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February 9, 1998
The IRS Is Hiding Its History
Joseph J. Thorndike


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Joseph J. Thorndike urges the IRS to remove the veil of secrecy that hides its history.

Joseph Thorndike is the director of Tax Analysts' Tax History Project.

This letter originally appeared in The Washington Times, Dec. 19, 1997, p. A23.

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To the Editor:

[1] The Central Intelligence Agency, according to reports that surfaced last spring, deserves its reputation for secrecy. Having destroyed key portions of its paper trail, the agency has permanently dimmed the spotlight of historical scrutiny. The revelations seem sadly in character for an organization known to cherish its secrecy above all else, including democratic accountability.

[2] When it comes to secrecy, however, the CIA may not be the worst offender. Another federal agency shares a passion for the shadows. Ducking disclosure and hiding from its past, this agency is far larger and more intrusive than the CIA. It touches the lives of millions of Americans, yet it reveals surprisingly little about itself. Another spy agency, perhaps, sporting a "black budget" and official "nonexistence"? Far from it. It's the Internal Revenue Service.

[3] In a series of well-publicized disclosures last April, word surfaced that IRS employees were snooping through Americans' personal tax returns. Outraged members of Congress crafted a quickie legislative fix, outlawing illicit browsing and promising criminal penalties for the inveterately curious. The bill was symbolically rushed through just in time for tax day. Americans, presumably, were supposed to feel relieved.

[4] What we should feel is frightened. The uproar of browsing obscured a far more serious problem plaguing the IRS: its deep-seated culture of secrecy. Hiding behind a well-intentioned law gone horribly wrong, the agency shields itself from effective public scrutiny. Ironically, this passion for secrecy helps make the IRS politically vulnerable, contributing to its popular image as an overpowerful, unaccountable federal agency.

[5] For at least 20 years, the IRS has fought successfully to cover its paper trail. The stacks of the National Archives have little to offer would-be IRS historians: some 19th century material, a smattering of records from the first years of this century, and a small sample of the agency's voluminous administrative records. A vast amount of material, however, remains cloistered within the IRS, out of reach for Americans interested in the history of this mammoth agency. And if IRS officials get their way, it will stay like that.

[6] Why should anyone care about this? Because the IRS is a very powerful agency. It has a $7.3 billion budget and employs more than 100,000 people. Its operations shape the finances of every business, every family, and every nonprofit organization in the United States. And not least, the agency's imposing enforcement powers give it a tremendous ability to frighten and demoralize ordinary citizens.

[7] So shouldn't someone keep an eye on what the IRS is doing? To some extent, journalists serve this watch-dog function. Reporters are particularly adept at probing the agency's current activities, spotlighting a variety of failures and shortfalls. But media attention is an insufficient guarantee of accountability. Focused on more immediate events, journalists can't be expected to delve deeply into the historical record. If we want to know, for instance whether the IRS has a history of political malfeasance, whether it has pursued political "enemies" at the behest of various presidents, then we must rely on the careful and sometimes plodding research of historical scholars. Recent revelations about the treatment of Holocaust victims' investments, unearthed by researchers at the National Archives, have demonstrated the important role historians can play in ensuring this sort of public accountability.

[8] When it comes to the IRS, however, historians are hamstrung. The problem is an old one, reaching back to the agency's origins but worsening dramatically after the Watergate scandal. Concerned by Nixon administration attempts to misuse the IRS for political purposes, legislators passed new strictures on the release of "taxpayer information." The new law sharply restricted distribution of such information outside the IRS, presumably making it harder for presidents to wield America's tax system as a political weapon.

[9] In the 20 years since, however, this laudable congressional effort to protect taxpayers has been twisted to shield the IRS. Indeed, it has prevented historians from effectively investigating the accusations that prompted disclosure restrictions in the first place: this Watergate-inspired law makes it impossible to determine whether the Nixon administration actually misused the IRS in pursuit of its "enemies."

[10] For a variety of reasons, the IRS has taken an overly broad view of the legislation limiting records disclosure. Interpreting the concept of "taxpayer information" in its most expansive sense, officials claim that the presence in a document of any information derived from taxpayers -- no matter how remotely -- renders the entire item secret. Cowed by penalties for improper disclosure and burdened with inadequate resources, the IRS has chosen to play it safe and release almost nothing. Not to the public, not to the press, not even to the National Archives.

[11] The result? A gaping hole in the historical record. The IRS bears much of the responsibility for this gap, but Congress must share the blame. Eager to shield taxpayers from prying eyes, legislators have allowed the IRS unprecedented latitude in deciding what to release. Under current law, the IRS makes these decisions pretty much on its own. The National Archives, which oversees the release of records for other agencies, is barred from examining IRS records to determine their historical importance. So the only agency evaluating the material is the IRS itself. The fox, it would seem, is guarding the henhouse.

[12] Recently, however, the House of Representatives approved legislation to correct this problem. As part of their effort to increase IRS accountability, legislators approved a provision granting the National Archives permission to examine IRS records. Now, finally, decisions about what to release and what to keep private will be made by disinterested guarantors of the historical record. The IRS won't be able to hide.

[13] If, that is, senators follow the lead of their House counterparts. And follow they should, for the records provision remains a small but vitally important part of the effort to craft a better tax system. The provision should find support across the political spectrum. Conservatives can embrace the increased accountability that would come with better access to IRS historical materials. Liberals, meanwhile, should view IRS openness as a means to preserve progressive taxation, since proposals to "abolish the IRS as we know it" often hinge on wholesale tax reform, often at the expense of progressivity.

[14] Finally, the IRS should itself embrace the move for greater openness. Secrecy can only worsen the agency's battered public image. Officials can take a lesson from the history books. In the 1830s, popular distrust of the Bank of the United States -- which, like the IRS, was widely derided as secretive and overpowerful -- led President Andrew Jackson to lead a sucessful campaign against the institution. Federal monetary policy took almost a century to recover. Let's hope the same thing doesn't happen to federal taxation.

Sincerely,

Joseph J. Thorndike
Tax Analysts
December 19, 1997