Panel Studies IRS’ Conduct of Internal Probes

The Internal Revenue Service last year ordered Debra Corwin, an agent in the Los Angeles office of its inspection service, to pose as a worker at a Kansas City IRS center in an effort to discover whether another employee was part of a murderous band of crack dealers.

IRS officials hoped that Corwin, who is white, could establish a close rapport with the other worker, who is black. So they told her to spend time in a Pasadena tanning salon and to braid her hair in cornrows.

Suspect on Leave

Corwin reluctantly complied, only to discover that the suspected drug dealer was on maternity leave. Then her bosses ordered her to try to buy drugs from other IRS workers in Kansas City.

“The case inspector was having me nag IRS employees to sell me cocaine,” Corwin said in an affidavit filed with the Equal Employment Opportunity Commission. She was pulled off the case, Corwin said, after asking to meet the U.S. attorney and complaining to her superiors of “outrageous government conduct and entrapment.”

Corwin’s Kansas City caper could become part of one of the biggest scandals in years for the IRS. A congressional subcommittee is investigating cases in which alleged misconduct by IRS agents has been overlooked or mishandled by the agency’s elite inspection service, which is supposed to ferret out wrongdoing by the nation’s tax collectors.

And Corwin’s masquerade is one of the prominent cases on its complex agenda. IRS activities in Los Angeles and Laguna Niguel, Calif.; Chicago; Dallas; Atlanta, and Newark, N.J., are coming under intense scrutiny by a team of three investigators from the House Government Operations subcommittee on commerce, consumer and monetary affairs.

IRS Commissioner Lawrence B. Gibbs insists that the 1,200-member inspection division does a thorough job of policing the agency for internal corruption and ineptness. Cooperating reluctantly with the probe, Gibbs argues that the entire tax system depends on voluntary compliance and that any public scandals could shake confidence in the system.

The IRS says that the House subcommittee, headed by Rep. Doug Barnard Jr. (D-Ga.), has found nothing new and that all the charges of corruption and incompetence already have been reviewed by the agency.

Normal Procedures

“We have acknowledged that allegations of misconduct have been received concerning various officials,” said IRS spokeswoman Ellen Murphy. “These have been investigated through our normal processes and procedures.” Unless there is an indictment or some other public activity, she said, the agency cannot discuss the result of its probes.

“We think these allegations are very serious,” Murphy added. “What is at stake is the integrity of the tax system and 120,000 employees. We want to be sure all the facts will come out. We do not want the specter of allegations hanging over our employees’ heads.”

This view from Washington is not shared by some rank-and-file IRS inspectors, who complain that the agency’s unofficial policy is to avoid embarrassment at all costs.

“You need a watchdog at the IRS,” said a disillusioned agent who asked not to be identified. “In reality, that dog is deaf, dumb and blind.”

The watchdog--the inspection division--is considered impotent by its critics because it is responsible to the IRS director and is afraid to rock the boat. The House has passed legislation to create an independent Treasury Department inspector general who, unlike the department’s current inspector general, would be totally independent and could conduct investigations of the IRS or any other Treasury unit without approval of the Treasury secretary or the IRS commissioner.

Fear of ‘Political Influence’

Gibbs is lobbying hard against the bill, arguing that an independent inspector general would open the IRS to “political influence.” But the Senate has already approved a somewhat less independent inspector general, and a compromise bill is given a good chance of enactment this year.

Under present procedures, disgruntled agents have told The Times, the IRS is rife with uncertain, confused and questionable management behavior.

Agents in the Los Angeles office, sources said, were ordered on several occasions to destroy documents dealing with sensitive investigations and to stop their inquiries.

“I took it personally,” said one agent, who said his boss ordered him to shred a document in an organized crime probe. “If you have something as good as this and they let it die, you begin to question yourself. You ask, am I any good?”

An agent of the Los Angeles criminal investigation division was out drinking one night, two other agents familiar with the case said in interviews, when she drove away from a bar drunk, smashed into another car and attempted to flee.

Threatened to Audit Returns

When she was stopped by a highway patrolman, she reportedly showed her IRS badge, demanded the patrolman’s Social Security number and threatened to have his tax returns audited for the rest of his life. Her only punishment was a 30-day suspension without pay, which she was allowed to take one day at a time to minimize the economic hardship.

The House subcommittee, from questioning IRS agents and other sources around the country, has also gathered reports of questionable but unpunished behavior by high-level IRS officials.

One, involved in a questionable tax shelter deal, was permitted to resign without penalty in order to avoid prosecution. Another executive used his government computer and office supplies to run his golf equipment business. He, too, quit without sanctions.

“We know the IRS has investigated most of the cases we have talked about,” a subcommittee staff member said. “What is disturbing to us is that, when the investigation happens, people get off with light sanctions or no sanctions. They just retire and nothing happens to anyone.”

The subcommittee investigation is hampered by the staff’s inability to gain access to IRS records. In the early 1970s, when some officials of the Richard M. Nixon Administration sought to use tax investigations to harass political enemies, Congress made it a federal crime to disclose the contents of any tax return or any tax return “information” to someone outside the IRS.

Because almost all activities of IRS agents touch on someone’s tax return, however indirectly, the law acts as a shield for the IRS. When congressional investigators recently visited a Chicago IRS employee at home, for example, the IRS sent a “disclosure” officer to attend to ensure that the employee did not violate the law. The penalty, up to five years in prison, deters IRS workers from talking to Congress or the press.

Corwin’s case, with the details from her affidavits and related documents filed with the EEOC and Congress, provides an unusual insight into the problems of the inspection division.

One agent who is a friend of Corwin called her mission to Kansas City an example of “slipshod” management.

“She did not know how to buy crack or cocaine or even what it looked like,” he said. “To require a person to go to a tanning salon to prepare for the assignment--that’s the kind of amateur investigation they run.”

In her Kansas City undercover identity, Corwin said in her affidavit, she met with workers after her regular shift ended at 11:30 p.m. in a futile effort to buy drugs. Four months into her assignment, she was ordered back to Los Angeles in August after she asked to see a federal prosecutor to discuss whether she could be accused of trying to goad people into committing crimes.

Suffered Emotionally

“There was no thank you nor any goodby,” Corwin said in the affidavit. “I was never debriefed concerning this assignment and have suffered physiologically, emotionally, physically, mentally.”

Corwin said her managers had discriminated against her since she began cooperating with an internal probe by the IRS’ Washington headquarters about possible misconduct in the Los Angeles office. She said she feared that her confidential reports might have been leaked to the official who was under investigation. In her EEOC affidavit, she said she decided to file a discrimination complaint because she had suffered “reprisal for having cooperated” with the investigation.

The inquiry focused on allegations that a former chief of the IRS criminal investigation operation in Los Angeles had intervened on behalf of Guess Jeans in its bitter dispute with Jordache, a rival company.

Jordache, headquartered in New York, is owned by brothers Avi and Joe Nakash, who purchased a 50% interest in Guess in 1983 from brothers Georges and Maurice Marciano of Beverly Hills when Guess was a new company in search of capital. Guess quickly became a success, and the two families have been engaged ever since in a prolonged legal battle, with the Marcianos seeking to cancel the sale.

Jordache alleges that the Marcianos used their influence with IRS officials in Los Angeles to avoid tax investigations of Guess and to promote an inquiry into Jordache. The IRS conducted an internal investigation of those charges, and the House subcommittee is now investigating whether the internal IRS inquiry was conducted properly.

No Improper Conduct

In July, when the subcommittee began its probe, an attorney for the Marcianos promised to cooperate. The Marcianos, he said, “feel very confident that any such investigation would result in a finding of no improper conduct.”

Octavio Pena, a Jordache consultant who initially told the subcommittee the internal IRS investigation was inadequate, said friends in the IRS have since told him the agency has tried to gather derogatory information about him.

“My client was a victim, and I am simply helping my client--I was not trying to injure the IRS,” said Pena, president of Lynch International, a security consulting firm hired by Jordache. “But the IRS is trying to find something to discredit me and going out of their way to do it.”

The IRS refuses to discuss any details of Corwin’s complaint or any specifics of its internal corruption probe in Los Angeles touching on Guess and Jordache. Gibbs and Assistant Commissioner Teddy Kern, chief of the inspection division, declined to be interviewed.

Instead, the IRS issued a statement: “We have stated to Congress, the media and the public that the service considers the allegations about which you are asking to be very serious. Consequently, we have assured Chairman Barnard and Congress that we will cooperate fully with any investigation of these allegations.

“What we hope for is a full and fair investigation of all the facts relating to all the allegations that have been made. We have also indicated to Chairman Barnard and Congress that it is critical that any congressional investigation result in a complete report that can be made public with respect to each allegation made. We believe that this kind of thorough investigation is important to maintain taxpayer confidence in the tax system.”