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	It's A Two-Way Street Clint's Window by Clint Stretch, Director Tax Legislative Affairs, Deloitte & Touche LLP Monday, November 25, 1996

The IRS wants honesty from taxpayers. It owes taxpayers the same courtesy.

A recent column in this space urged the Congress to avoid slashing the Internal Revenue Service’s budget. I argued that the IRS needs enough money to perform its core functions -- functions mandated by our complex tax laws.

This month the IRS was accused of some pretty serious wrongdoing. At a meeting of the Commission on Restructuring the IRS, an attorney specializing in Freedom of Information Act (FOIA) cases alleged that the Service deliberately misled Congress about its efforts to prevent fraud in the low-income housing tax credit program.

The accusation? That the IRS used rules designed to protect taxpayer privacy to hide its failure to create a fraud prevention program. Even as IRS officials testified before Congress that a fraud-busting program was in place, an internal IRS memo acknowledged that no such program exists.

Two senators on the IRS restructuring panel reacted with alarm. Defending her agency, IRS Commissioner Margaret Richardson insisted that it is not IRS policy to use the privacy provisions to hide embarrassing information. The senators want more than her reassurance. Sen. Charles Grassley, R-Iowa, wrote Richardson asking her to investigate the matter and report back by the beginning of December. Also, the attorney who released the memo now charges the IRS is investigating him.

Obscuring the debate

This kind of incident makes it harder to conduct a reasonable debate on the role, function, and budget of the IRS. Both Congress and the Service share an obligation to act responsibly in raising the money government requires.

Just as Congress must properly fund the IRS, the agency must clean up its act. The IRS is obliged to comply with the laws, especially the laws on public disclosure. Beyond mere legal compliance, however, the IRS needs to be more open in its dealings with the public. Although safeguarding taxpayer confidentiality is essential, using the privacy protections of the law to hide government decision making, to avoid conflict with Congress or the public, or simply to make the bureaucrat’s day easier ultimately adds to the agency’s problems.

The IRS has a history of foot dragging when it comes to FOIA cases. Over 20 years ago, tax publishers had to sue to get the U.S. courts to order the IRS to recognize its FOIA obligations and release private letter rulings. The IRS lost that lawsuit, but is still resisting open government.

Giving the public its due

Many of the documents that the courts forced the IRS to release publicly no longer create, or contain little, guidance on how the IRS administers the tax code. The IRS has created new means of instructing its staff and resists disclosing these new documents.

For instance, the IRS refuses to release field service advice memos. These memos from the IRS’s trial lawyers instruct IRS agents on how to develop cases. They would be one of the clearest indications for tax professionals on the Service’s positions on tax laws and regulations. The IRS argument that these products are protected as a lawyer’s advice to a client misses the point. The attorneys of the IRS have multiple clients, one of which is the tax-paying public that has a right to kn ow what the IRS is doing.

Even when the IRS has acknowledged its obligation to release information, it routinely refuses to make available to the general public information that it has released to the press.

Much of the discussion about tax issues the last few years -- the momentum for tax reform, the threats against the IRS budget, suggestions that it’s time to eliminate the IRS as we now know it, the newly enacted Taxpayer Bill of Rights -- suggests a poor relationship between the IRS and the public and Congress. The harsh tone of IRS-bashing comments understandably invites a siege mentality on the part of the agency’s employees. In the end, however, Congress and the politicians will have their way. The IRS needs to recognize this and adopt some new strategies.

Both sides need to give some, and someone needs to start the process. Lying to Congress in no way helps improve the situation, or guarantees that Congress won’t attempt to slash the IRS budget for fiscal 1998. Maybe a lot more openness can change the atmosphere.