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Statement before the Senate Committee on Finance
By Robert Edwin Davis of Dallas, Texas

Identification and Personal Background

My name is Robert Edwin Davis. I am an attorney, and I have practiced law in Dallas, Texas for almost 40 years. During most of those years, the greatest part of my practice has been devoted to representing taxpayers in civil and criminal tax litigation and controversies with the Internal Revenue Service (IRS) and the Department of Justice. During the years 1982 and 1983, however, I served as Deputy Assistant Attorney General in the Tax Division of the Department of Justice in Washington, D.C. I was then responsible for overseeing the functions of the Criminal Section and Review Section (large civil case settlements) of the Tax Division. I think it would be fair to say that there are few attorneys in the United States who have handled more civil and criminal tax cases on behalf of taxpayers than I have since 1960.

Description of Issues to be Discussed

Tax collecting has always been an unpopular calling. From biblical times to the present, there have been few -- or no -- warmly regarded tax collectors. Most of the employees in the IRS are sincere and honorable people, going about their thankless work of administering the rules and policies adopted by Congress, the Treasury Department and senior IRS officials. However, my personal experience is that all is not well with our tax system, and I believe that (1) the IRS has, to a significant extent, strayed from its proper path; (2) there is excessive use and misuse of intrusive and even oppressive investigative techniques within the Criminal Investigation Division (IRS CID); and (3) there are sometimes serious integrity issues within the agency, but that the IRS Inspection Service (IRS-Inspection) is simply not up to the task of investigating and correcting IRS agent misconduct when it does occur. I would like to present my views on these subjects to the Committee over the next several minutes, and in a supplemental written statement.

Excessive Use and Misuse of Intrusive Investigative Techniques by the IRS CID

Fifteen years ago, when I was the Criminal Deputy in the Tax Division, criminal tax enforcement practices were almost totally different from those which are encountered today.

"Undercover" investigative techniques were almost entirely unknown in criminal tax matters; 
Search warrants were used in criminal tax cases only a dozen times in an entire calendar year; 
Grand jury investigations were rare exception, and administrative investigations were the rule. 
Today that is dramatically changed, and the use of these much more intimidating and intrusive techniques is commonly encountered. For example, search warrants are executed in criminal tax investigations today some twenty times as frequently as they were then.

It is not surprising that these changes have occurred. As the IRS CID has been increasingly used in the suppression of drug and organized criminal activity, its special agents have learned the investigative techniques which are employed by the DEA, the FBI and local law enforcement to deal with violent and dangerous criminals. These investigative strategies are then "borrowed" and used by IRS CID in routine criminal tax investigations of taxpayers who are neither dangerous nor violent. Many of us believe that this is a very bad tax enforcement policy. Today, we see too many "cowboy" agents, as they are called, who are undisciplined and inadequately controlled, and who think that the end (putting away the "bad guys") justifies the means (intrusive, intimidating and oppressive investigations). Let me give you an example of the kind of abuses which concern me.

An Example: Executing A Search Warrant to Obtain An Appraisal of Residential Furnishings.

One summer morning in June of 1994, approximately ten IRS special agents appeared at a private residence at 7:30 a.m. They knocked on the door, which roused the only resident of the home from her bath. This resident, "Sally," was a 45-year old woman who was living in a home which had formerly been owned by her grandmother. She put on a bath robe and responded to the knock at the door. There were approximately ten IRS special agents in her yard and on her porch, one of whom presented a warrant to search her house. The agents then entered her house. She was told she could either leave or stay, but if she left she would not be permitted to return so long as they were at the house. She elected to remain, and she was confined to one bedroom, where she remained in the presence of a female IRS agent. The remaining agents searched her home for about eight hours, and then left. The only property which they "seized" and took with them when they left were some 86 old family photographs, many of them taken at Christmas gatherings. Sally was very upset by this forceful intrusion into her home. She missed an entire day of work, and had no idea why the ten agents had entered her house and taken the family photographs.

Later, Sally discovered the real reason for the invasive search. It was not to seize contraband, weapons, drugs or evidence of any crime. Instead, the agents had brought with them a furniture appraiser who went from room to room valuing the beds, sofas, chairs, tables and other personal effects which had been left in the house by her grandmother at the time of her death two and one-half years earlier. The Internal Revenue Service agents believed that Sally's father, the executor, had undervalued the furniture on her grandmother's estate tax return. Sally was not a suspect or in any way involved in the estate tax issues, and her father did not live in the house with her. The criminal investigation of Sally's father was later abandoned by IRS CID.

The extravagant loss of agent time in preparing for and executing this "raid" on the home of an admittedly innocent party who was not a suspect at all was utterly needless. A simple telephone call to Sally would have resulted in consent for the IRS appraiser to inspect and appraise the furniture. Intimidating and intrusive "searches and seizures" are wholly unnecessary to develop valuation cases involving household furnishings. That was, in my opinion, one "search and seizure operation" which should never have been authorized or executed.

Several years later, after I demanded their return, the IRS belatedly gave back the 86 family photographs.

Intrusive Investigative Techniques Should Not Be Used in Routine Criminal Tax Investigations.

I believe, as do many others, that kicking down doors, wearing body armor, carrying automatic weapons and bursting into people's homes with large raiding parties are techniques which should -- if used at all -- be reserved for investigations of dangerous and violent criminals. IRS CID should do what it was created to do: pursue the enforcement of the internal revenue laws, and it should leave violent and dangerous criminals to the DEA, FBI and local law enforcement authorities. The exceptions to this rule should be very limited.

I would also like to speak briefly on the subject of undercover operations. Some of us also believe that the deceit and misrepresentation which are inherent in undercover investigations and "sting" operations have no proper place in routine criminal tax investigations. Successful criminal tax prosecutions have long been made in this country without them. The IRS does serious and needless damage to its image and relationship with the public -- and government as a whole -- when it lies to and deceives taxpayers in routine criminal tax investigations.

One Final Appeal: Simplify Our Tax Laws

There is a pervasive national frustration with our federal income tax system, which is far too complex and unintelligible to be fairly and uniformly administered by the IRS. Further, our tax laws cannot be understood or complied with by the great majority of our taxpayers. Indeed, it is my observation that even well-trained tax professionals frequently cannot comprehend and work competently with the Internal Revenue Code. I would respectfully urge that it is time for a major simplification, or some other fundamental change in our income tax laws.

Supplement to
Statement before the
Senate Committee on Finance
By Robert Edwin Davis
of Dallas, Texas
April 28, 1998


I would like to submit for the consideration of the Committee and its staff some additional information which it is hoped may be useful in your deliberations regarding IRS integrity and conduct issues. In this supplement to my oral statement, I will briefly describe some actual matters which have been presented in my practice. They are described in a way which deletes any reference to the names of either individual taxpayers or IRS personnel.

The IRS Inspection Service (IRS-Inspection) and the Office of Inspector General of the Treasury (OIG-Treasury) Should Not Have Exclusive Authority Over IRS Agent Misconduct Issues

My professional experience has taught me to be seriously skeptical about the capacity and resolve of the IRS-Inspection to identify, investigate and fairly evaluate claims made by taxpayers and their representatives regarding IRS agent misconduct and abuse. I will acknowledge at the outset that many taxpayer complaints about IRS agent misconduct are unfounded, or at best, are only partly justified. I am personally satisfied, however, that serious agent misconduct has occurred and does occur today. I am also fully satisfied that IRS-Inspection is not the place to repose the exclusive power and responsibility to investigate and resolve these issues.

It is my opinion that IRS-Inspection investigators are often too close to the very personnel and offices which they are assigned to investigate. Further, some IRS-Inspection investigators seem to feel that their own agency suffers a "black eye" when agent misconduct is identified or confirmed. As a result, they often cannot and do not view taxpayer reports of agent misconduct with objectivity, and do not pursue them with appropriate zeal. I believe that is especially true regarding allegations of misconduct by IRS CID personnel.

Our national experience with police departments across the nation confirms one conclusion: the public does not have confidence that police investigators will objectively investigate allegations of misconduct by their own fellow officers. That public skepticism is justified. Similarly, "letting the IRS investigate its own" has not worked satisfactorily in the past, and it should not be relied upon in the future. I would like to provide the Committee with an example.

IRS-Inspection Punishes Taxpayer Complainant

Several years ago, I represented a taxpayer in a criminal tax case whom I shall call "Joe Smith". Mr. Smith and two of his employees provided me with affidavits asserting serious misconduct on the part of two IRS special agents, including perjury. Because I was skeptical about these claims, I asked these three witnesses whether they would agree to submit to a polygraph examination. Thereafter, Mr. Smith and the two employees individually passed separate polygraph examinations administered by a highly-skilled polygraph operator. I was assured by the polygraph operator that, in his professional opinion, my client and his two employees were telling the truth. The client and I believed that this serious agent misconduct should be presented to the IRS-Inspection. Because a criminal indictment of Mr. Smith was then pending, we negotiated a direct and explicit agreement with the IRS-Inspection: that it would consider the taxpayer's complaint, including photographs, affidavits of Mr. Smith and his staff, as well as the results of three polygraph examinations, but that none of these materials would be disclosed either to the special agents or the Office of the United States Attorney prosecuting the case until after the criminal case was concluded. Not only did the IRS-Inspection accept that information, they also interviewed Mr. Smith and asked for other information as well. All information the IRS-Inspection requested was provided. 

Notwithstanding the direct and explicit agreement that the materials provided by Mr. Smith would remain confidential until after the trial, investigators for the IRS-Inspection very promptly violated that agreement, and delivered over all of these materials they had obtained from Mr. Smith to the prosecutors and the special agents in order to aid them in prosecuting Mr. Smith. Thus, the IRS-Inspection served as a conduit of information harmful to the complainant in violation of its clear promise that it would not do so.

That same special agent misconduct was a major issue in the criminal trial of Mr. Smith. Fortunately, the jury correctly assessed the evidence, and found the testimony of Mr. Smith and his two employees was truthful. As a result, Mr. Smith and his co-defendant were found to be innocent of the tax crimes charged after less than one hour of jury deliberation.

Both the jury and the polygraph operator believed Mr. Smith and his two employees when they accused the two agents of perjury and other wrongful conduct, yet it is evident that no thorough investigative effort was ever pursued by IRS-Inspection, and apparently no corrective action was ever taken with respect to the two agents. Furthermore, no disciplinary action was taken to punish the IRS-Inspection investigators who promised that the information given to IRS-Inspection would not be given to the special agents and prosecutors until after the trial, and then consciously and deliberately violated that promise. OIG-Treasury also later reviewed the case and met with Mr. Smith. No corrective action was ever taken by OIG-Treasury.










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