IRS Abuse Reports:
Statement before the Senate Committee on
Finance
By Robert Edwin Davis of Dallas, Texas
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
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
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
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.
END OF REPORT.
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