Panel Hears of IRS ‘Office Favorites’ : Inspection Services Should Be Separate, House Unit Is Told

Internal Revenue Service inspectors allowed “front office favorites” in the agency’s Los Angeles office to get away with misconduct, witnesses told a House subcommittee today.

The inspection service should be separated from other functions of the IRS to protect it from conflict-of-interest problems, the witnesses told the House Government Operations subcommittee on commerce, consumer and monetary affairs.

“Agents were reluctant to report employee conduct violations to the inspection service if it involved a manager or one of the front office favorites,” said Chuck McCalmont, a former group manager for the IRS Criminal Investigative Division.

The office in general was divided into the “front office favorites” and the “lunatic fringe,” McCalmont said. Those who disagreed with the managers of the CID were labeled the “lunatic fringe,” he said.

‘Special Relationship’

“The agents also felt if the allegation involved a so-called lunatic fringe agent, inspection, with the backing of our front office, went all out to prove the allegation,” McCalmont said.

Frank Rippetoe, former inspector in the Los Angeles office, said one of the managers of the inspection division had a “special relationship” with Ron Saranow, head of the CID.

As a result, when Saranow became the subject of an internal investigation because of his dealings with Guess? jeans makers, agents were reluctant to talk to inspectors because they felt that everything they said would get back to Saranow, said another former inspector, Russ Davis.

2nd Day of Hearings

Saranow was not scheduled to testify before the subcommittee.

The former inspectors’ testimony came on the second day of hearings by the subcommittee into problems within the CID, including allegations about Saranow’s involvement in a dispute between the makers of Guess? and Jordache jeans. Those allegations led to an expanded probe, in which subcommittee investigators said they found that the IRS sometimes seeks to protect its image at the expense of uncovering wrongdoing by its employees.

“There appears to be a longstanding institutional mind-set which says protect the image and integrity of the IRS at all cost because the image is vital to a voluntary compliance system which relies on taxpayer integrity,” investigators Leonard Bernard and Richard Stana said Tuesday.

IRS Commissioner Fred Goldberg, who is to testify Thursday, said in prepared testimony that he disagrees with the investigators’ characterization of the agency.