Don’t Look Now, But Irs Is Hot On Your Paper Trail Agency Tapping New Sources Of Information For Database

In an effort to catch more tax cheats, the Internal Revenue Service plans to vastly expand the secret computer database of information it keeps on virtually all Americans.

Likely to be included are credit reports, news stories, tips from informants, and real estate, motor vehicle and child support records as well as conventional government financial data.

“Any individual who has business and/or financial activities” can expect upgraded agency computers to put such information before IRS auditors promptly, according to an IRS notice filed last month.

Although agency officials concede some of the data collected will be inaccurate, taxpayers will not be allowed to review or correct it.

Only when undergoing audits - which the system is designed to target and assist - will taxpayers be able to rebut the system’s inaccuracies, explains Phyllis DePiazza, chief of the agency’s Privacy and Education Branch.

Even then, she acknowledges, taxpayers will not be permitted to see actual raw data about them that the IRS has collected.

The purpose of the system, DePiazza says, is to shrink the $100 billion annual gap between IRS estimates of federal taxes due and tax revenues actually collected. Specifically, the system will help the IRS identify patterns of tax evasion and devise better lists of audit candidates.

The taxpayer database, begun in the 1970s, is being expanded and enhanced as part of an $8 billion IRS computer and software upgrade due to be completed in 2008.

Ultimately, the IRS may obtain enough information to prepare most tax returns, ventures Coleta Brueck, the agency’s top document processing official.

“If I know what you’ve made during the year,” she reasons, “if I know what your withholding is, if I know what your spending pattern is, I should be able to generate for you a tax return so that I only come to you and tell you, ‘This is what I think you should file for the next year, and if you agree to that, then don’t bother sending me a piece of paper.”’

The new IRS system has some appeal - “Everybody would like the IRS to do a better job of enforcement,” notes Robert McIntyre, director of Citizens For Tax Justice, a Washington group formed to reduce burdens on low- and middle-income Americans.

But the prospect of an intimately detailed federal taxpayer database appalls privacy advocates. “They’re creating dossiers on everybody in America,” protests David Banisar, a policy analyst at the Electronic Privacy Information Center in Washington.

The IRS wants to “wipe out the line between the private sector and government,” claims Evan Hendricks, editor and publisher of “Privacy Times,” a biweekly Washington newsletter.

“Suppose they get a list of Cadillac buyers and decide to target everyone for audits,” worries Pete Sepp, a spokesman for the National Taxpayers Union.

Misgivings also have arisen over the agency’s promise to make the information available quickly to any auditor while limiting access to personnel with what the IRS terms “need to know.” An internal investigation revealed in 1992 that 368 IRS employees at just one of seven IRS regional offices had pried into taxpayer records without authorization.

Winning attention for concerns about data privacy isn’t easy. William Veeder, the IRS privacy advocate, is not listed in the agency’s Washington switchboard directory although he has been in office since June.

Veeder, reached through the IRS commissioner’s office, had not read his agency’s latest data-collection plan when a reporter inquired about it last week; his predecessor endorsed it, according to DePiazza.

Basically, the IRS intends to match and compare tax returns with consumer information contained in computerized databases developed by federal, state and local governments and the private sector.

Database-aided auditors will gen erally be more productive, adds Phil Brand, the IRS’s chief compliance officer. “If you have an individual claiming $20,000 in taxable income, yet what you’re seeing is real estate and autos worth way more, you know there’s got to be more income or a gift,” he says.

“You used to have to trot over to the courthouse, make a call to Motor Vehicles. Now,” says Brand, “you’ll have the records on-line.”

Just what records the IRS intends to use is a little unclear. It’s likely to include state and municipal tax, motor vehicle and real estate records, child support records, building permits and professional licensing information.

Federal records of crop subsidy payments, boat and airplane ownership, currency transactions, wages, stock transfers, foreign corporations and criminal and civil investigations also will be collected.

In addition, the IRS plans to collect information from news reports, credit bureaus and other unspecified “commercial databases.”

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