Putting A Leash on the IRS

By Jerome Cramer/Washington

She owed no back taxes and had broken no law. But that did not stop the Internal Revenue Service from seizing $22,000 in Shirley Lojeski's bank account. Lojeski, who breeds Thoroughbred horses in Pipersville, Pa., was unaware that anything was wrong until her checks suddenly started bouncing. Mystified at first, she eventually realized that the IRS had taken her money as a way to get at her boyfriend, Thomas Treadway. The agency had accused Treadway, who ran a trash-management business, of owing $247,000 in back taxes, and suspected that he was stashing his money in Lojeski's account. Treadway later established that he did not owe the $247,000, but not until four months after the case was settled did Lojeski finally get her money back. In the meantime, she had to shut down her business temporarily and was nearly driven into bankruptcy.

Lojeski's tale is just one of hundreds of horror stories that taxpayers can tell about the heavy-handed tactics of the Government's tax collectors. With the dreaded April 15 filing deadline approaching, Congress is considering bills that would ensure greater protection of taxpayers, including a measure sponsored by Senator David Pryor, an Arkansas Democrat, that has come to be known as the Taxpayers' Bill of Rights. While no one denies that the IRS should be tough on tax cheats, critics charge that the agency is often too quick to seize property, sometimes moves on the basis of flimsy evidence, and frequently does not give its target a chance to set things right. Says David Burton, a tax specialist with the U.S. Chamber of Commerce: "Situations between taxpayers and the IRS now get nasty very quickly, and they are hard to get straightened out."

Nancy Seddinger, who runs a real estate business in North Myrtle Beach, S.C., learned last December that her company owed $22,000 in interest and fines. The company accountant contacted the IRS to question the ruling and try to reach some sort of settlement. But in February, with the matter still / unresolved, the agency grabbed the firm's bank account. Seddinger could not meet her payroll and had to halt operations. Her Congressman, Democratic Representative Robin Tallon, later managed to get the bank accounts released, but Seddinger is still jousting with the IRS to clear up what she calls "my nightmare."

Many enforcement actions are based on colossal blunders. One Texas taxpayer, who prefers to remain anonymous for fear of IRS retaliation, paid more than $22,000 in taxes for 1987 but fell a whopping 2 cents short of the proper amount. The IRS promptly sent him a bill for $400.31 in penalties. Reason: the agency levied the fine on his entire tax liability -- not just the missing 2 cents. The taxpayer is appealing the ruling.

One of the most notorious IRS foul-ups occurred last July, when the agency seized $70.76 in a bank account belonging to nine-year-old Carmin Fisher of Junction City, Ore. The Government was trying to collect part of a delinquent $21,182 bill owed by Carmin's grandfather Charles Fisher. Only after the case got nationwide attention did the IRS back down and return the money, saying it had mistakenly assumed that Carmin's grandmother, who was listed as guardian, owned the account.

Under Pryor's Senate bill, the IRS would have to notify taxpayers of their rights in writing before they were audited or questioned. Citizens would have the right to sue for damages if the IRS made an unreasonable collection. And before seizing taxpayers' property, the IRS would first have to send out a written notice and then wait 30 days. Another reform in the bill would give new authority to the ombudsman within the IRS to issue "taxpayers' assistance orders." These could help prevent the IRS from collecting taxes in ways that create substantial hardships for taxpayers.

The legislation would bar the IRS from setting collection goals for agents or using the amount of money they bring in as a criterion for promotion. The IRS has an internal regulation prohibiting collection goals, but it is often ignored. On the door of an IRS office in Los Angeles, an agent told Congress, was taped a sign with the rallying cry: SEIZURE FEVER -- CATCH IT. The employee with the best seizure rate in the office was given extra time off as a reward.

IRS Commissioner Lawrence Gibbs admits to some problems with tax collection but opposes the bill on the ground that the agency can correct any abuses internally. He points out that some of the measures in the proposed law, like the call for clear publications listing taxpayers' rights, have already been adopted. Pryor praises Gibbs for his efforts but says internal reform of the IRS can go only so far: "Gibbs has the same problem as Gorbachev. He is fighting with his own entrenched bureaucracy that is reluctant to give up power."

Pryor's bill runs counter to congressional efforts in recent years to strengthen tax collection. Faced with a huge federal deficit, Congress since 1981 has passed five laws that have increased penalties for tax evasion and given new enforcement powers to the IRS. Pryor contends that the tax collectors now have too much of an advantage. "It's time to give taxpayers some rights to even the playing field," he declares. Some form of his bill is expected to pass the Senate, but comparable legislation in the House has not yet garnered the support it needs from Illinois Democrat Dan Rostenkowski, who chairs the Ways and Means Committee. Rostenkowski is afraid that a taxpayers' rights bill would cost the Government as much as $200 million a year -- although that amounts to little more than one-tenth of 1% of the annual deficit. Pryor hopes to convince Rostenkowski that just the opposite will happen. Says the Senator: "When people respect their tax system, revenues go up."