- The Washington Times - Thursday, January 30, 2003

You have to feel sorry for Mark Everson.Sure, he's moving up in the world: President Bush just nominated him to be the new commissioner at the Internal Revenue Service. But Mr. Everson, who currently serves as a deputy director at the Office of Management and Budget, may want to withdraw his name. The IRS is a mess these days, reeling from problems that got much worse under Commissioner Charles Rossotti, Mr. Everson's supposedly pro-business predecessor.

Mr. Everson better be prepared to deal with some of the land mines Mr. Rossotti planted, especially if he wants the IRS to obey the law and respect the Constitution. Among the Rossotti "legacies" that will now land in his lap are the infamous "lifestyle audits," a fishing expedition against people with credit cards issued by foreign banks, and a Clinton-era proposal that the IRS help foreign governments tax their citizens on money kept in American banks even though this proposed regulation would overturn existing law.

All things considered, Mr. Rossotti demonstrated an unwelcome urge to pry, a disturbing disregard for the protections afforded by our Constitution and callous indifference to the impact of his actions on the U.S. economy. If Mr. Everson wants to restore the IRS' reputation, he needs to reverse the ill-advised policies of his predecessor.

Consider the IRS "lifestyle audits." Few initiatives in the history of the IRS have prompted as many complaints or as much anger. Auditors come into taxpayers' homes, examine their possessions, investigate their real-state holdings, bank accounts and credit cards and interrogate their employers and neighbors all to ensure their "lifestyle" is possible on the income they reported. The agency need not have the slightest evidence of wrongdoing to undertake such an audit, and investigators have been known to pay neighbors to snitch if their information leads to increased collections.

The outcry against lifestyle audits grew so loud several years ago that Congress scaled back the program. But under Mr. Rossotti, they re-emerged as part of a "national research program." Everyone understands the IRS must enforce the law. But no one understands why this requires police-state tactics. And it was Mr. Rossotti, not Congress, who approved the practice.

Lifestyle audits are just the tip of the iceberg. In the final days of the Clinton administration, the IRS proposed a regulation to help foreign governments tax some of the $1 trillion or so deposited by foreigners into American banks, even though one industry study found that at least a third of this money would flee to other jurisdictions, a drain on capital that would hurt the stock market and make it harder for Americans to get loans.

But the real outrage is that this regulation would undermine democracy. Elected officials passed these laws to attract capital to the U.S. economy. It's not the IRS' place to use regulatory edicts to overturn them.

The credit-card fishing expedition is equally odious. It's perfectly legal for Americans to obtain credit from foreign banks, so the IRS has no business scrutinizing these dealings without evidence of wrongdoing. Yet the federal government, acting on the agency's behalf, is issuing hundreds of thousands of "John Doe" summons because the IRS thinks a few account-holders might be breaking the law.

This is profiling not by race but by where one's bank is located and it is equally troubling to those who believe in the rule of law.

How do we stop this? Tax reform may be the only answer. If income were taxed only once, the IRS would have no reason to snoop into our bank accounts.

Under a flat tax, for instance, taxpayers would tell the IRS only the size of their families and the amount of their wages (a figure readily found on W-2 statements), and their tax liability could be determined easily. Lifestyle audits ahem, national research program audits would be completely unnecessary.

Mr. Rossotti's dismal performance proved especially frustrating because, in view of his business background, many taxpayer advocates hoped he would rein in the IRS' 100,000 bureaucrats and put an end to abusive practices. Unfortunately, things became even worse on his watch. Now it is Mark Everson's turn. Will he insist the IRS obey the law and respect civil liberties? Or will he be an absentee landlord, presiding over the agency but allowing bureaucrats to trample taxpayer rights?


Daniel J. Mitchell is the McKenna senior fellow in political economy at the Heritage Foundation.


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