Congress, Audit Thyself

Three years ago the Internal Revenue Service was given a congressional audit for several cases of tax agents harassing taxpayers. Don't be too aggressive in enforcing the tax code, Congress scolded.

So the IRS drew in its claws. Its enforcement budget was frozen. Audits of tax returns fell off sharply. And people intent on evading taxes - and those who help them - perceived a green light.

Some of the criticism of IRS tactics was justified. But the remedies went too far. Now the enforcement pendulum is swinging back, and most Americans should be glad for it. When a minority of taxpayers avoid paying their share, everyone else has to make up the difference - to the tune of some $200 billion in lost revenue a year.

Tax evasion has become a growth industry over the past few years, according to experts. Among the biggest scams are trusts set up to shift the unreported earnings of wealthy taxpayers into offshore accounts, supposedly off the IRS radar. Such schemes are openly advertised in publications and on the Internet.

IRS agents have answered some of those ads and tracked down illegal schemes. From zero successful prosecutions and convictions for this kind of tax evasion in 1996, the IRS had 52 in 2000, and it anticipates even more this year.

Tougher enforcement bolsters the honest taxpayer's faith that the system is fairly administered. But Congress and the IRS both know that the proliferation of tax-evasion schemes rises with the complexity of the tax code.

Having a federal income tax code that's 15,100 pages only invites sophisticated cheating. For example, one obscure rule allows insurance companies that take in less that $350,000 a year in premiums to be tax-exempt. It was intended to aid farm cooperatives. But it has been turned into a tax shelter for the wealthy.

The code is packed with credits, exemptions, and other complicating items. Congress adds to the total every year, trying to prevent more spending by instead giving tax breaks to special interests.

Voters have not sent a strong signal yet to their representatives at election time to simplify taxes. Only the bravest lawmakers try to tackle reform of the code. But it needs to be done.

Rather than beat up the IRS, Congress should clean up its own act first and simplify the Byzantine tax structure it has erected.

(c) Copyright 2001. The Christian Science Monitor