choosing his words, and-as a result-a bit more likely to be correct in his final decision. This is important, because the Service needs to be "right the first time" when it makes a decision. If, for example, the Service makes a mistake in a ruling with respect to Taxpayer A, thereby saving him a handsome amount in taxes, the word will gradually move along the grapevine to Taxpayers B, and C, and D, all of whom will demand similar treatment. Meanwhile, if these rulings are being issued in secret, as is generally the case now, public spirited persons in law schools, private practice, and elsewhere, will have no opportunity to comment, because they have no way to know about the existence of the ruling. In the end, the Service will find itself so "locked in" that it will be unable to rectify its mistake, save by act of Congress. This is precisely what happened, for example, in the case of the so-called "production payment rulings", which related to complicated tax minimization transactions by mineral producers. None of these rulings was ever published, so it was difficult to subject them to public scrutiny and comment. Yet by the time that Congress reversed them in 1969, those rulings were resulting in revenue losses of approximately $20 million yer year. Public scrutiny might have prevented the Service from issuing that mistaken set of rulings in the first place, and public comment would certainly have aided both the Service and Congress to correct those mistakes more quickly. 3. Protection against improper political pressures.-Like any federal agency, the Internal Revenue Service is subject to political pressures of various sorts. Some of these are legitimate and some are not. For example, I regard it as fully legitimate for a member of Congress to write to the IRS in response to a constituent inquiry. This is part of the ombudsman role that Congress has assumed as the federal bureaucracy has grown. On the other hand, I regard as illegitimate the sort of political pressure that apparently led to the publication of Revenue Ruling 72-355, 1972–2 Cum. Bull. 532-the ruling that permitted major political donors in the 1972 campaign to avoid gift tax by breaking up their gifts into $3,000 units. And I note that the District Court for the District of Columbia recently found that illegitimate political pressures influenced the denial by the IRS of tax exemption to the Center for Corporate Responsibility." The problem for the Internal Revenue Service, as for any federal agency, is to separate the illegitimate pressures from the legitimate. In dealing with this problem, the Service seems to have missed a very important point: public scrutiny and public disclosure are among an agency's best defenses against improper political pressures. If an agency makes a habit of operating in a fishbowl, it is less likely that improper proposals will even be made because the proponent will not want his request to become a matter of public record. And if the agency spreads its decisions promptly on the public record, thereby inviting public comment and scrutiny, it is far less likely that political favors can be conferred without adverse public comment. In this way, the very fact of public disclosure can strengthen a bureaucrat's hand when he is forced to deal with improper political pressures. The full story about recent political pressures on the Internal Revenue Service has yet to be written. Among other things, the Joint Committee on Internal Revenue Taxation has yet to complete its examination of the files of the Service's now disbanded Special Service Staff. And although the Joint Committee has absolved the IRS from blame in its handling of the famous "enemies list," the verdict on the "friends list" is not yet in. Furthermore, unless this Subcommittee, or some other branch of Congress, investigates the matter, the full story behind Revenue Ruling 72-355 and the Center for Corporate Responsibility ruling seems unlikely to come out. When and if the facts in these areas become known, I think that we will see more clearly the need to encourage the IRS to develop better defenses against political pressure. Public scrutiny and public disclosure are among the more important of those defenses. Thank you. Senator KENNEDY. Thank you for a helpful and useful statement to end our hearing. What would be your assessment, as someone who spends a great deal of time in observing the IRS, as to how they with Center or Corporate Responsibility, v. Schultz, 73-2 U.S.T.C. par. 9517-8 (1973). stood political pressures in recent times? What kind of rating would you give them? Mr. FIELD. In all honesty I can only say to you, Senator, that all of the facts are not in. It seems to me that if I had to make a comment now, I would say that in the area of individual audits it appears from what has been published in the press and in congressional hearings that the Service withstood pressure very well. Johnnie Walters' testimony, for example, is that he took the second enemies list and put it in his safe and showed it to no one. In the area of rulings, however, it seems to me that the picture is much less favorable and it is in that area that the facts have yet to come to public view. So as a consequence the only proper answer I can give you is that the Service's record seems to be a mixed bag. If we are dealing with the rules area, then it is fairly clear that the Service yielded to pressure in at least two important instances that are now matters of public record and that is the $3,000 gift tax rule and the ruling on the Center for Corporate Responsibility. But if we are dealing with individual income tax returns, to this point it appears that the Service successfully resisted the pressures brought to bear on them. Senator KENNEDY. Mr. and Mrs. Long, is there any comment that you would like to make? Mr. LONG. We certainly appreciate the opportunity of representing unofficially a lot of little taxpayers. As we say, we feel if a person makes a reasonable effort to make their tax return correct, and I am not saying they always do, but they should not have to worry or dread an audit of the Internal Revenue Service. But at the present time I think 99 percent of the people in the United States that have had audits do not feel that way. They feel that they have to dread an audit. And we feel that there is something wrong somewhere. And we think that the basic facts that are brought out in the open will let Congress and everybody else know that IRS should make some basic changes in handling people that make a reasonable effort to have their tax returns correct. [The following list of outstanding Freedom of Information Act requests to the IRS was subsequently submitted by Mrs. Long for the record:] OUTSTANDING FREEDOM OF INFORMATION REQUESTS Date of request Further letters 1 Nov. 5, 1972... Dec. 16, 1972. Sept. 21, 1973. Brief description of records requested Dec. 5, 1972; (Dec. 15, 1972); Feb. 18, 1974; Our Nov. 5, 1972, request was to see noncurrent, (Mar. 28, 1974); Apr. 25, 1974. (Jan. 9, 1973); Jan. 14, 1973; (Feb. 8, 1973); pt. I materials of the Internal Revenue Manual from the historical file in the national office; however when we sought to see them in February 1974, materials were withheld (pending review) we have appealed to the Commissioner. Our Dec. 16, request was to see Internal Revenue Manual materials distributed to personnel handling the district conference function-IRS says it has not completed review of some of this material and we are still awaiting results of this review. Dec. 17, 1973; (Jan. 21, 1974); Jan. 31, 1974; We asked to see and purchase printed copies of IRS (Feb. 27, 1974); Apr. 25, 1974. Documents 6183, 6185, 6194, 6195, 6197, 6199; IRS has not directly responded to our request to know if stock of these documents is on hand. Xerox copies furnished by IRS in response to our Aug. 28, request for NO-CP:A-231, -233, -234 for fiscal 1973 not complete as we noted in our Sept. 26, letter-want those not furnished. (Sept. 21, 1973); Sept. 26, 1973; Dec. 17, Request for fiscal 1973 tables from audit quarterly 1973. Aug. 28, 1973..------ (Sept. 18, 1973); Sept. 26, 1973. Aug. 29, 1973................. statistical report. Sept. 21, 1973------- (Nov. 13, 1973); Nov. 26, 1973; Jan. 13, 1974. Document 6007-Taxpayer Assistance; IRS denial Dec. 1, 1973. Do Dec. 5, 1973. Do... Dec. 29, 1973. Do Do Do.. Do... Jan. 2, 1974. Jan. 20, 1974.. Jan. 21, 1974. Jan. 20, 1974 (Nov. 13, 1973); Nov. 26, 1973. (Nov. 13, 1973); Nov. 26, 1973; Jan. 14, Dec. 18, 1973. _do_. Dec. 18, 1973; Dec. 29, 1973, Mar. 18, 1974. (Nov. 16, 1973); Nov. 26, 1973; Jan. 14, Jan. 1, 1974; (Jan. 30, 1974); Feb. 6, 1974; Jan. 2, 1974. do. NO-CP:A-326, -327, -358, -360. NO-ACTS:C-100-manpower utilization report. Jan. 2, 1974; (Jan. 28, 1974); Apr. 25, 1974. Form 2040 files-field distribution schedules. NO-CP:A-127-170 audit technical time reports. Fiscal 1974 collection statistics. NO-CP:A-137 "quarterly report on referrals and Library card catalogs in IRS Seattle office. Current tables of contents to Internal Revenue ADP Handbook 2 materials. Stock on hand of MT 4(13)00-1 (7-10-73). (Feb. 26, 1974); Mar. 17, 1974; Apr. 25, 1974. Reporting forms of cases docketed in USTC for (Feb. 28, 1974); Mar. 23, 1974 Feb. 1974 Feb. 16, 1974. (Apr. 4, 1974); Apr. 25, 1974.. period ending December 1973 covering the Form 7000, closed control card files (FOI requests). Date or request Mar. 23, 1974. Do.. Do. Apr. 11, 1974. Apr. 25, 1974. Do.. Do. Do. OUTSTANDING FREEDOM OF INFORMATION REQUESTS-Continued Further letters 1 (Apr. 8, 1974); Apr. 25, 1974. (Apr. 4, 1974); Apr. 25, 1974. Brief description of records requested ADP Handbook 329-729. Obsolete and superseded IRM 4100, 4232, 4234, Pt. V of Internal Revenue Manual-inspect Seattle. Numerical history files of current forms 6000-6999. Do 1 A date in parenthesis signifies an IRS response. Mr. CAPLIN. I think these hearings have been helpful and I am pleased that you are going to give the Internal Revenue Service an opportunity not only to be responsive but to respond. I think that they can eliminate much of what has been discussed today. It is very difficult to evaluate them because of the obstacles on getting information about the IRS. On the point you raised with Mr. Field on the question of political pressures and the like, it is very difficult thereto to make any sort of sensible judgment unless you are able to discuss this with the officials involved. I think the impression is that the attempts at political pressure have been greater than before. And I think that this relates very heavily to personnel within the Internal Revenue Service, to the very heavy turnover of assistant commissioners, and the actual placement of particular officials within the Revenue Service or the Treasury Department. This has created concern among those who are very interested in good government. And this is a legitimate area of inquiry as well. Senator KENNEDY. Well I think in these concluding comments that Mr. Field has pointed out the importance of compliance with the Freedom of Information Act in preserving the integrity of the Service from improper influence; Mr. and Mrs. Long have pointed out how important the act is just in terms of knowledge and understanding for the American people and small taxpayers, to give them the opportunity to know what they owe and why they owe it, and what they have to pay; and I think Mr. Caplin has pointed out a number of extremely important and useful things that could be practically applied to insure the integrity of the Service. I know he has always been committed to that. I would like to mention to the panel that we have amendments to the Freedom of Information Act, S. 2543, that have been reported out of this subcommittee and are now before the full Judiciary Committee. S. 2543 doesn't expand greatly the areas which would be covered, but it does provide some meaningful teeth so that the information which will be of such importance and vital significance to the American public, and will also really serve the basic interest of the Service, will be made available. And I am very hopeful that legislation can move forward and we can enact it in this session. The House has passed similar legislation (H.R. 12471) overwhelmingly and I am hopeful we can move that legislation. Senator Thurmond, I know you have followed this morning's hearing with a great deal of interest. Senator THURMOND. Mr. Chairman, I want to commend Mr. Caplin, Mr. and Mrs. Long, and Mr. Field for coming here today and presenting their views and I am sure they have made a fine contribution to the subject under discussion. Senator KENNEDY. The subcommittee will stand in recess. [Whereupon at 12:45 p.m. the subcommittee recessed subject to the call of the Chair.] |