But outside of those two instances, what other possible function would there be for Presidential access can you think of any?

Mr. ALEXANDER. The tax-check matter to which you referred has been in effect for many years and it is well understood and seems appropriate.

The avoidance of embarrassment matter, I will pass over rather quickly and get to the third point again, the very nature of the office of the chief executive is that the office is entitled to tax return information as well as information from any other department or investigatory agency to perform its function. That is a matter, Mr. Chairman, on which I cannot speak because I cannot evaluate the needs and duties of that office.

TAX CHECK STATISTICS

Senator KENNEDY. What is the volume of tax checks that we are talking about?

Mr. ALEXANDER. It is very substantial. I would have to supply that for the record unless Mr. Gibb is aware of the volume, say, within the last 6 months on which we have reported to the Joint Committee. Mr. GIBB. We will submit it for the record.

Mr. ALEXANDER. We would like to get it for the record.

Senator KENNEDY. Could you give me a general ball-park figure, say, in over the last 12 or 6 months? Are we talking about 10 a month, are we talking about 100 a month, are you talking about 1,000 a year or talking about 100 a year?

Mr. GIBB. Perhaps a year.

Senator KENNEDY. You can obviously correct the record. But I am just interested for my understanding of this.

Mr. ALEXANDER. We will submit that for the record and I did want to bring out a point that I think is important here. We report at 6month intervals to the Joint Committee on Internal Revenue Taxation, having legislative oversight over our agency, about who has inquired and why, when, and how many times for tax-return information. We think this report is a sound idea and we hope that the Joint Committee will continue it.

I might say I know of no signs whatever that they are thinking of discontinuing it.

[The following data were submitted for the record:]

Senator KENNEDY. Is the procedure by which you make available these tax checks a public procedure? Who knows about it?

Mr. GIBB. It has been disclosed. It is in a public document. Mr. ALEXANDER. It is public. If it were not public, it would be very soon. I am very glad to find out it is already because it certainly should be.

Senator KENNEDY. Would you make that a part of the note you give us on the other?

Mr. GIBB. Yes.

[The following regulations from the Internal Revenue Manual were subsequently submitted for the record:]

(19)00 SPECIAL TAX CHECK REPORT

(19) 10 GENERAL

(1) The National Office will request tax check reports on prospective Presidential appointees, on nominees for Presidential "E" Awards established by Executive Order 10978, and on certain other persons. Generally, these tax records. checks are made to supplement investigations concerning the character, loyalty, or suitability of such prospective appointees or nominees. We cannot emphasize too strongly the need for prompt, completed, and discrete processing of these requests.

(2) Requests for tax check reports will be made by the National Office only pursuant to a written request signed by a designated individual who is charged by the head of the requesting agency with the responsibility for such requests.

(3) Tax record checks should be confined to taxes imposed by Chapter 1 of the Internal Revenue Code of 1954.

(4) When field contact with the taxpayer is required, the Director may assign any officer he deems appropriate to perform this task. In this respect, any attempt to substantiate the filing of a return by telephone is not desirable and should be discouraged.

(5) If in the judgment of the Director certain information is of such a nature that it should not be transmitted by teletype, the report should state that additional information is being forwarded by memorandum.

(19) 20 TYPE "X" REPORTS

(1) Communications from the National Office for reports on prospective appointees will ask for a Type "X" Report.

(2) District offices should submit a teletype report to the National Office, Attention: CP:D, within three work-days after receipt of the request. The report should be in the format described in (19)50. If complete data is not assembled within the time limit, a report should be sent containing any partial information available, and should indicate the approximate period of time needed to complete the report.

(3) In "no record" cases a field contact in accordance with established procedure should be made with the taxpayer to substantiate whether returns were filed and to determine the place of filing.

(a) These inquiries should be conducted as discreetly as possible, giving no indication to the taxpayer that anything other than a routine check is being made.

(b) Upon field contact, if the taxpayer indicates he has filed his returns in another district, immediately teletype identifying information to the District Director and request that a collateral Type "X" Report be submitted directly to the National Office, Attention: CP:D. Also advise the National Office of such action.

(c) If a field contact is not desirable, the National Office teletype or other communication will contain specific instructions that the taxpayer will not be contacted under any circumstances for information because of the request. (4) In failure to file cases, returns should not be solicited without first consulting the Intelligence Division.

(19) 30 "E" AWARD REPORTS

(1) Communications from the National Office for reports on nominees for "E" Awards will ask for an "E" Award report.

(2) District offices should submit a report to the National Office within five work days after receipt of the request. The report should be in the format described in (19)50.

(a) If complete data is not assembled within the time limit, a report should be sent containing any partial information available, and should indicate the approximate period of time needed to complete the report.

(b) Reports should be made by memorandum using the fastest available mail service.

(3) In "no record" cases, the same procedures as prescribed for Type "X" Reports in (19) 20:(3) should be followed.

(19) 40 SERVICE CENTER PARTICIPATION

(1) Because of the transfer to service centers of information on outstanding balances, and because of the increasing importance of service centers in our overall operations, district offices in preparing tax check reports should make such arrangements as may be necessary with service centers to obtain the required data so that complete and accurate reports will be furnished to the National Office.. .This may impose additional work on district offices, but with our decentralized operations, the National Office is unable to assume the responsibility for coordinating all details on individual cases of this nature.

(2) The responsibility for submitting tax checks reports to the National Office will, therefore, still lie with the District Director concerned.

(19) 50 GENERAL FORMAT OF REPORTS

(1) The general format for making Type "X" Reports, "E" Award Reports, or other similar reports follows:

(a) Name or title of report (Type "X" Report) or ("E" Award Report). (b) Name and address of person, firm, or organization.

(c) Furnish statements indicating:

1. Whether such party has filed returns with respect to taxes imposed under Chapter 1 of the Internal Revenue Code for not more than the immediately preceding 3 years.

2. Whether such party owes any unpaid taxes and, if so, for what years.

3. Whether such party has been or is under investigation of possible criminal offenses under the internal revenue laws and the result of such investigation.

4. Whether such party has been assessed any penalty for fraud or negligence.

(19) 60 TAX CHECKS ON TREASURY EMPLOYEES

(1) Requests for tax checks on Treasury employees (other than Internal Rev-enue Service employees) will be initiated by bureaus or offices of the Treasury by use of Treasury Department Form TD 4002.

(2) District offices should complete items 10 through 15 of Form TD 4002 no later than 10 workdays after receipt of the request.

(3) If a lien was filed (item 11(b)), furnish the name, address, amount, date and place of filing, and date of release in item 15.

(4) The completed form should be returned to the originating office by use of double-sealed mailing, the inner envelope to be marked, "To Be Opened By Addressee Only."

(5) In "no record" cases it will not be necessary to contact the taxpayer unless a specific request is received from the Treasury office concerned. In failure-tofile cases, returns should not be solicited without first consulting the Intelligence Division.

(6) If district offices receive requests for additional information regarding items 10 through 15, the request, together with the proposed reply to the requesting Treasury office, should be transmitted to the National Office, Attention: CP:D

(19) 70 TAX AUDITS IN CONNECTION WITH TYPE "x" REPORTS

(1) Treasury Administrative Circular 189, dated May 12, 1969, (since revised) established requirements for preappointment tax audits on persons not already on Treasury rolls selected for high-level positions, such as Heads of Treasury Bureaus, Assistant Commissioners of Internal Revenue, and Presidential appointments, including persons serving on Presidential Committees.

(2) The responsibility for initiating and coordinating the audits is assigned to the Disclosure Staff, Office of the Assistant Commissioner (Compliance), CP :D. (3) When the Director, Office of Personnel, Treasury Department, determines that a tax audit on a prospective Treasury appointee is needed, he will ask the Disclosure Staff to initiate the audit.

(a) The Disclosure Staff will telephone the District Director in whose district the taxpayer resides to obtain the returns from the service center or Federal Records Center and to assign an Internal Agent to make the audit.

(b) If the prospective appointee has already moved from his permanent residence to the Washington, D.C., area, it may advisable to ask the District Director, Baltimore District, or the District Director, Richmond District, to conduct the audit.

(c) If a return for one of the open years has been examined under established procedures, it will not be necessary to re-examine the return. However, a report of the previous audit should be furnished to the Disclosure Staff.

(d) A regular Type “X” Report should be furnished as soon as possible in accordance with established procedures without waiting for the completion of the audit.

(e) A supplemental report of the audit should be furnished by telephone to the Disclosure Staff as soon as the results are known. It should be confirmed by memorandum to which is attached a copy of the audit report.

(f) Because of the extremely tight deadline in these cases, district offices are requested to make every effort to complete the audit within five workdays after receipt of the request. If this is not possible, a telephone or teletype report should be furnished to the Disclosure Staff indicating the approximate time when the audit will be completed.

Mr. ALEXANDER. In this tax-check procedure, Mr. Chairman, the information we furnish is strictly limited to whether the taxpayer has filed returns, has taxes which were due but remain unpaid, or is under investigation. We do not give out tax returns in this procedure and we do not think tax returns are in any way necessary.

IRS GAINED FROM BEING PART OF TREASURY

Senator KENNEDY. Let me ask you this. There has been a proposal before the Congress (H.R. 14973) to establish the Internal Revenue Service as an independent commission. Do you have any views on

that?

Mr. ALEXANDER. As I have testified before, Mr. Chairman, during my tenure as Commissioner, the Internal Revenue Service has gained much from being part of the Treasury Department. George Schultz and Bill Simon are two of the finest people I have ever worked with. I have worked with Mr. Shultz longer so I can talk a little bit more about him.

He is a man of complete integrity, of complete honesty, and a man whose efforts on the part of the Internal Revenue Service during my tenure as Commissioner have greatly aided the Internal Revenue Service performance of its mission to administer the tax laws evenhandedly and effectively and responsively. I cannot speak for the indefinite future, however.

If the Secretary of the Treasury, some future Secretary, were one other than the type of person that I have been connected with, we might have a different situation. I can speak as Commissioner on one aspect of the problem of being Commissioner of Internal Revenue, Mr. Chairman, that goes to this issue. I would hope that future Commissioners might have fixed terms, not longer than 5 years. After all, I think some bankrobbers have to serve only 10 years.

Senator KENNEDY. There must be a different analogy.

Mr. ALEXANDER. I should be able to think of one but I was watching the late show last night.

In this office, to handle it right, you plan from year to year but. you live from day to day. As I think both Sheldon Cohen and Mortimer Caplin have pointed out, the only way you can stay in office properly is be ready on a minute's notice to leave the office. That does

not make life any easier. It might be difficult for a future Commissioner, particularly early in his or her term where he or she sees so much to do in bringing about changes that should be made in tax administration to resist possible future efforts to abuse tax administration. That is a problem. After you have been in office for a while, as I have, it disappears, but one must still live from day to day. I am not sure for the indefinite future this is the best way to conduct tax administration, but for the present, I have worked for great people in the Treasury Department. They have been strongly supportive of Internal Revenue and its integrity.

Senator KENNEDY. Well, that is a fine endorsement of those men you have been associated with and certainly as I have indicated in my opening comments, that is certainly the public understanding of what has been happening in the IRS. What we are most interested in is making sure that the public is aware that the IRS has rules and procedures that are followed in regulating its practices, understands how they are derived, and is aware that they were made in the public interest.

You mentioned the IRS sensitive case report procedure. Could we focus on that for a bit?

SENSITIVE CASE PROGRAM UNDER REVIEW

Mr. ALEXANDER. I would like to focus on that, Mr. Chairman, because the sensitive case program has been partially suspended, and is completely under review and reconsideration at this time.

The sensitive-case program, which has been in effect for a number of years, has been suspended insofar as information went beyond the IRS. With the full concurrence and approval of Secretary Simon, I do not transmit sensitive-case information beyond the IRS and I do not propose to do so until this program has been completely reconsidered.

Now, the program is under reconsideration right now because involved in our judgment are too many matters.

Senator KENNEDY. Too many what?

Mr. ALEXANDER. Matters. It involved too many types of taxpayers who might be considered sensitive, and furthermore it uses the term "sensitive." What we are concerned about is what is significant to tax administration. This is our real concern. Therefore, shouldn't different standards be applied, isn't a very important case involving an issue of great importance to tax administration, significant to tax administration even if it did not meet any of the present criteria for being sensitive. So we are reexamining the criteria. We are reexamining this program to find out to what extent it should be continued in the exercise of sound tax administration and I am transmitting no information of this nature beyond the Internal Revenue Service.

Mr. Willsey, would you care to amplify?

Mr. WILLSEY. That review process, Mr. Chairman, is well along. I have tentative drafts of materials on my desk right now. We are currently in the process of marking them up to try to establish a system for reporting significant matters up the chain of responsibility so those charged with responsibility for administering the tax