Taxpayers testify to IRS nightmares

WASHINGTON - A series of harried taxpayers, accountants, lawyers and others portrayed the Internal Revenue Service yesterday as an uncaring, arrogant agency with workers who will go so far as to fabricate cases to collect taxes that aren't due.

A New York priest, a Delaware contractor and a California bank worker were among those who related Kafkaesque experiences in which tax agency personnel and computers pursued them for years, ignoring evidence of innocence and even actual payments, seizing their assets and generally wreaking havoc in their lives.

"The IRS is judge, jury and executioner - answerable to none," said Katherine Lund Hicks of Apple Valley, Calif.

Hicks testified that she was hit with $7,000 in back taxes stemming from a divorce, saw the amount balloon to $16,000 while the IRS sent notices only to her ex-spouse, thought she had settled with the agency for $3,500, only to have her payments returned one moment and her property and that of her new husband seized the next.

The testimony came at the second of three days of hearings on the IRS by the Senate Finance Committee, which is looking into allegations of abuse and mismanagement by the agency.

Deputy Treasury Secretary Lawrence Summers said his department, the IRS's parent, takes such cases very seriously. "That's why we've been working aggressively over the last several years to correct these long-standing problems. We're working to transform the culture of the IRS" and to modernize its information technology, he said.

The politically charged hearings have raised Democrats' suspicions that Republicans are bashing the IRS as both a campaign fund-raising device and as part of an effort to undermine the current tax code so it can be replaced with a flat tax or some kind of national sales tax.

Committee Chair William Roth Jr., (R-Del.), denied partisan intent, saying his panel has uncovered serious problems that need attention.

Tom Savage, a 69-year-old contractor from Lewes, Del., told the panel he was working on a prison construction project for the state of Delaware in 1993, when it turned out that a subcontractor had not paid his payroll taxes. When the IRS found it could not collect from the subcontractor, it turned its attention to Savage's company.

After failing to hold Savage personally liable, he said an IRS employee fabricated a partnership between Savage's firm and the subcontractor, had the agency issue an employer identification number for this entity, and assessed Savage for the subcontractor's liability.

"He created a company that did not exist," Savage said.

Savage appealed, but while he was waiting for a hearing, the IRS seized a $145,000 payment from the state to his company. He sued, but the IRS made it clear it would fight, and Savage, unable to pay his bills, settled, paying $50,000.

At yesterday's hearing, the committee produced an internal memo from the Justice Department to the IRS district counsel that said in effect that the agency had no case against Savage.

Monsignor Lawrence Ballweg told of having the IRS threaten to seize his bank account and car when, as it turned out, he did not owe any taxes.

As trustee for a charitable trust set up by his mother's will, Ballweg filed the trust's 1995 tax return. Last year, while in Florida, he said he got a notice that he owed $18,000. He called the IRS in Atlanta, saying his records were in New York and asking for a copy of the return. The agency refused, but told him to fill out a form and send a check for $14 to obtain a copy.

Ballweg did so but the agency said his name, Lawrence Ballweg, was not the name on the return. The name on the return was "Lawrence F. Ballweg Trustee U/W Elizabeth D. Ballweg."

He said he wrote a long letter explaining the situation and again requesting a copy of the file. "Instead I received a 'Final Notice' ... in which I was told that the IRS intended to take steps to take my bank account, auto or other property," he said.

Ballweg heard of the Finance Committee investigation and wrote a letter. The results were dramatic. CNN put his case on television, "and the next day I received a call from an IRS taxpayer advocate, received a copy of my file and was advised how to make the necessary adjustments."

In March, Ballweg said, the IRS formally informed him he owed nothing but "for eight months I lived in constant worry, if not fear, that the trust that my dear mother had established to help the poor would be penalized because of what I can only call the unprofessional, callous and indifferent behavior of IRS employees who are devious enough never to sign their names to any notices that they send out."

After the hearing acting IRS Commissioner Michael Dolan issued a "sincere apology to these taxpayers for any mistakes we have made and for any anguish we have caused.

"No one should have to endure what these citizens describe," he said.

IRS and Treasury officials said they do not believe such cases are typical or common and Summers pointed to the work of a special commission on restructuring the IRS, which did not find widespread abuse.

09-25-97