Anchorage TABLE 2.-Districts in descending relative order of IRS levy and seizures 602 Albuquerque Ratio of levies-seizures to every 1,000 TDA's 290 284 283 282 273 Greensboro 461 Pittsburgh 272 As Figure 3 shows, relative to income received the corporate giants did not appear to receive as close and detailed a scrutiny as did the small business. This data produced through court order showed that in 1969 for every $100,000 a little business corporation made, its returns were scrutinized an average of more than 67 hours. Yet for every $100,000 in income the corporate giants made (assets of $100 million or more), an IRS agent spent considerably less than two hours going over its books and papers. Yet the books of the little corporations could hardly be said to have been scrutinized more carefully because of higher errors found there. The same statistics indicate that in an hour's time an IRS agent could find $846 owed. the government by the largest corporations, while the same hour of time turned up only $61 due the government from the small businessman. Even with revenue considerations aside, on the basis of pure equity it seems unfair to hold a small businessman accountable to stricter standards through more detailed scrutiny of his return than are the standards applied to our largest corporations. Nor is it fair to our way of thinking for IRS to attempt to avoid answering these hard questions on policy decisions by withholding information which raise those questions from the public. IRS handling of "sensitive cases" The evils of a system of IRS secrecy in its daily operations and policies is perhaps nowhere more evident than in the secret apparatus IRS has erected in its continuing "sensitive case" program-a program wherein so-called "sensitive cases" are singled out for special handling. The very existence of such a program is an open invitation for abuse, but it has been allowed to flourish and develop for years protected by a curtain of secrecy. Because of this secrecy and the intransigence of IRS to reveal the full scope of its operations, we have been successful in obtaining only a limited number of internal documents detailing its operations. Some only recently obtained, however, give rise to serious unanswered questions. What apparently began back in the late 50's as a questionable informal system for appraising IRS officials in Washington of cases involving "sensitive matters" has evolved through the protections afforded by secrecy into a highly organized apparatus-complete with its own reporting forms, security measures, and specially assigned personnel-to enable IRS top officials to secretly influence the tax treatment accorded individuals and groups. Such individuals and groups may be singled out because of their ties to influential political persons or their prominent positions in society on the one hand, or because they support a politically unpopular cause or are publicly critical of the IRS or other governmental bodies. While the internal IRS documents we have obtained do not deal with actual cases in which this apparatus was used by the IRS, it seems doubtful to us that the "sensitive case" apparatus so carefully developed and expanded over the years and the subject of so frequent directives to the field, has been developed to be other than used, or abused, whichever the case may be. Indeed, if the directives we have obtained are any indication there are few areas within IRS's operations which are not caught up in this "sensitive case" program-from the issuance of a refund check to the seizure of a taxpayer's assets, from the granting or revoking of tax exemptions to the selection of returns for audit and the findings made, from the selection and prosecution of taxpayers for tax evasion to the programming of Internal Revenue Service computers.* In the very process of seeking information on IRS operations under the Freedom of Information Act, we found we too had been invidiously and secretly labeled by IRS officials as a "sensitive case" and subjected to unannounced and hidden directives from Washington. From John Dean's testimony before the Senate Watergate committee last summer, it would appear that the tentacles of IRS's sensitive case program stretched beyond the IRS National Office to the White House itself. In describing the relationship between the White House and the IRS in apparent White House attempts to gain both special tax treatment for its friends and to "screw" White House enemies, Dean noted: "I did deal with one of his assistants [to the IRS Commissioner] from time to time on sensitive cases, where they were just brought to our attention *** to alert the White House to the fact that such an audit was occurring.' Program origins.-During the tenure of former Commissioner Dana Latham in the Eisenhower administration, a classified directive dated April 1, 1959, identified as MS 12R-11 was sent out by William Loeb, then IRS head of audit, intelligence and collection operations to regional IRS heads. In some detail it directed that "the National Office be notified" of "sensitive situations." Further reports, however, were required only when directed by Washington. During the Kennedy years under Commissioner Mortimer Caplin the sensitive case program though apparently not expanded was retained. There is in fact some documentary evidence that the program may have been downgraded during this period of time. A directive (MS 12R-11, Amendment 2) was sent out on October 23, 1963, both reducing the number of copies of reports sent from an original plus six to an original plus two, and normal mailing procedures replaced earlier special handling. It's continuing existence is evidence, however, in another directive (MS 40G21) of December 1, 1961, over the signature again of Assistant Commissioner Loeb suggesting sources of leads for cracking down on "pockets of noncompliance" by district audit, intelligence and collection staff: "In identifying special compliance projects district officials will utilize all available sources of information *** Some of the sources of information available are *** Reports of Sensitive Cases." Such a directive was consistent with the focus of the sensitive case program at that time which was directed just as much at potential situations or public allegations of tax abuses, as it was of particular persons. For examples, the 1959 directive had listed the following illustrations of sensitive cases: "Allegations of abuse of the tax laws by major political figures, other particularly prominent and influential persons, including former employees of the Service. "Notorious or significant situations involving the alleged payment of graft to public officials or the alleged misuse by public officials of position or influence for personal gain. "Racketeering activities which are believed to have resulted in the receipt of very substantial amounts of unreported taxable income by the violators. "Indications of significant non-compliance areas (geographic or occupational), as determined by Audit personnel for use in classification of returns; and indications developed through canvassing activity, surveys, or other means, of the existence of widespread areas of non-compliance ***” During the early Johnson years under Acting Commissioner Bertrand M. Harding, the sensitive case program of IRS began to undergo expansion and change. On September 8, 1964, a new directive revising the 1959 orders was sent out by the new Assistant Commissioner, Donald Bacon, entitled: "Periodic Reports of Sensitive Cases." The directive (MS 12G-16) noted it had "been determined that it is necessary to keep National Office officials informed of significant developments in sensitive cases on a current basis." The timing of periodic reports was revised from monthly to "immediately after a significant change occurs in a sensitive case." In the fraud area, "significant changes in Intelligence cases should be reported immediately to the Director, Intelligence Division, by telephone or teletype." As in the earlier 1959 directive, however, these periodic reports were not sent in on all sensitive matters. As the internal memorandum noted: * "Once a sensitive matter has been reported to the National Office, no further information concerning it need be furnished * * unless the National Office Division to which it is sent requests periodic reports." Political concerns surface.-A further directive of November 2, 1964 (MS 8(24) G-12), over the signature of Arthur H. Klotz, Director of IRS appeals di 5 The transmittal of reports or information to the White House of the tax treatment and affairs of "sensitive individuals" would we are told be in violation of 18 U.S.C. 1905 and sec. 7213 of the Internal Revenue Code providing not only for the discharge from Federal employment of persons involved but a year's imprisonment and/or a $1,000 fine. The origins of the program appear to be even earlier since this directive makes reference to earlier instructions contained in IR-Mimeograph 58-65 and Regional Commissioner Memorandum No. 8-103. vision amplified the September 4 instructions. The political concerns of the revised program surfaced. In the "significant changes" which called for immediate reporting to the National Office, number one on the list was: "The receipt of an inquiry or information evidencing interest being shown in a case by the White House, Treasury Department, Members of Congress, etc." In addition, the directive which went to all IRS personnel in charge of negotiating administrative settlements of tax disputes directed that more complete information should be submitted on compromise settlements "in regard to amount or percentage of recovery in settled cases and *** the basis for adjustments." A year later and after IRS Commissioner Sheldon Cohen assumed office, a classified memorandum was sent out on December 8, 1965, to all Assistant Regional Commissioners of Collection. This directive marked a further expansion by requiring "advance notice of any enforcement collection action planned in sensitive cases." A later implementing directive of March 15, 1966 (MS 12G-23), spelled out the requirements as follows: "When enforcement collection action is planned in a sensitive case, field personnel are requested to give the National Office a minimum of 24 hours' advance notice unless to do so would jeopardize the revenue." Washington was no longer satisfied with notice after the fact, advance notice was the new order of the day when sensitive cases were involved. Around this same time another memorandum was also sent out by Assistant Commissioner Bacon to all Regional Commissioners. Marked "official use only" and dated January 5, 1966, it requested that: "The sensitive case reporting procedure be fully utilized to keep the National Office timely advised of all actions taken or proposed involving the tax affairs of prominent KKK [Ku Klux Klan] figures." Further the directive noted, "any information indicating possible federal tax violations should be thoroughly investigated." Expansion and change.-In the final year of the Johnson administration under Commissioner Sheldon Cohen a new 12-page internal directive was sent out by IRS Assistant Commissioner Donald Bacon. Dated February 23, 1968, the directive stamped "official use only" totally revamped and expanded the sensitive case procedures that had slowly evolved since the 1950's. For the first time special reporting forms, Form 4341 (Sensitive Case Report) and Form 4341-A (Sensitive Case Report Continuation Sheet) were printed, along with a special Transmittal Letter, Form 4342 for Sensitive Case Reports. The printed transmittal form made it clear that the sensitive case report was being forwarded not merely for information purposes, but for "appropriate review and action." For the first time periodic reports were automatically required on all identified sensitive cases, and the coverage of the sensitive case designation was considerably altered and expanded to include: "A major political figure, including a present or recent Cabinet Member, U.S. Senator or Representative, high U.S. Government official, Governor of a State, important state legislator, mayor of a city or prominent political party official. "A family member or close personal friend of a major political figure. "A nationally or internationally known businessman, racketeer, union official, religious figure, entertainer, sports figure, etc. "An organization of national scope. "Mass media (radio, television, newspapers, magazines, etc.) of national scope or representating a major metropolitan area. "A club with a large influential membership." Also included was: "A person who has received prior public attention because of his criticism of the Internal Revenue Service, the tax system, etc., or a taxpayer who: "A major political figure has shown substantial interest in the taxpayer's dealings with the Internal Revenue Service." A new category called "urgent developments" to be "immediately telephoned to the Assistant Regional Commissioners" was defined as covering: "That situation which is of such unusual significance or publicity potential that it is likely to engender prompt contact with the regional or National Office by the news media or a major political figure." In the case of contemplated enforcement action, tax liens or property seizures, the prior requirement of giving at least 24 hours advance notice to Washington was expanded: "notice must be given forty-eight hours prior to such action unless the delay would jeopardize the revenue." Also for the first time reference |