IRS going after 'alarming' cheaters
By Andrea Coombes
KNIGHT RIDDER TRIBUNE
U.S. taxpayers are more inclined than ever to cheat on their taxes, but the Internal Revenue Service plans to step up enforcement against high-income taxpayers, corporations and illegal scams, the agency's top executive said.Last year, 17 percent of taxpayers said cheating on taxes was acceptable, up from 11 percent in 1999, IRS Commissioner Mark Everson said in an interview with radio station KCBS in San Francisco.
That trend is "very alarming," Everson said. "Obviously, we can't sustain that trajectory and continue to fund the government."
The rising acceptance of cheating comes after the IRS cut back on enforcement in the late 1990s.
"We cut our resources by 25 percent. The number of auditors, the number of officers collecting monies due, and the number of criminal investigators - all of them went down by over a quarter," Everson said.
"This sent a bad message just at a time when corporate governance was going off the tracks, when there was a real decline in ethics on the part of some of our attorneys and accountants from the very best firms, and a time when...cultural greed was convincing people that maybe they didn't need to pay their fair share."
To combat that cultural greed, the IRS pushed the audit rate up by 50 percent in recent years. It now audits a bit more than 1 percent of the returns. "Still not a very high figure," Everson said. "We're working on increasing audit rates."
The agency is also revamping its business audits, which now take an average of five years. "We're still looking at corporate returns in many cases from the mid-nineties and early nineties," he said. "We might as well be looking at transactions from the Civil War."
Everson's career started in 1976 with accounting firm Arthur Andersen. Then, "your first obligation was to assure your client followed the law and professional standards. Then, if you could, you helped differentiate the firm based on service," Everson said.
"This all changed over the next three decades, and it badly eroded in the nineties, when people became interested in value creation and risk management."
While some tax shelters are appropriate, "the tax shelter industry has had a corrupting influence on the practice of law and accounting in this country," he said.
Asked what information on a tax return might trigger an audit, true to IRS practice, Everson offered little insight.
"We have different relationships we look at...big changes from year to year would be one indicator. Is there an aberration in the relationship between the size of the income and the deductions that are claimed? We're looking for what's out of the norm."
Taxpayers with fair to middling income will be relieved to learn that the IRS is particularly focused on high-net-worth individuals, corporations and criminal activity.
The president has asked "for a 10 percent increase for our enforcement budget next year, and 5 percent overall," Everson said. "Two-thirds of the president's request goes to corporations, high-income (individuals) and the criminal area."
If you were counting on Everson's agency to simplify the tax code, don't.
The "system of developing legislation is prone to a lot of special deals and special actions where people are trying to help constituent interests, an industry or a group of people," Everson said. "A lot of that is totally legitimate. That's democracy."
But it leads to "a very complicated mishmash, which makes it hard for people to comply," he said. "I would like to see us address that and simplify the tax code."
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