IRS Propaganda and Disinformation

The IRS fishing expedition for offshore accounts with the Swiss bank UBS is an example of a long standing IRS method of discouraging taxpayers from doing something without getting any kind of court decision or getting new legislation to support their efforts. I first noticed this disinformation procedure back in the late seventies when I was Editor of the popular Tax Angles newsletter. It hasn’t changed much in the last 30 years.

First, they identify some area of assumed non-compliance with their interpretation of the tax rules. Then they issue a press release announcing that they are going to study the problem. This will cause at least half the taxpayers who are considering this type of transaction to back off.

The next step is a press release announcing that they are going to investigate and audit taxpayers who are may be “guilty” of whatever the IRS is trying to discourage. This will often scare off about half the remaining taxpayers who have been considering use of the disputed tax avoidance device.

Then they look for a few egregious cases where taxpayers have blatantly ignored the law. This step can be described as shooting at crippled ducks. They then announce the results of successful tax collections, penalties and occasional criminal charges from these early cases. By this time less than 10% of those taxpayers who were considering use of the disputed tax device are willing to take their chances. As the IRS continues to prosecute those with the temerity to base their decisions on the law, they frequently encounter resistance from some judges who do read the law. But the cases they lose are never described in a press release. (Note: The percentages used here are not based on any measured research and are only a reflection of my observations over many years.)

Vern