The Need to Protect the IRS from Powerful Taxpayers

The Need to Protect the IRS from Powerful Taxpayers  (1998) 
United States Congress

S. Hrg. 105-529 -- IRS Restructuring: Hearings Before the Committee on Finance, United States Senate, One Hundred Fifth Congress, Second Session, H.R. 2676, January 28, 29; February 5, 11, and 25, 1998. Pages 460-462. (available online, alternate site)

Statement of Robert D. Long

The Need to Protect the IRS from Powerful Taxpayers

Many people have now made known their needs and desires in the ongoing effort to bring reform to the IRS. I fully agree with all these efforts, but I also wish to insert a cautionary note. In building a "kinder, gentler" IRS we must also guard the interests of taxpayers in making sure that the IRS will be able to operate effectively in ensuring compliance with the tax code. It is in the interests of everyone that all pay their fair share of the tax burden. This is not merely a need to maintain the status quo; it is a need to guard the IRS against the abuses of powerful taxpayers who have tremendous resources to bring to bear in bending the IRS to their will. This is a situation which we have seen manifest in recently published accounts of dealings between the IRS and Scientology.

It may seem odd that in view of the testimony already given about the abuses of the IRS against taxpayers that I would be urging you to also protect the IRS from the abuses of organizations who would use their resources against the IRS. However, I believe that any successful reform of the IRS must take into account both of these issues. To do one without the other will surely prevent the IRS from successfully (and equitably) carrying out its mission.

We have been conditioned to think only in terms of how the government becomes overbearing in its dealings with the citizenry of this country. But it is also true that the citizenry can become overbearing in its dealings with a government agency. This has been true in abuses of the Welfare and Social Security agencies where individuals have used their resources in attempts to defraud these agencies. Although it may be a foreign concept for us to think in terms of an organization using its resources against the IRS, the evidence is that this situation has already occurred.

The case I have in mind which illustrates better than I ever could the abuses which are possible, is the case of the long history of dealings between the "Church" of Scientology and the IRS. It is not a case in which one could describe either side on the conflict as having entirely clean hands. But it is a good example of the weaknesses in the current IRS structure and where change is needed.

In relating this information I must say that not all details of this situation have been made public. I am relying heavily on my own experiences as a member of Scientology in the 1970's (an organization which I have disavowed any connection to since 1978--even though they still send me junk mail and count me as a member for promotional purposes). I also rely upon the published IRS closing agreement with Scientology (which has not been validated by the IRS, but which I have every reason to believe is genuine). I am also basing my statements on published evidence gathered by the U.S. government and made available through FOIA, the statements of other former members of Scientology, and news reports.

For decades the IRS denied tax-exempt status to Scientology organizations, and denied tax deductions for payments to Scientology by individual Scientologists for courses and personal services (a position supported by a U.S. Supreme Court ruling). The IRS in 1993 suddenly and mysteriously announced that it was reversing course and granting tax exempt status to Scientology and its related organizations, and allowed individuals to deduct payments made to Scientology for personal services.

The circumstances and details of this sudden change in policy have been cloaked in mystery ever since. Tax Analysts has fought an ongoing battle with the IRS to force legal disclosure of the mysterious closing agreement made with Scientology, an agreement which the IRS has steadfastly refused to disclose even with redaction's. No one outside of Scientology leadership and the IRS knew what the exact terms of the agreement were until someone leaked it to the media a couple of months ago.

The agreement, disclosed by the Wall Street Journal, contains far more than "taxpayer return" information as alleged by the IRS. It includes evidence that strongly suggests that the agreement was the end result of an orchestrated campaign of harassment of the IRS by Scientology. Its terms indicate a "caving in" to the demands of Scientology and contain unprecedented concessions to the organization. As part of the terms of the agreement, the IRS even agreed to circulate a "Church Fact Sheet" about Scientology to foreign governments, which was prepared by Scientology and contains material false statements. In view of the subsequent secrecy accorded the agreement and supporting documentation by BOTH Scientology and the IRS, the question of whether there was impropriety involved in obtaining the agreement must be asked.

Scientology has a public policy of using the law to harass and punish rather than to win on issues. At the heart of the negotiated deal between the IRS and Scientology is an agreement to effectively end over 2000 lawsuits against the IRS. The bulk of these lawsuits were based on the non-tax deductibility of payments to Scientology by individuals, an issue already brought once to the Supreme Court and ruled in favor of the IRS. Some of the other lawsuits were similarly meritless and other lawsuits were brought against individual IRS agents. All in all, they accomplished Scientology's stated policy of using lawsuits to harass rather than to win.

Scientology has also publicly commented on the fact that it extensively employs private investigators in dealing with its enemies. Accounts from many people have indicated that these PI's are not just gathering information, but furthering Scientology's goals of using harassment as a tool for dealing with enemies. There are also allegations of criminal acts committed by at least one of their PI's in carrying out Scientology's wishes. Scientology has sued individual IRS agents in its quest for tax exempt status and undoubtedly employed its PI's in attempts to find any dirt they can on IRS employees. It has been alleged that Scientology had specific knowledge of wrongdoing of some IRS employees. Was this information used as further leverage against the IRS to accomplish its ends?

Several media accounts have characterized the terms of the agreement as being tantamount to the IRS asking for a token payment in exchange for a cessation of hostilities. Clearly, Scientology brought massive resources to bear in a campaign of harassment of the IRS in order to get its way. Several newspaper articles have questioned whether this sends a signal that it does pay to harass the IRS in order to get what you want. Clearly we need to do something about this.

I believe the steps needed to prevent further abuses of the IRS by organizations, which could potentially bring large amounts of resources to bear on the agency, include the following:

(1) The most important first step is that you continue your efforts to ensure that the IRS deals equitably with all taxpayers
(2) Take steps to ensure proper oversight of the IRS and its agents. This will reduce the possibility that inappropriate behavior may be used as leverage against the agency or its agents
(3) Sunshine disinfects--publicly disclose all but actual taxpayer return information in the Scientology and all other cases like this where non-public agreements have been made. A non-profit organization is in a sense a public trust. In exchange for recognition that the organization is intended to benefit others rather than itself, it is being exempted from a normal obligation that we all have. The public has a right to know upon what basis an organization is operating as non-profit and what arrangements it has made with the IRS to ensure compliance with its obligations (specifically, to operate as a legitimate non-profit entity in lieu of paying taxes). In the case of a church, school, or religious organization they should have a limited expectation of privacy except as to the details of their internal financial dealings. This is the cost of doing business as a public trust.
(4) In the Scientology case, upper management of the IRS bypassed normal approval channels for the Closing Agreement. This introduces a significant possibility of abuse of power. It also gives this specific case a prominent appearance of impropriety, even if none exists in actual fact. Situations like this need proper oversight, possibly requiring approval or review by the Joint Committee on Taxation. I believe that the Joint Committee on Taxation should be asked to immediately review this and all similar cases of irregular Closing Agreements with non-profit entities.
(5) Scientology is a "poster child" for why we need tort reform in this country. As long as an organization like Scientology is allowed to run rampant in abusing the legal system with the time, resources, and cost of litigation to defend oneself against meritless lawsuits being the punishment meted out to the luckless victims of this abuse, one can expect such abuses to continue
(6) Expenditure of significant resources on political lobbying is grounds for denial of non-profit status. Expenditure of significant resources on investigations and litigation initiated by an organization should likewise be grounds for denial of non-profit status.

I thank you for your consideration in this matter. I hope my insights are of some help to you in your current efforts to restructure the IRS. I commend you for doing a very necessary and important job.

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).

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