Congress Begins Probe of Reported IRS Improprieties

A congressional subcommittee has begun an investigation of alleged corruption and misconduct among senior Internal Revenue Service personnel, with specific inquiries in Los Angeles, San Francisco and Laguna Niguel, sources said Thursday.

The Los Angeles inquiry focuses on whether a senior IRS official improperly intervened in a bitter dispute between Guess and Jordache, rival manufacturers of jeans. Guess allegedly persuaded the official to open a tax investigation of Jordache and block an inquiry into Guess that originated in another IRS office.

The subcommittee, which has responsibility for oversight of IRS activities, will examine the way in which the IRS investigates complaints about misconduct by the agency’s personnel. The allegations provided to the committee by private citizens involve abuses of authority and possible criminal behavior by IRS officials.

‘Full-Scale’ Investigation

In addition to the California locations, the probe will focus on alleged abuses in the IRS central regional office in Cincinnati, the Midwest regional office in Chicago and a district office in Newark, N.J.

The investigation, conducted by the commerce, consumer and monetary affairs subcommittee of the House Government Operations Committee, is expected to last through the summer.

“There are serious allegations of fairly widespread misconduct among senior officials in district and regional offices,” Peter Barash, the subcommittee staff director, said Thursday. “Apparently, IRS dropped the ball in investigating and punishing misconduct.”

“After preliminary checking, we are satisfied there is enough truth in the allegations to warrant a full-scale investigation,” Barash said.

The IRS says the cases being investigated by the subcommittee already have been reviewed by the agency. “The allegations have been brought to us, and the cases have been investigated,” IRS spokeswoman Ellen Murphy said Thursday. She declined to discuss specific allegations or the results of the investigations.

Rep. Doug Barnard Jr. (D-Ga.), the subcommittee chairman, met last week with IRS Commissioner Lawrence Gibbs and sought IRS cooperation for the inquiry, according to Murphy. The commissioner “told him we would cooperate in any way we could under the law,” she said.

In California, the committee will investigate allegations in the district offices in Los Angeles and Laguna Niguel and the western regional office in San Francisco.

The IRS’ internal investigation of its Los Angeles office began last year over allegations of improper conduct in the dispute between Guess and Jordache.

Internal Policing at Issue

Jordache, based in New York, is owned by the Nakash brothers. In July, 1983, they bought half of Guess from the Marciano brothers of Beverly Hills. The two families have been engaged in a hard-fought legal battle ever since, with the Marcianos seeking to cancel the acquisition.

The IRS has been investigating allegations that the Marcianos used their influence with the IRS Los Angeles office to avoid investigations of their own company and to promote a probe into Jordache.

Now, the House subcommittee wants to determine if the IRS did a good job of policing itself.

“If there is an investigation, Guess and the Marcianos feel very confident that any such investigation would result in a finding of no improper conduct,” said Robert Shlachter, an attorney for the Marciano brothers. “If asked to cooperate with the investigation, we will. We have nothing to hide.”

The House subcommittee is also investigating a variety of other allegations, including:

- An IRS inspection official became involved in an illegal tax shelter business and was allowed to retire early without any penalty.

- An IRS supervisor provided confidential tax information to a businessman who had improperly withheld from the government $400,000 in payroll taxes. When IRS investigators exposed this case, they suffered harassment and reprisals.

It is a federal crime to divulge any tax return or tax information to anyone outside the IRS.