002 the number of tax returns filed rose by 9.4 percent but the number of examination audits fell by 61 percent; thus, the overall audit rate fell by 65 percent, from 1.37 percent to 0.48 percent.
Rossotti’s final report said 60 percent of identified tax debts were not pursued, 70 percent of taxpayers who did not file a tax return are not pursued, 79 percent of identified taxpayers who used abusive devices to evade taxes are not pursued, and 78 percent of partnership and passthrough mismatches are not pursued.
“The attack against JPMorgan brings to the forefront another key issue that I have been arguing—i.e., banking regulators are pushing U.S. business away from this country to foreigners,” he wrote in a research note.
Bove charged that regulators are actively harming the ability of U.S. banks to compete. “They are attacking the jobs of banking workers and the wealth of the American people,” he wrote, calling regulation “totally out of control.”