Skip to main content

Challenged by tribes, the IRS pays attention

  • Author:
  • Updated:

Faced with a gargantuan bureaucracy like the Internal Revenue Service,
Indian people understandably might be shy about asking for their due,
especially when the response comes attached to words like "fraud" and
"audit." But the persistence of some tribal leaders and their friends
within the IRS is helping some of the poorest families on the reservation
get some much-needed extra income.

National Taxpayer Advocate Nina Olson made a splash in The New York Times
when she charged in her annual report that the IRS Criminal Investigations
unit was causing unfair and possibly illegal delays in refunds for some of
the country's poorest families. A computer in a Questionable Refunds
Program was freezing current and future payments to these taxpayers without
giving them notice. Furthermore, she ran a sample study on complaints
received by her office and found that a large majority of the claims were
totally legitimate.

This enforcement hit hardest on the Earned Income Tax Credit, the refund
that is the descendant of the "negative income tax" proposed by the late
Daniel Patrick Moynihan during the Nixon administration. These payments
were intended to replace a welfare system that Moynihan, later the
distinguished Democratic U.S. senator from New York, argued was destroying
the families it meant to help.

The IRS enforcers, it appeared, were sabotaging this program for the poor
while paying far less attention to large corporations and the wealthiest
taxpayers. Because of a glitch in their computer program, furthermore,
reservation families might have been taking the brunt of the crackdown.

This story isn't the sort that raises trust in the government. A program
widely promoted as a boon to those in deepest poverty suddenly provoked
some fearsome far-away people into muttering scary charges. Although only a
miniscule number of fraud cases actually resulted, the talk alone is enough
to scare off a population already conditioned to flee from federal agents.
But there is another side to the story -- not widely reported -- that shows
that tribes now have the savvy and influence to protest when the
bureaucracy goes awry and possibly even to get things straightened out.

Scroll to Continue

Read More

According to one IRS insider, complaints from tribal governments were the
prod that helped expose the refund freeze. Christie Jacobs, director of the
IRS Office of Indian Tribal Governments, told Indian Country Today that she
began hearing about the problem from tribal leaders in the West. (She can't
say which tribes because of confidentiality rules, but you know who you
are.) She said that because the complaints seemed to show a flaw in the
system, she relayed them to Olson. The volume of the complaints impressed
Olson. In her annual report issued Jan. 10, she called the refund freeze
the No. 2 problem for the year.

It remains to be seen how the IRS, and Congress, will handle the problem.
Olson proposed a number of sensible changes, including taking the refund
scrutiny out of the hands of criminal investigators and putting it with
civil examiners. At the very least, she said, taxpayers should be notified
when their refunds are frozen; it's not only fair play, she said, it's also
legal due process to give them a chance to reply to any charges. Congress
might wonder about the sense of proportion that devotes the largest
enforcement effort to the smallest taxpayers, especially since this warped
priority appears to originate in a congressional directive.

But Indian country should note with gratitude and some pride that the push
to end these abuses came from within the IRS itself, in response to
contacts from tribal leaders. The OITG has proved itself a highly effective
liaison with the tribes: it gives invaluable help with the vast array of
regulations surrounding their economies and relays their concerns to
Washington. In the present case, Jacobs caught the ear of the Taxpayer
Advocate, also a unit of the IRS. The result was a careful study and an
impressive presentation, soon to be followed, one hopes, by sensible

It goes to show how government works these days, and probably always has.
Different parts of the bureaucracy have different jobs, different interests
and different constituencies. The CI unit hurt a lot of people unfairly,
but it was doing what it thought was its duty. Fortunately, other parts of
the IRS saw the damage it was inflicting and brought the problem into the

The trick is to make sure that every legitimate interest has at least one
place to go for help with its problems. The National Taxpayer Advocate
service is showing its worth for individual taxpayers. (Anyone with a tax
problem can call toll-free (877) 777-4778.) The Jack Abramoff hysteria
aside, tribes have just as much right as anyone else to seek redress of
their grievances. So a word of appreciation for the National Taxpayer
Advocate and the OITG, for standing up for Indian country within the IRS.

Now, if only Indians had an advocate at the BIA...