Illegal Tax Protesters Threaten System

GGD-81-83: Published: Jul 8, 1981. Publicly Released: Jul 8, 1981.

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GAO reviewed the efforts of the Internal Revenue Service (IRS) to detect and deter illegal tax protesters. The review was based primarily on a random sample of cases identified as protesters in 1978 and 1979 by three IRS districts. IRS defines an illegal tax protester as a person who advocates or participates in a scheme with a broad exposure that results in the illegal underpayment of taxes. To counter this threat to the Nation's voluntary compliance tax system, IRS has taken some important actions, including the establishment of a nationwide program to detect and deter protesters and a related program to identify persons who file false form W-4's to evade taxes.

IRS has had some important successes, including convictions of major illegal protest leaders, but it needs to improve its efforts to identify illegal tax protesters and to bring them into compliance in a more timely and effective manner. IRS also needs to develop an overall strategy and better target its resources to maximize their deterrent effect on the protester problem. The exact extent and makeup of the illegal tax protest movement are unknown; illegal tax protesters have developed various complex and sophisticated schemes to evade or reduce their taxes. The largest number of cases in the review sample involved protesters who were nonprofessional wage earners, had incomes between $15,000 and $50,000, and on the average owed about $3,700 in taxes. The Illegal Tax Protester Program was designed primarily to identify and control protester returns and documents. The Questionable Form W-4 Program was designed to identify illegal tax protesters and others who file false income withholding certificates to evade taxes. IRS procedures for detecting illegal tax protesters are limited primarily to identifying those who choose to file a protest return or notify IRS of their protest; other protesters elude detection. IRS has not been as timely and effective as it could be in bringing illegal tax protesters into compliance. Additional opportunities exist for IRS to use the public media in dealing with the problem.

Matter for Congressional Consideration

  1. Status: Closed - Implemented

    Comments: When we determine what steps the Congress has taken, we will provide updated information.

    Matter: Congress should revise the summons provisions of the 1976 Tax Reform Act by requiring taxpayers to expeditiously show cause to a court for not complying with a summons.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should direct IRS officials to routinely determine whether persons detected through the IRS nonfiler program are protesters and ensure that they are pursued accordingly.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should direct IRS officials to provide appropriate personnel with sufficient training on protester identification procedures.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should direct IRS officials to conduct an annual delinquency check on previously identified protesters to verify that filing requirements were met and proper tax assessed and paid.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should institute the following change: when service centers identify a protester, they should accumulate a file of all pertinent data from sources within IRS, including information documents, questionable W-4's, and prior returns.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should institute the following change: shipment of protester cases from service centers to districts should be specially handled to reduce lost time.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should institute the following change: when protesters are uncooperative, IRS should prepare and process substitute tax returns based on available information, such as employer-provided information.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should institute the following change: explicit guidance should be provided to examination and appeals personnel regarding how family estate trust cases should be expeditiously examined and processed.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should institute the following change: when a protester case involves a paid preparer, IRS should expeditiously assert, where appropriate, a penalty against the preparer.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Closed - Not Implemented

    Comments: The agency disagreed with this recommendation. It believes flexibility is necessary to adequately assess each case in light of all extenuating circumstances and facts.

    Recommendation: The Commissioner of IRS should establish criteria on the time it will allow for protesters to provide records before issuing summons.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  10. Status: Closed - Not Implemented

    Comments: IRS did not agree with this recommendation. It believes that implemention of this recommendation would be disruptive to its existing organizational structure and would jeopardize effective tax administration.

    Recommendation: The Commissioner of IRS should establish a working group in each district division to handle protester and other special compliance cases and designate one district official with the responsibility and authority for cutting across functional lines to ensure that such cases receive adequate and expeditious attention. Similar positions should be established at the national and regional office levels to ensure that the protester program and other special compliance programs receive the attention they need.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  11. Status: Closed - Not Implemented

    Comments: IRS believes that existing liaison with the Department of Justice is sufficient and through this liaison hopes to improve planning and coordination.

    Recommendation: The Commissioner of IRS should develop, with input from the Justice Department, an overall plan for dealing with illegal protesters.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  12. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should develop more comprehensive management information for use in planning, allocating resources, and making other strategic decisions relative to the illegal tax protester efforts.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  13. Status: Closed - Implemented

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of IRS should, on a test basis, seek Joint Committee approval under Code section 6103(k)(3) to disclose taxpayer return information or any other information necessary to correct misstatements of fact.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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