WASHINGTON -- When Oklahoma City businessman Tom Stanley Martin violently attacked two federal tax collectors last summer, doused their pickup truck in gasoline and tried to set them both on fire, the criminal case against him seemed open and shut.

But that was before months of Internal Revenue Service bashing in Congress, including jaw-dropping hearings on IRS abuse. Sensing that the political climate had changed in his favor, the Oklahoma wrecker-shop owner pleaded not guilty, then blamed the IRS for his fit of rage.

With lawmakers set tomorrow to pass a sweeping bill aimed at curbing zeal by the tax collectors, some observers fear the Martin case could be the wave of the future: tax deadbeats emboldened to avoid and abuse a toothless IRS.

"People who deal directly with the public -- customer service agents, revenue agents, auditors -- all detect a lot more hostility from people. The idea is, it's OK to be hostile with the IRS," said Robert Tobias, president of the National Treasury Employees Union. "These folks are paying a very high price for the hearings."

Lawmakers know the bill would make it harder to collect the money the government is expecting. Most of the cost of the $13 billion overhaul proposal would be lost revenue -- much of which bill supporters believe the government isn't entitled to anyway. Even without the law, the government is collecting only about 89 cents of every tax dollar it considers due.

The bill "will make collecting taxes and enforcing tax law more difficult. We just don't know how much more difficult," predicted Washington tax attorney Sheldon S. Cohen, a former IRS commissioner.

"I can guarantee that three or five years down the road, some congressman is going to say to the IRS commissioner, 'In 1997, you collected this much in taxes with this much money from Congress. This year, you got this much more [budget] money from us, and you collected less [in taxes]. Why?' "

But such concerns won't prevent the Senate this week from completing work on the most sweeping overhaul of the IRS in decades. Nor will it stop President Clinton from signing the measure into law.

The bill's architects say they are confident they have struck a difficult balance between protecting innocent taxpayers from an intrusive tax agency and ensuring that the agency can collect the money due.

"This is the most fundamental change at the IRS in 50 years," boasted Rep. Benjamin L. Cardin, the Baltimore Democrat who helped write the legislation. "Believe me, there's enough power left in the IRS to go after whoever's trying to cheat, steal and stretch everything out as far as possible."

But some tax professionals -- and a few lawmakers -- are not so sure. "I'm sure we'll have to review this [law] in five years," said Democratic Rep. Robert T. Matsui of California, like Cardin a Ways and Means Committee member, but also one of only eight House members to vote against the bill June 25. "Members will say the service is not doing its job. Remember, the money lost will put an additional burden on honest taxpayers."

'More work for the IRS'

No doubt taxes will go unpaid because of the IRS bill. The question is how much of that money is legitimately the government's due, and how much would have been extracted unfairly.

A bill that started out last year as an overhaul of the tax agency's management structure has grown into a broad set of protections for taxpayers. It establishes an independent oversight board for the IRS, provides the IRS commissioner new power to hire and fire employees, bolsters the strength of the Treasury Department's taxpayer advocate, and requires the firing of overzealous or unscrupulous agents.

Under the bill, the burden of proof in tax court would shift from the taxpayer to the tax collector. Innocent spouses would be protected from tax burdens accumulated, without their knowledge, by their estranged husbands or wives. And taxpayers trying to comply with the law would receive significant relief from penalties and interest payments.

Predicting the impact

Some IRS agents express support for many of the protections. "There are going to be a lot of people filing [for protection] under these provisions, but they probably deserve it," said David Hayes, a revenue agent in the Oklahoma City office of the IRS.

Still, some tax experts worry about the impact of the changes.

Cohen, who headed the agency through much of the 1960s, pointed to a provision that forbids the IRS from levying penalties or interest until after the first tax delinquency notice is mailed out. That might sound straightforward enough, but Cohen suggested this possibility:

A taxpayer finds he owes $3,000. Instead of paying up, he juggles the numbers to lower the cost, hoping the miscalculation goes unnoticed. It could take the IRS eight months to load his paper tax return into the computer, and another four months to notice the mistake and mail out a bill. That would give the taxpayer time to gather the money and pay no penalty for his delinquency.

Or consider the innocent spouse provision, a measure championed by Republican Rep. Robert L. Ehrlich Jr. of Maryland after Gretchen Albaugh of Parkville was saddled with a $29,000 tax debt amassed by her ex-husband.

In most cases, that protection would be fair, Cohen said, but what if a wife lived an opulent lifestyle? Even if she did not know her husband was a tax cheat, shouldn't she have to pay the price for that high living? And in a climate of contempt for the IRS, will some taxpayers, like the Oklahoma wrecker-shop owner, feel they can get away with it?

Martin was convicted and sentenced to nearly four years in prison for his assault on the agents who attempted to seize his tow truck -- but not before his lawyers tried to blame the IRS for driving their client almost insane.

The gap between what the federal government thinks it's owed and what the IRS collects is about $195 billion a year, or 11.5 percent of the $1.7 trillion federal budget for next year, according to IRS Commissioner Charles Rossotti. That's double the gap in 1992.

It's too early to tell whether the IRS bill will significantly widen that gap, said Michael E. Mares, chief of the tax committee for the American Institute of Certified Public Accountants. But he said he knows of cases where taxpayers are refusing to pay, hoping the new protections will shield them.

If the gap widens, Congress will no doubt weigh in with another IRS "reform" bill, this time giving the IRS sharper teeth to go after tax cheats, experts predicted.

"Congress has always swung back and forth between wanting the IRS to be more aggressive and then wanting it to back off. They need to strike a balance," Mares said. "I am concerned that the balance has not yet been appropriately struck."

Pub Date: 7/06/98