April 4, 2002

April 4, 2002 | Commentary on

More Snooping from the IRS?

With April 15 just around the corner, anti-IRS sentiment is riding high among taxpayers stuck trying to decipher dozens of incomprehensible tax forms. But, some may ask, does the IRS deserve all this animosity?

Not always. In fact, politicians in Washington deserve much of the blame. They're the ones, after all, who enacted the complicated, loophole-ridden tax laws that the IRS must enforce.

But every so often, the agency does something to justify its wretched reputation. A few years ago, for instance, it was rightfully condemned for launching "lifestyle audits" that gave tax collectors the right to rummage through people's personal possessions to see if they appeared to enjoy a lifestyle above the income reported on their tax returns. The IRS was forced to withdraw this outrageous assault on privacy after numerous complaints.

Unfortunately, the IRS hasn't learned. It is now demanding to examine credit-card records from non-U.S. banks to see how many Americans have foreign accounts. (Its estimate: between 1 million and 2 million.) This despite the fact that the agency admits such "offshore" accounts are legal -- and that such a fishing expedition essentially presumes Americans with these accounts are guilty until proven innocent.

Contrary to what the IRS seems to think, there are perfectly legitimate reasons for an American to maintain an account in a foreign bank. It makes sense, for example, for those who are involved in international business to use such an account. Others like the fact that foreign banks may have lower annual fees and interest charges.

Regardless, the Bill of Rights was created to protect certain freedoms, and the Fourth Amendment was included to ensure that government agents couldn't invade our privacy unless a court was presented enough evidence to justify a warrant.

The IRS is running roughshod over this vital civil-liberties safeguard. Bureaucrats apparently don't want to go to the trouble of actually providing evidence that certain individuals are hiding money from the taxman. Their mindset seems to be that it's OK to violate the rights of thousands of innocent people if they can catch just one person under-reporting income.

By the agency's logic, we should allow police to rummage through our homes without any evidence to search for building-code violations. We should give federal agents free rein to peruse our checking accounts to see if we've made cash payments to a plumber or house painter. And we should let the FBI tap our phones to see if we're participating in an office basketball pool -- especially if the winner didn't report the winnings on his tax return.

And to add insult to injury, if the IRS decides that any of us are guilty of a particular offense, it gets to act as judge and jury. Taxpayers are presumed guilty until proven innocent -- which means that murderers have more rights than tax evaders.

The IRS should not act as a Peeping Tom. Just because someone holds a credit card issued by a Luxembourg bank doesn't mean some bureaucrat has the right to pry into his or her private affairs.
The IRS proposal also undermines national sovereignty. As a general rule, the U.S. government shouldn't be demanding that foreign banks violate privacy laws in their home countries. And when we do throw our weight around, it should be for something vital, such as securing international cooperation in the war on terrorism.

And let's not forget: Turnabout is fair play. If we let the IRS impose U.S. tax laws on foreign banks, what's to stop foreign tax collectors from seeking to impose their laws on U.S. banks?

Indeed, the European Union already is demanding that our government weaken U.S. privacy laws so that welfare states such as France and Germany can tax income earned in the United States. The EU's "Savings Tax Directive" would undermine America's competitive advantage in the global economy, but will we have the credibility to resist this tax cartel if our government also is guilty of trying to impose our laws outside our borders?

The IRS is trying to justify its proposal by arguing that it will catch a few tax evaders, and it almost surely will do that. But is it worth ignoring the Constitution and threatening America's fiscal sovereignty?

Daniel Mitchell is the McKenna senior fellow in political economy at The Heritage Foundation, a Washington-based public policy research institute.

About the Author

Daniel J. Mitchell, Ph.D. McKenna Senior Fellow in Political Economy

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