Watching the Watchers: Preventing I.R.S. Abuse of the Tax System

As a result of broad outcries against the incompetence and aggressiveness of the I.R.S., Congress reined in its behavior, requiring it to focus on treating taxpayers as customers. Congress also created oversight bodies to ensure that the I.R.S. would comply with the new mandate. Though those oversight bodies face some difficulties — most notably, the unwillingness of Congress to adequately fund — them they nonetheless have proven effective at checking the I.R.S.’s misbehavior with regard to taxpayers. Congress has not, however, been as solicitous to the tax law itself.

The I.R.S. can act in ways that violate both the letter and the intent of the tax law. Where such violations either provide benefits to select groups of taxpayers without directly harming others, or where the harm to taxpayers is de minimis, nobody has the ability or incentive to challenge the I.R.S. and require it to enforce the tax law as written. Congress could control the I.R.S.’s abuse of the tax law. Using insights from the literature of administrative oversight, this Article proposes that Congress provide standing on third parties to challenge I.R.S. actions.

If properly designed and implemented, such “fire alarm oversight” would permit oversight at a significantly lower cost than creating another oversight board. At the same time, it would be more effective at finding and responding to I.R.S. abuse of the tax system and would generally preserve the I.R.S.’s administrative discretion in deciding how to enforce the tax law.