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Thursday, October 30, 2003 · Last updated 6:33 a.m. PT

IRS aims to stop increase in tax evasion

By MARY DALRYMPLE
AP TAX WRITER

WASHINGTON -- The Internal Revenue Service has been waging a high-profile attack on corporate tax evaders, but the agency's new chief warns that midlevel and low-income tax cheaters had better watch out too.

"I think that we have to address this vigorously," IRS Commissioner Mark Everson said in an interview with The Associated Press.

Everson, who is six months into a five-year term, said he wants to make enforcement just as important as customer service, the agency's main focus for the past five years.

The changed emphasis comes as a survey conducted for the IRS Oversight Board shows the number of Americans who believe it's OK to cheat "a little here and there" on their taxes increased from 8 percent in 1999 to 12 percent in 2003.

The same survey showed Americans generally agree with Everson. About 95 percent those surveyed in July by RoperASW said it's "very important" or "somewhat important" for the IRS to make sure corporations and high-income taxpayers pay what they owe.

This year, the survey detected an increase, to 87 percent, in the number of Americans who believe it's just as important for the IRS to make sure that low-income taxpayers pay their fair share. The number who believe that's "very important" jumped 7 percent from last year.

At the top of the income scale, Everson said tax shelter promoters peddle potentially abusive products not just in the United States, but increasingly abroad, both to U.S. subsidiaries and foreign companies, he said.

Among the lowest income brackets, Everson sees challenges in educating new immigrants to a system of taxation that requires people to step forward and voluntarily assess and pay their taxes.

In the middle, he points to changing attitudes among ordinary Americans.

The board describes the evidence of changing attitudes among taxpayers as a "softening" of Americans' commitments to pay what they owe and said the trend merits a watchful eye. Everson said the trend must be stopped before it spreads further.

"People are willing to pay their taxes," he said. "They recognize that important obligation, but they don't want to feel like they're paying when someone else doesn't have to."

Those who believe it's acceptable to cheat "as much as possible" remains small. But it also increased. Last year, 3 percent of those surveyed agreed with the statement. This year, it was 5 percent.

Overall, the number of Americans who believe it's absolutely not acceptable at all to cheat on taxes has declined. Last year, 86 percent of Americans polled said it is not acceptable to cheat while paying income taxes. This year, the number dropped to 81 percent.

Doug Shackelford, professor of taxation at the University of North Carolina at Chapel Hill, said taxpayers may be absorbing the examples of corporate tax evasion and starting to wonder whether they should pay their fair share.

The solution, Everson said, is more visible enforcement. Although most people report that personal integrity is the biggest reason they pay their taxes, the fear of being audited has risen sharply.

Actions already taken against those who promote and use abusive tax shelters appear to be having an effect. Everson said the number of shelter transactions registered with the IRS has leveled off.

Congress and the Bush administration have exerted pressure to stop companies from relocating a shell headquarters in a tax haven such as Bermuda to cut their U.S. tax liabilities by millions of dollars.

"It's tricky because some are intentionally hiding things behind the curtain," Everson said. "Understanding whether this problem behind the curtain is getting smaller or staying the same size is undoubtedly difficult."

Shackelford said the dual missions of the IRS - enforcement and service - put the agency in a tough spot.

"I sometimes think we have way too high of expectations for the IRS," he said.

"They're supposed to be sort of like the neighborhood cop on the block. They're supposed to get the criminals, and they're supposed to help little old ladies get across the street, and they're supposed to have answers to all your questions when you pick up the phone and call them, and that's probably not realistic."



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