Illegal Tax Protesters Threaten System

GAO reviewed the efforts of the Internal Revenue Service (IRS) to detect and deter illegal tax protesters. The review was based primarily on a random sample of cases identified as protesters in 1978 and 1979 by three IRS districts. IRS defines an illegal tax protester as a person who advocates or participates in a scheme with a broad exposure that results in the illegal underpayment of taxes. To counter this threat to the Nation's voluntary compliance tax system, IRS has taken some important actions, including the establishment of a nationwide program to detect and deter protesters and a related program to identify persons who file false form W-4's to evade taxes.

IRS has had some important successes, including convictions of major illegal protest leaders, but it needs to improve its efforts to identify illegal tax protesters and to bring them into compliance in a more timely and effective manner. IRS also needs to develop an overall strategy and better target its resources to maximize their deterrent effect on the protester problem. The exact extent and makeup of the illegal tax protest movement are unknown; illegal tax protesters have developed various complex and sophisticated schemes to evade or reduce their taxes. The largest number of cases in the review sample involved protesters who were nonprofessional wage earners, had incomes between $15,000 and $50,000, and on the average owed about $3,700 in taxes. The Illegal Tax Protester Program was designed primarily to identify and control protester returns and documents. The Questionable Form W-4 Program was designed to identify illegal tax protesters and others who file false income withholding certificates to evade taxes. IRS procedures for detecting illegal tax protesters are limited primarily to identifying those who choose to file a protest return or notify IRS of their protest; other protesters elude detection. IRS has not been as timely and effective as it could be in bringing illegal tax protesters into compliance. Additional opportunities exist for IRS to use the public media in dealing with the problem.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: Johnny C. Finch Team: General Accounting Office: General Government Division Phone: (202) 512-7824