IRS Officials Say Their Agency’s Internal Policing Works Well

WASHINGTON —  Top officials of the Internal Revenue Service defended the agency Thursday against charges of unethical conduct, telling a House subcommittee that their own internal policing system is working well and that ethical lapses by employees are “isolated.”

But Rep. Doug Barnard Jr. (D-Ga.), the subcommittee chairman who has been directing a yearlong investigation of the tax collection agency, angrily responded that IRS officials cannot “gloss over” repeated instances of misconduct uncovered by his panel.

Among the matters under consideration by the panel are allegations that a former director of the agency’s Los Angeles regional office for criminal tax cases extended favorable treatment to friends and and thwarted internal inquiries into his activities.

Barnard said he was “astounded” that newly appointed IRS Commissioner Fred T. Goldberg and others had expressed general satisfaction with the agency’s internal inspection methods. “You’re not dealing with ignoramuses on this committee,” he shouted at one point.

Angry Reaction

The normally low-key, courtly Barnard exploded in anger after Michael J. Murphy, senior IRS deputy commissioner, said that “isolated instances” of potential wrongdoing “should not detract from the overall integrity of our work force.”

Murphy added that “all of the cases reviewed by the subcommittee have been investigated by IRS and, when appropriate, referred for prosecution.”

“I cannot believe you would come here and gloss over 12 months of investigation by this subcommittee,” Barnard told Murphy, his voice rising.

He said the House Government Operations subcommittee on commerce, consumer and monetary affairs had “admitted on the first day of these hearings” that the majority of the agency’s 110,000 employees are ethical, law-abiding citizens. But Barnard said Murphy’s statement that the agency is policing its own misfits was typical of “the career attitude of the IRS that ‘we can do no wrong.’ ”

“It’s not a real world that you described today,” Barnard said, noting that his panel has heard testimony that IRS inspectors find it difficult to gather evidence against unethical agents because potential whistle blowers “have a fear of retaliation.”

In addition, team loyalty often is stressed to keep the agency’s image untarnished, Barnard said. He said many agents have been led to believe that “if you’re not a team player, you’re off the team.”

Goldberg testified that “we must be willing, and we are, to address openly and candidly the challenges that face us as an agency.”

But the new IRS chief, who took office earlier this month, said the agency’s inspection division is functioning well. “I can see little to be gained from dwelling on the details of each matter considered by the subcommittee,” he said.

Accused of Favoritism

Much of the House panel’s investigation has focused on the IRS office in Los Angeles that handles criminal tax matters and its former chief, Ronald Saranow. Witnesses have described Saranow, who resigned from the IRS last year, as an overbearing official who brooked no dissent and tried to monitor an internal investigation into his activities.

Although no charges were recommended against Saranow by the IRS, the subcommittee has found that he developed an unusually close relationship with the founders of Guess? Inc., a Los Angeles jeans manufacturer.

Saranow has also been accused of favoritism for allowing a group of tax evaders represented by Richard Trattner, a former IRS lawyer and friend, to escape prosecution by paying taxes anonymously.

Asked about Saranow’s tax amnesty procedures for Trattner’s clients, Goldberg remarked, “We’re going to look at it.”

Murphy and other officials said that, although they had no personal knowledge of the practice during the 10 years it existed, it did not appear to be illegal or even irregular. They said the agency has often followed unwritten and “informal” procedures to get delinquent taxpayers to pay back taxes in return for an IRS pledge of no prosecution.

Tax lawyers said the procedures were described in official IRS manuals and thus were sanctioned by the agency.

In addition, the subcommittee has received evidence of abuses outside the Los Angeles area, including misuse of government funds, acceptance of gratuities by IRS agents and special treatment in hiring relatives of IRS officials in such cities as San Francisco, Chicago, Brooklyn and Atlanta.

‘Deeply Troubled’

Barnard asked Goldberg what action he contemplated in response to allegations that some IRS officials in Los Angeles who were loyal to Saranow had tried to help him “control” the inspection division’s investigation of him.

The IRS chief replied that he was “deeply troubled” by such charges but he made no specific promises.

“I cannot give you a precise answer or be specific about what I’m going to do,” he said. “But this matter will be given my personal attention.”

Murphy, responding to allegations that Saranow had sought to develop a close relationship with Debbie Jones, a Los Angeles supervisor in the inspection division, replied: “The problem we encountered is that everybody knew rumors but nobody knew facts.”

He said the relationship may have been totally professional, but since Jones was the first woman field manager in the IRS inspection division, some observers possibly adopted a more sinister view of the friendship.