Testimony of Philip A. MacNaughton

to the Senate Finance Committee

Hearing Date: April 28, 1998

My name is Philip MacNaughton. I am a lawyer with offices in Houston, and

my practice includes representing taxpayers before the Internal Revenue Service

in tax controversies and collection matters.

The IRS claims its revenue officers are trained to be fair with taxpayers, and that

the occasional horror stories represent aberrant situations.

I will tell you about an IRS officer whose abusive actions may have literally

hounded a Houston taxpayer to death.

In 1995, a CPA referred to me a 61-year old swimming pool designer who was

being pursued by tax collectors in connection with the possible assessment of

payroll taxes. Although ill with heart disease and cancer, the man was still

working a few hours each day, supporting himself and his family.

I contacted the revenue officer and provided information that had been requested.

I also sent him a letter detailing the taxpayer's fragile medical condition, and

asked him to route all communication with the taxpayer through me.

In mid-1995, my office filed on behalf of our client a written offer to compromise

the taxes. Although the Internal Revenue Manual provides that collection

activities shall cease during the pendency of a good-faith offer in compromise,

that revenue officer continued his collection efforts despite objections from me.

I advised the IRS revenue officer that continued collection efforts were in

violation of written IRS procedures and were also a threat to the taxpayer's life

because he suffered from heart disease, had experienced heart attacks and had

reported that the IRS collection actions were terrifying to him.

In response, the IRS revenue officer typed up a summons ordering the taxpayer

to appear before him for face-to-face interrogation and then personally drove it to

the taxpayer's house and served it on his son. My client called me, clearly

shaken.

I called the revenue officer and asked him to provide me with any questions to

which he wanted answers, but he told me that what he wanted - and intended to

get - was a personal confrontation between himself and my client. I asked him

why, and he was simply silent.

I reminded the revenue officer that my client was ill with heart disease and

cancer and should not be subjected to the stress of face-to-face interrogation. He

responded then - but only with derisive laughter.

I contacted his supervisor, explained the situation and asked her to stop the

harassment, but she refused, saying that she "stood behind her revenue officers".

I asked her to simply assign the case to a different revenue officer, but she

refused that too.

Then I called the Chief of Collections and asked him to stop the harassment, but

he too declined.

Next, I asked the Problems Resolutions Office to issue a Taxpayer Assistance

Order to stop the harassment. In support of that request, I faxed them a copy of

a letter from the taxpayer's physician, which stated that the taxpayer was

"severely impaired and unable to ... withstand stressful situations because of his

severe heart failure and cancer....." The Problems Resolutions Office declined

to issue the TAO because there was "no significant hardship", although they

acknowledged that the officer was known to be "mean".

The IRS continued its collection actions. On October 28, 1995, my client

received a notice of intent to levy. Ashen faced and visibly distressed, he hand

delivered the letter to me that same day. Two days later, he died from heart

failure.

The taxpayer was 61 years old. He is survived by his wife and their four

children.

I provided this information to the Treasury Department and asked them to

investigate. The Regional Inspector General for Investigations/Southern Region

concluded that these "issues are best addressed by the agency involved," and sent

the file back to the IRS. The IRS then sent me a letter which claimed to report

the results of an investigation.

The IRS's investigation consisted entirely of accepting everything said by the

revenue officer whose behavior was in question. Not surprisingly, the IRS came

to the conclusion that the revenue officer's actions were "taken in accordance

with agency procedures."

Maybe no one can be certain that the revenue officer's actions were the

proximate cause of this taxpayer's death. But it is absolutely clear to me that an

IRS revenue officer demonstrated a callous disregard for a taxpayer's life, and

that his behavior was condoned by his supervisor, by the Chief of Collections, by

the Problems Resolutions office and by the Treasury Department.

IRS abuse is not a series of isolated events. It is my experience that IRS culture

increasingly permits and even encourages taxpayer abuse. Many IRS collection

personnel regularly ignore written IRS rules and procedures, jumping from one

excuse to another while they continue to harass taxpayers.

I know of one IRS employee whose in-service instructor asked the class how the

IRS enforces tax compliance. After a moment of silence in the classroom, he

wrote the word "FEAR" in letters reaching from the top of the blackboard to the

bottom.

I hope these hearings and the reform bills will help correct the IRS's drift into

becoming our national bully.

But while these reforms are welcomed, they are a temporary fix. The only long

term solution is replacement of the income tax system as a method of financing

the government.

Even if Congress were able to stop all of the abuse and to spend all the money

needed to replace the IRS's Model T computer system, we would still have a

system that requires the deep intrusion of the Federal Government into the daily

life of many - if not most - Americans, and one that burdens us every year with

the need to spend time and money filling out exquisitely complex forms.

No flat tax can solve this problem. I have never had an audit where application

of the correct brackets was an issue. The problem is that income is a

complicated concept. If you tax income, you have to define it, and all simplistic

definitions will fail. Any tax on income, whether flat or graduated, will require a

complex tax code and hence a huge federal bureaucracy.

On behalf of my clients, I thank you for refusing to tolerate IRS abuse.

I know you are busy. Thank you for your time.