- The Washington Times - Saturday, September 20, 2003

To get an idea of what it’s like to tangle with the Internal Revenue Service, imagine having to fight Mike Tyson — with both hands tied behind your back.

The IRS is the most feared government agency, and with good reason. Americans who run afoul of this bureaucratic behemoth have little chance of surviving unscathed.

In large part, this is because the rules are rigged against taxpayers. We have to provide information to the IRS, even though the Bill of Rights supposedly protects us from self-incrimination. We’re guilty until we prove ourselves innocent, even though our Constitution — at least, in theory — guarantees the presumption of innocence.

And heaven forbid you scribble a little message in the margins of your tax return: The IRS has the power to fine you for exercising your right to free speech.

Yet even with the playing field tilted in its favor, the IRS wants more power. Because some taxpayers have had the unmitigated gall to challenge this Darth Vader-like bureaucracy, the IRS is targeting lawyer-client confidentiality.

More specifically, the agency has filed summonses against a number of law firms, accounting firms and other professional tax advisers demanding they reveal confidential information about their clients. Why? Because the IRS suspects their clients are seeking to exploit “loopholes” in order to lower their tax bills. And even though tax avoidance is not against the law, IRS officials want to use these firms as deputy tax collectors.

In football terms, they want to eavesdrop on the other team’s huddle so they know what play will be called — ignoring fiduciary, legal and ethical responsibilities those various firms owe to their clients.

The IRS conveniently sidesteps the legal and confidentiality issues in the cases. Instead, the bureaucrats piously declare that they need to ransack files because some taxpayers may have obtained professional advice on how best to lower their tax bills. They claim their fishing expedition is part of a campaign to stamp out “abusive” tax shelters.

If the agency really wanted to eliminate tax shelters, though, the commissioner and other high-level IRS officials would be proclaiming the self-evident virtues of a flat tax. But don’t hold your breath waiting for this to happen. After all, there would be no need for 100,000 bureaucrats at the IRS if lawmakers replaced the Internal Revenue Code with a simple and fair flat tax — one normal people could understand.

Fortunately, there are growing signs Congress may realize tax reform is the only answer to IRS abuses. Earlier this year, the Senate voted overwhelmingly to endorse the principles of the flat tax. This vote wasn’t binding, but it was nonetheless encouraging to see that every Republican and nearly two-fifths of Democrats agreed, at least in principle, that the current tax system should be replaced. Lawmakers even understand that the flat tax is the best way to encourage compliance. “As tax loopholes are eliminated and the tax code is simplified, there will be far less opportunity for tax avoidance and fraud,” their resolution states.

In other words, there are two ways to improve enforcement of tax laws. One is to keep the current tax code — a 17,000-page monstrosity that even tax lawyers have trouble understanding — and rip up the Constitution so the IRS has more power over our lives. The other is to rip up the tax code and replace it with a flat tax that eliminates social engineering and government micro-management of our lives.

Ironically, some of our former Cold War adversaries have learned the right lessons. Lithuania, Estonia and Latvia adopted flat taxes after the collapse of the Soviet Union. Russia followed suit about three years ago with a 13 percent flat tax. These flat-tax systems have been so successful that Ukraine just adopted a flat tax, and Slovakia, Romania and Belarus also are considering one.

President Reagan and other leaders used to condemn the Soviet Union because the communist system ran roughshod over individual rights. Today, former communist nations have the flat tax, while the IRS is trying to undermine lawyer-client confidentiality, one of our most important historic legal protections. It makes you wonder who really won the Cold War.

Daniel Mitchell is the McKenna Fellow in political economy at the Heritage Foundation.

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