Now that 1980 tax forms have been filled out and filed, we can take a breather and look at the broader picture. 1980 was a pretty good year for taxpayers, what with the elections tossing out a number of big-spending inflation lovers, to be replaced with more-conservative senators and representatives. But some of the best news of all has been little heard—possibly because the issue may raise its ugly head again in the future.
On March 11, 1980, with much fanfare and breast-beating, a couple of truly dangerous bills were introduced into the US Senate. Similar ones found their way into the House of Representatives. S 2402 was a bill "to insure the confidentiality of information filed by individual taxpayers with the Internal Revenue Service…and, at the same time, to insure the effective enforcement of Federal and State criminal laws and the effective administration of justice" (emphasis added). S 2403 would provide the same "protections" for "third-party recordkeepers summoned to produce records of taxpayers."
Now, in the wonderland of federal lawmaking, things are seldom, if ever, what they seem. A good case in point is the "Bank Secrecy Act of 1970." That vicious piece of legislation was trumpeted as being for the "protection of privacy of Banking records." Its true purpose—and what it subsequently has done—was to force banks to photocopy each and every check written by their customers and hold those copies for five years. Why? So that "authorized government representatives" could examine them, pursuant to tax investigations, criminal investigations…and who knows what else.
Well, these two current bills are of the same ilk. Their stated purpose is to "put the Internal Revenue Service back in the role as crime-buster." You know, like Al Capone and Frank Costello, two old-time mobsters jailed for income tax evasion when the feds couldn't prove any other violations. Said Georgia Sen. Sam Nunn, who introduced the bills in the Senate, "Al Capone would laugh in his grave and wish he were back in business today rather than in the 1930s if he knew about the legal restrictions and the present policies and procedures of the IRS."
From Florida Sen. Lawton Chiles, another of the sparkplugs behind the bills: "The IRS used to be a feared and respected agency among criminals.…Unlike the old days when the IRS worked hand-in-hand with law enforcement agencies, the agency now shies away from any activity that goes beyond simple tax assessment and collection. In fact, the IRS frequently follows a policy of delay and non-cooperation, providing only minimal assistance and information to Federal law enforcement agencies."
Now why would that be? After all, Internal Revenue is the most dangerous and activist government agency in collecting information and using it against millions of people. Why would they quibble about helping out another government police agency, especially when there's potentially good PR to be gained?
Well, it seems the culprit here is the Tax Reform Act of 1976 and the protections it contains for taxpayers by restricting IRS disclosure of income tax return information. That law was passed in the wake of the Watergate revelations, which showed, among other things, "enemies lists" of people targeted for income tax audits, illegal IRS phone taps, and undercover operations involving prostitutes, pilfered briefcases, and the like. Apparently the limits placed on disseminating tax information have been effective, because the IRS has embarked on a campaign of harassment and obstruction of other government agencies, even when their cooperation would probably not have fallen under the 1976 act. This is a perfect example of government bureaucrats applying as much pressure as possible in just the right places in order to force legal changes they desire.
One example of the IRS successfully blocking an ongoing investigation involved the "Case of the Trash Can." It seems that both the IRS and the Drug Enforcement Administration (DEA) were independently investigating a chemist suspected of illegally manufacturing recreational drugs. Before the DEA could get to it, the IRS had an agent go through the chemist's trash can. Material was gained indicating the chemist was indeed involved in illegal drug manufacturing.
When the DEA heard of this, they said they wanted the useful trash. The IRS refused, countering that the trash was gathered "in connection with the chemist's tax return," which was baloney. The DEA then got a judge to issue a subpoena. The IRS refused to honor it, citing the Tax Reform Act. Only a court order would free the trash, they said.
Were the IRS and DEA working together? The IRS didn't have to withhold that information, but perhaps they wanted to build up a record of problems to show why the privacy rules of the 1976 act needed to be modified—that is, why the IRS needed fewer restrictions on its actions. Even if they weren't working together, the actions of the IRS served to create an additional governmental constituency desirous of changing the provisions of the 1976 act.
So? Did the IRS-inspired bills pass? Can we be thankful that the tax agents are back in their historical role as "crime busters"? No, thank God. The ability of the IRS to pass around tax return information has not been increased. In fact, bills S 2402 and S 2403 died with the end of the 96th Congress. And with a much-changed Senate and House, now less friendly to the whims of the IRS, chances are those bills won't be resurrected. Not for a while, at least.
One last thing needs to be said. Those immensely dangerous bills were introduced and pushed by Senators Nunn of Georgia, Percy of Illinois, Chiles of Florida, Cohen of Maine, DeConcini of Arizona, and Long of Louisiana. Thankfully, supporters Talmadge of Georgia and Ribicoff of Connecticut are gone. The rest deserve to be defeated in their reelection bids for the Senate. Remember their names. They tried to increase the already immense powers of the IRS, an agency, to quote Sen. Paul Laxalt, "totally out of control, running roughshod over taxpayers and making a joke out of our rules of laws."
Timothy Condon, a member of the Florida Bar, is a tax specialist with the Condon & Vollrath Tax Service in Tampa, Florida.