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IRS and state tax systems: clean and efficient

Date Published: 05/30/2013

Author: Dane Smith

I’ve never had that much difficulty figuring my own taxes and it’s getting easier all the time, especially with those commercial online tax-filing programs that do a pretty decent job of step-by-step calculation. Except when they make mistakes, as my private-sector preparer did this year in its software for my Minnesota income tax.

The state and the preparer got together and fixed that minor glitch within days of its discovery. As usual, my federal and state returns were promptly processed and hassle-free, as they are for the vast majority of some 150 million American tax filers every year.

Over the years, when I’ve made mistakes, the obviously competent people who work for our United States Internal Revenue Service and for the state of Minnesota’s Department of Revenue have caught those errors, and it has resulted in both larger and smaller tax obligations than I figured on my own.

Going back to the time of Jesus, who famously offered empathy to tax collectors, the job of the “revenooers” is one of the most thankless tasks in the civilized world (and taxes are simply the price we negotiate together for our civilized and democratic society). It’s gotten a lot more thankless over the last 20 years, with the spread of the virulent new strain of anti-government, anti-IRS propaganda, generated by irresponsible talk-show hosts and interest groups.

President Barack Obama has done the right thing by coming down like a ton of bricks on the special scrutiny of Tea Party-related groups’ new applications for tax exemptions, apparently in one regional office. But we should not be shocked and scandalized that tax officials would look twice at an onslaught of overtly political groups attempting to create hundreds of new tax-exempt “non-partisan” organizations, and all under the “social welfare” clause of the 501(c)4 law. These officials might be forgiven for wondering whether groups with the word “party” in their label might have partisan intent.

During the administration of President George W. Bush, some of these same anti-government voices were actually urging extra scrutiny of liberal organizations and churches for alleged partisan activity under their tax-exempt status. By most accounts, the IRS under Bush actually resisted doing so, despite charges from left-wing groups of improper harassment and persecution. The assault from the right (and to a lesser degree from the left) miraculously waxes and wanes, depending on which party controls the White House.

As a journalist covering tax policy for many years, I have been privileged to meet quite a few people who work for the IRS and the Minnesota Department of Revenue. Integrity and professionalism runs high in this group, arguably a little better than the ethical standards demonstrated by business owners and political activists I know. One quality that seems to differentiate the tax bureaucrats I’ve known is an analytical, non-ideological mindset.

In fact, it’s my impression that Minnesota Revenue commissioners have been among the least political and most conscientious and competent agency chiefs, under governors in all three major parties.

Finding strong voices these days who are willing to stand up for tax collectors and say these things is not easy. But Michael Hiltzik, a commentator for the Los Angeles Times, and Emily Bazelon, writing recently for Slate magazine, have produced some against-the-grain journalism that provides important context.

Hiltzik cites University of California-Davis law school tax expert, Dennis Ventry, who describes the IRS as doing “an extraordinary job, considering that they’re historically underfunded and under-resourced.” Hiltzik reported that the IRS processed 144 million returns for the personal income tax, 2 million for the corporate income tax, and 3 million for the estate and gift tax, with a speed Davis calls “miraculous.”

The all-out attack on the Obama administration and the IRS is eerily similar to a 1998 congressional assault on the IRS in the second term of Bill Clinton administration, Hiltzik writes, when a parade of aggrieved witnesses came before Congress to claim persecution, often exaggerated and mostly without any documentation.

The intimidation really was intended to hamstring enforcement against wealthy individuals and corporations, and it also damaged the agency’s reputation. Staffing has been cut from 107,000 to 90,000 since 1996, as the workload has increased.

“The image of the IRS as a hive of Gestapo-style thugs endured, however,’’ Hiltzik writes. “The harvest was the 1998 IRS Restructuring and Reform Act, which passed 97 to 0 in the Senate and 426 to 4 in the House. The measure resulted in a wholesale shift of agency resources from enforcement and toward customer service. To no one’s surprise, collection efforts collapsed. Audits of individual taxpayers fell from nearly 2 million in 1996 to 618,000 in 2000. Abusive tax shelters enjoyed a heyday.”

Despite it all, the IRS actually has improved in many important respects, and under both Bush and Obama it has put more resources toward auditing wealthy tax evaders and corporations who might be illegally sheltering income offshore and through other dodges, and less time auditing middle-income households.

The Bush administration was particularly forthright about stepping up enforcement, Bazelon notes in her Slate piece, and the latest backlash can be attributed to the stronger vigilance over the wealthy and the corporate world – even though many players on the top end have been the source of truly momentous scandal and wrongdoing before and after the economic collapse of 2008. Bazelon cites sources estimating that only 1 percent of all returns are audited, but about 9 percent of high-income returns are audited.

The bewildering complexity of non-profit tax law, including highly variable regional enforcement, probably needs to be examined. No doubt some redesign and reform by Congress is in order. But as Hiltzik notes, members of Congress in both parties benefit enormously from interest groups that operate in the shadow of these laws. Hiltzik concludes: “If Congress desires there to be a bright line distinguishing (c)4 eligibility, it will have to draw the line itself. But plainly it prefers that these politically fraught decisions be made by civil servants who can then be hauled to the gibbet and hanged for their ‘incompetence’ if things get hot.”

The congressional process that Hiltzik calls “a witch-hunting cabaret” likely will continue for at least a few weeks, although early opinion polling suggests that the general public is not terribly concerned or interested in this alleged scandal.

But the strategy and tactics need to be called out. The clear modus operandi is to attack and intimidate government on every level and every front, slash or sequester budgets and staff, enact confusing laws and guidelines that further confuse the situation, then attack again when overworked agencies can’t deliver their essential goods as fast as they used to do, or when they make mistakes.

None dare call it treason. But it’s destructive and toxic, and we’ve yet to see a clear explanation of how these attacks on our faith and goodwill for our own governments leads to peace and prosperity and freedom and justice for all, and all the good things for which our Constitution and its taxing authority was created.

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A version of this column originally appeared in the St. Paul Legal Ledger Capitol Report on Thursday, May 30, 2013


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