The IRS
Besides taxes themselves,
Bob Dole has made a campaign issue of the tax collector. And along with taxes,
he pledges to cut the tax-collection bureaucracy. In fact, he has compared the
Internal Revenue Service to the KGB (the old Soviet secret police), and
promises to "end the IRS as we know it." Apart from the taxes themselves, does
the process of collecting them impose an unreasonable burden on the American
citizenry?
Tax
forms: About one-third of filers use either the 1040EZ or the 1040A forms.
Both are for people with taxable incomes of less than $50,000 and few or no
complications, and some people can fill them out in a few minutes. The regular
1040 (the "long form") is for those with taxable incomes over $50,000 a year,
who claim credits or deductions, realize capital gains, and/or file separately
from their spouses. The IRS estimates that this form takes almost 12 hours to
complete. About half of the total taxpaying population (58.8 million) files the
long form.
In recent years, the IRS has adopted faster, high-tech
methods of filing. If you qualify for the 1040EZ form, are single with no
dependents, and live at the same address as you did last year, you can file
over the telephone using the TeleFile system--a process that takes about
10 minutes. In 1996, the first year in which TeleFile was widely available, 2.8
million people (2.4 percent) used it. Taxpayers can file any type of 1040 form
electronically --and 10 percent of taxpayers did so in 1996. Another 6
percent filed a 1040PC form, meaning that they worked out their taxes using a
personal computer .
About
three-quarters of taxpayers get a refund (meaning that they paid too
much over the course of the year). For tax year 1995, the IRS received 116.3
million returns and sent out 88.7 million refunds. The average turnaround for
refunds is 38 days for paper forms and 21 days for returns filed telephonically
and electronically
Dole has promised to rein in auditors ,
calling their methods "crass and callous." Since the IRS relies on
self-reported income, it audits returns to ensure payment. Compliance is far
from perfect. In 1992 (the most recent numbers) an estimated $94 billion went
unpaid out of about $551 billion owed in personal income taxes. In other
words, 17 cents--almost one-fifth--of every dollar of personal taxes owed goes
uncollected.
In fiscal
year 1995, the IRS completed 1.9 million audits--an audit rate of 1.67 percent.
But 1995 was unusually high--especially for low-income filers--because of two
special compliance programs, including a crackdown on widespread abuse of the
Earned Income Tax Credit. The audit rate usually averages just above 1 percent,
or one out of every 100 taxpayers. In 1995, the IRS audited 2 percent of those
with incomes of less than $25,000; 1 percent of those between $25,000 and
$100,000; and almost 3 percent of those whose incomes topped $100,000.
Owing the government money is not like owing anyone else.
The IRS has special weapons for collecting taxes that are overdue (plus
penalties and interest). These weapons include a tax lien on the
taxpayer's property. In 1995, the government filed 799,000 notices of federal
tax liens. The government can also levy property held by third parties,
such as wages or money deposited in a bank, and served 2.7 million notices of
levy in 1995. (A lien claims property only as security against a debt, while a
levy actually takes it.) Finally, the government can seize property and
sell it to collect what it is owed. It made 11,000 such seizures in 1995.
The IRS
can also sue for tax fraud. It initiated 3,698 criminal fraud
investigations in 1995. The courts convicted 1,945 people, and 1,387 went to
prison. Taxpayers who feel they're being cheated can also take the IRS to
court, which happened 11,000 times in 1995.
Bob Dole proposes to "cut the number of IRS
bureaucrats by 30 percent by 1999." At the close of 1995, 114,000 people
worked for the IRS. These people will collect about $1.4 trillion in taxes this
year. About 19,000--17 percent--are auditors, and another 8,000 are revenue
officers charged with collecting unpaid taxes, interest, and penalties. The
remaining 74 percent process tax returns, provide help to taxpayers, and carry
out other administrative and adjudicative functions. The budget of the IRS in
1995 was $7.63 billion, $4.24 billion of which went to tax law enforcement.
Recent congressional actions
have moved the IRS in the direction Dole wants to take it. The fiscal year 1997
budget shrinks the IRS appropriation by $342 million. Furthermore, Congress
recently passed a "Taxpayer Bill of Rights" that makes it easier for taxpayers
to sue the IRS and increases the amount of damages that can be collected in
these suits. It also increases the IRS' responsibility to notify taxpayers when
it is going to conduct enforcement action and creates other new procedural
rights for taxpayers.
In 1982, Dole called for
increasing the IRS staff in order to collect more unpaid taxes. According to
the IRS, every dollar spent on enforcement brings in a return of $4 in
revenue.
