Taxpayers Tell of Mistreatment; IRS Issues an Apology

TIMES STAFF WRITER

Taxpayers from across the nation Wednesday related sagas of incompetence, laziness and hostility by the Internal Revenue Service that, they told a Senate hearing, had shattered their lives.

Leaving little doubt about the veracity of the allegations, acting IRS Commissioner Michael P. Dolan issued a landmark apology, saying: "No one should have endured what these citizens describe as their experience at the hand of the tax system. At this point, I offer my sincere apology to these taxpayers for any mistakes we have made and for any anguish we have caused."

In the unprecedented hearing into abuse and mistreatment of taxpayers, the Senate Finance Committee turned a harsh spotlight on the cases of Americans who became trapped in a confused bureaucracy incapable of correcting its errors for years.

Msgr. Lawrence Ballweg, an 82-year-old priest from Florida, told of "devious" IRS agents who erroneously tried to grab $18,000 from a trust fund for the poor set up by his late mother.

Nancy Jacobs, a Bakersfield optometrist's wife, broke down in tears as she explained how aggressive IRS agents hounded her husband for 17 years because they mixed him up with another taxpayer.

Tom Savage, a Delaware small businessman, said that the IRS concocted an imaginary company that he co-owned with another taxpayer and then illegally seized $50,000 to pay for the other taxpayer's debts.

Katherine Lund, an Apple Valley, Calif., woman, described how the IRS could not keep track of its own records, repeatedly threatening to seize her home if she did not pay a tax debt left over from a former marriage. Although on three occasions she sought to clear the debt, another branch of the agency continued to pester her.

The testimony was met by profuse apologies from committee members themselves, who struggled to grasp how a tax system that they had helped put in place had fallen into such a sorry state.

"We can't help but feel shame that our government has carried on this way," offered Sen. Charles E. Grassley (R-Iowa).

A number of experts testified that much of the blame for the IRS' problems lies with Congress' lax oversight. Indeed, the Senate Finance Committee, the panel that has direct responsibility for the IRS, had never in its history conducted an oversight hearing of the agency.

The three-day hearing is to conclude today when IRS agents, their faces hidden by hoods, are to testify that the agency routinely violates the law and the rights of taxpayers in its efforts to boost its collections.

The hearings come with the IRS at a crossroads, with political reformers demanding that control of the agency be transferred from the Treasury Department to a special independent agency. More-radical solutions, such as those endorsed by House Ways and Means Committee Chairman Bill Archer (R-Texas), would eliminate the income tax, as well as the IRS, and create a new national sales tax.

IRS officials have been politically battered for more than a year, since the first disclosures that the agency's $4-billion effort to bring its antiquated computer system up to date had become a boondoggle.

But the problems described Wednesday go far beyond technology. Darren Larsen, a Southern California tax attorney and a former IRS official, said that she has been "appalled by the lack of knowledge on the part of front-line managers" at the agency. Such ignorance has led to managers that "blatantly disregarded the law" in putting liens on individual's homes, for example, she said.

Robert S. Schriebman, a tax attorney from Rolling Hills Estates, testified that in many instances IRS power is too great, citing the authority of the agency to seize homes with only the signature of a district director.

Schriebman said that taxpayers should have the right to a court hearing before any lien, levy or seizure is executed by the IRS. According to Congress' General Accounting Office, the agency issued more than 750,000 liens against taxpayer property last year alone.

The IRS has shielded itself effectively from the U.S. public, using its extraordinary authority under the so-called 6103 provision of the federal tax code that was intended to safeguard taxpayer privacy, said Sen. Daniel Patrick Moynihan (D-N.Y.).

Under 6103, the IRS essentially has kept the history of its activities unwritten, said former IRS historian Shelley Davis. "The IRS is the best secret-keeping agency in government, better than the FBI and the CIA," she said.

IRS officials have strongly denied allegations by the committee that the agency condones illegal tax practices and pressures its revenue agents to breach the law.

But late in the hearing Wednesday, Jennifer Long, an IRS agent, testified that the IRS has fabricated evidence in tax cases and targeted individuals who are vulnerable because of low income or modest education.

"Under present IRS management, it has become so distorted that when reviewing a tax case it is now our job to stick it to the taxpayer, rather than determine a substantially correct tax assessment for that taxpayer," Long said.

But the most damaging indictment of the IRS at Wednesday's hearing appeared to come from the testimony of taxpayers.

Lund, the Apple Valley woman, drove to Washington with her current husband, Orange County prosecutor Jim Hicks, because the couple could not afford to fly with their children.

"My credit is completely destroyed, and my husband's credit is seriously damaged," she said. "We will suffer the effects of the IRS collection for the rest of our lives."

Lund laid out her story for nearly half an hour, at times breaking into tears. She said that her problems with the agency started when the IRS assessed additional taxes of $7,000 after she had filed her 1983 tax return. By then, however, she had divorced her previous husband and was unaware of the tax assessment.

The IRS repeatedly came after Lund to pay the bill. Lund paid the assessment three times but the agency would refund the money, saying that she did not owe anything. Then, another branch of the agency would dun her again.

When she married Hicks, the IRS went after him, attempting to levy his paycheck from Orange County earlier this year. The couple finally filed for divorce, not to escape the marriage but to protect his check from the IRS, she said. Lund and Hicks also nearly lost their home to an IRS lien.

The entire snafu was caused because the IRS created a collection record that was never noted in its master computer file, a procedure reflecting the obsolescence of its equipment. The error was corrected only after the committee took its findings to the IRS.

As Lund told her story, IRS officials in the hearing room flinched.

"It is a disgrace to our nation that an arm of our democratic government is allowed to behave as if it were an extension of a police state," she said.

Msgr. Ballweg said that the IRS dunned him for $18,000 in taxes on his late mother's trust fund for the poor because he had not used correct forms in filing the trust's tax return.

When he attempted to correct the error, IRS employees subjected him to "calloused and indifferent behavior" for eight months that did nothing to resolve the problem.

"If I treated people like that when I was a pastor, you can be sure the pews of my church would be empty," Ballweg said.

After the committee intervened, the IRS dropped the action.

In the case of Savage, the Delaware businessman, an investigation by the committee staff turned up evidence that the IRS had committed serious ethical errors. In 1993, the Justice Department warned H. Stephen Kesselman, the agency's district counsel in Philadelphia, not to pursue the case against Savage because its seizure of his check was "wrongful" in the first place.

Despite the Justice Department's advice, which was not disclosed to Savage until Wednesday, the IRS continued pressing its case against him for another year and a half.

Savage eventually paid the agency $50,000 to settle the matter, fearing that a court fight would cost too much. He estimated that the episode had cost him $250,000 in lost business and legal fees, forcing him to continue working four additional years before he retired.

Jacobs said that her husband's problems with the IRS began in 1979, when he was issued an employer identification number for an optometry business that he opened in Riverside.

Unknown to Jacobs, the number belonged to another taxpayer and for the next 17 years the IRS periodically attempted to seize the couple's property for the tax debts of the other person. She and her husband were so fearful of IRS collection agents, she said, that they agreed to pay $250 per week to cover an $11,000 tax bill that they did not owe.

The episode finally ended in 1992 and IRS officials at the Fresno Service Center issued an apology. But the IRS, Jacobs said, has not refunded all the money the couple incorrectly paid.

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Taxpayer Horror Stories

"We will suffer the effects . . . for the rest of our lives."

--Katherine Lund, Apple Valley, Calif. who filed for divorce to protect husband's assets in dispute.

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OTHER WITNESSES AND THEIR IRS PROBLEMS

Nancy Jacobs, Backersfield

She described 17-year "nightmare" over payroll taxes.

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Lawrence F. Ballweg, Florida

Priest told the threats the IRS made in dispute over a charitable trust.

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Tom Savage, Lewes, Del.

Contractor let the IRS keep $50,000 it seized unfairly to avoid having to pay further legal costs.

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