Tax Administration as Inquisitorial Process and the Partial Paradigm Shift in the IRS Restructuring and Reform Act of 1998

The tax code is a puzzle. Whether one views it as an engaging enigma or a ridiculous riddle, the tax code requires careful and considered attention to fit the statutory pieces together to form a sensible picture. The procedural pieces of the puzzle, however, are often neglected by taxwriters and academics. This Article address that neglect to show how a study of tax administration can add value to the study of both tax law and administrative law. In this Article, I pursue three goals. The first is to describe and justify the inquisitorial nature of tax administration. I offer the conception of tax administration as two related but distinct functions: tax determination and tax collection, both of which employ inquisitorial processes. I suggest that the justification for the use of these processes lies in the government's need for information to ensure that all taxpayers pay their proper tax and thereby encourage voluntary compliance. My second goal is to show how certain procedural provisions in the Internal Revenue Service Restructuring and Reform Act of 1998 (RRA 98) reflect Congressional ignorance of the basic inquisitorial process paradigm under which the Internal Revenue Service (the Service) has operated; the new statutes instead link to a conception of tax administration as primarily adversarial. In a fundamental way, the so-called reforms of the RRA 98 are bottomed on a paradigm in significant tension with the paradigm underlying prior law. This tension has already created a practical uncertainty in procedural matters and will likely create more as both the Service and the courts struggle to execute and interpret the new laws. Finally, if nothing else, I hope to convince the reader that discussion of tax administration should not be so much about customer service versus tax enforcement models of administration, but should instead focus on the degree to which tax administration should or should not be inquisitorial. This Article proceeds in three parts. Part II links the viability of our voluntary system of tax compliance to the Service's ability to acquire the information necessary for a proper determination of tax and explains how this ability, combined with the information asymmetry between taxpayers and government, forms the basis for an inquisitorial system of tax administration. Part III begins by comparing inquisitorial to adversarial process both descriptively and normatively. First, when the same entity acts simultaneously as both a decisionmaker and evidence-gatherer, the process can be described as inquisitorial. In contrast, adversarial process separates decisionmaking from evidence-gathering. Second, inquisitorial process puts the value of finding truth above the value of preserving individual autonomy so that violations of autonomy may be justified if they result in truth. In contrast, adversarial process compromises truth in order to preserve individual autonomy from state intrusion. Part III then explores the history of tax administration since the Civil war to demonstrate how both Congress and the courts have adopted an essentially inquisitorial system of tax determination and collection, and how courts police the Service's administration of the tax laws using inquisitorial logic. The structure of tax administration demonstrates that it has long been strongly inquisitorial. First, the IRS acts as decisionmaker and evidence-gatherer, both in making decisions about tax liabilities and in making decisions about how to collect them. Second, both Congress and courts have historically used the IRS's mission of discovering and enforcing Atrue tax liabilities to justify intrusions into citizen autonomy - such as searches for evidence without probable cause - which are not tolerated in adversary systems, such as the criminal justice system. Part IV demonstrates how, beginning with the dramatic hearings held by the Senate Finance Committee in September 1997, the history of RRA 98 evidences not merely the taxwriters' ignorance and misunderstanding of tax procedure but also of the underlying inquisitorial nature of the process. The RRA 98 taxwriters' investigation of the Service stands in sharp contrast to the Congressional oversight that resulted in the last major reorganization of the Service, in 1952. Then, the reforms were consistent with the inquisitorial paradigm. In contrast, RRA 98 attempts to insert provisions grounded in adversarial logic into a scheme heretofore grounded in inquisitorial logic: a classic case of round pegs inserted into square holes. It should, therefore, come as no surprise that the puzzle pieces do not fit well together.