Some Tax Evaders Shielded by IRS in L.A., Panel Told
Dozens of tax evaders in Los Angeles have been given protection against criminal prosecution for the last 11 years in a unique program in which they made anonymous payments to the Internal Revenue Service and placed tax returns in secret safe deposit boxes, investigators told a congressional hearing Tuesday.
The Los Angeles office approved the unprecedented amnesty-type program without permission from Washington, an investigator said.
Attorney Richard Trattner would offer the IRS a check for partial payment of his client’s taxes and the key to a safe deposit box containing the client’s unfiled tax returns. If the IRS indicated it was unlikely that the client would be investigated, Trattner would disclose the client’s name and the location of the safe deposit box.
Trattner’s arrangement with the Los Angeles office, approved by all district directors since 1978, was disclosed Tuesday at a congressional hearing into IRS misconduct.
“This situation in Los Angeles involving Mr. Trattner is the only one of its kind in the entire United States,” investigator Leonard W. Bernard told the consumer and commerce subcommittee of the House Government Operations Committee. “The payment scheme was never officially approved by anyone at IRS’ national office in Washington, D.C.,” the investigator said.
“How many more personal amnesty programs are out there?” Bernard asked. “How many other situations or schemes exist in the IRS’ 63 district offices that haven’t been approved by the national office?”
Most of the 30 or 40 Trattner clients involved in the procedure had income from illegal sources, so e government could ot promise immunity from prosecution. In those cases, Trattner would give the IRS only periodic checks for partial payment of the client’s taxes. The IRS could not identify the clients from the checks, which were drawn on Trattner’s law firm’s trust account.
Because he wouldn’t name these clients, the safe deposit box keys piled up unused at the IRS offices. “In the last few years, there were so many keys that they began sending them back to me,” Trattner said in a telephone interview Tuesday from his Sherman Oaks office.
Avoiding ‘Chopping Block’
“I was trying to put people into the tax system, without putting their heads on a chopping block,” he said, adding that all of his clients are now regularly paying taxes and have put millions of dollars into the tax system.
Trattner served for 10 years as a special agent in the IRS’ criminal investigation division and later worked as an assistant U.S. attorney in Los Angeles.
The special tax policies of the Los Angeles office were cited by subcommittee members as just one example of severe problems at an agency seemingly out of control.
A yearlong investigation of the IRS uncovered “serious employee integrity problems among senior managers, inadequate internal investigations and punishment of senior-level misconduct and a pervasive fear at all levels of the IRS over retaliation for the reporting of such misconduct,” said Rep. Doug Barnard Jr. (D-Ga.), the subcommittee chairman.
“They’re abusive of people they should be serving; at the same time, they’re corrupt as hell on the upper levels,” said another subcommittee member, Rep. Matthew G. Martinez (D-Monterey Park).
In another surprise disclosure Tuesday dealing with a Los Angeles issue, Barnard said that an IRS agent had destroyed vital documents involved in a tax fraud investigation.
The missing material was submitted to the IRS in 1985 by the Marciano family, owners of Beverly Hills-based Guess?, a prosperous jeans and sportswear manufacturer. The documents dealt with the alleged tax violations of the Jordache jeans company and its owners, the Nakash family. The Nakashes bought half of Guess? in 1983 for $5 million, and the two families have been feuding bitterly ever since, with the Marcianos seeking to rescind the deal.
Based on material from the Marcianos, the IRS raided Jordache headquarters in New York in 1986, seizing 3 million documents. Since then, a New York grand jury has been investigating Jordache and the Nakashes without bringing any charges. The Marcianos have asked to be paid the reward that is due to an IRS informant.
Destruction Being Probed
Subcommittee investigators asked to see the materials furnished by the Marcianos and were told last month that an IRS agent had destroyed the documents in 1986. The Justice Department is reviewing the destruction of records to decide if a criminal investigation is needed, Barnard said.
The Marcianos, in going to the IRS about the Nakashes, were “financially and revenge motivated,” the subcommittee investigators, Bernard and Richard M. Stana, said in the lengthy report delivered Tuesday.
The Marcianos developed a close friendship with Ronald Saranow, former chief of the IRS criminal investigation division in Los Angeles. His office initiated the tax fraud probes of the Nakashes and and Jeff Bohbot, a former Guess? licensee also feuding with the Marcianos.
Saranow met with the Marcianos at least 20 times, including 14 “social contacts--lunches, dinners, parties, weddings and breakfasts,” the investigators said. Saranow was picked up in the Guess? corporate limousine for lunch with Paul Marciano.
According to the investigators, “former Los Angeles IRS district director Fred Nielson said he told Saranow in mid-1986 that he (Saranow) should have nothing to do with the Marcianos and that they were “sucking him along.”
Saranow, approaching retirement, asked for a leave of absence to go to work for Guess?, but the IRS denied his application. Saranow, in his role as a government official, was acting as “front man” for the Marcianos, the investigators charged.
“We believe the evidence demonstrates that the Marcianos exercised unusual influence over Ronald Saranow by cultivating a strong personal and social relationship with him and by offering him a six-figure salary,” they said.
Guess? hit back hard Tuesday at the subcommittee, saying the day’s hearing “relied on unsworn testimony despite assurances to the contrary. . . . The Marcianos stand squarely on their sworn testimony that they have never offered any jobs to Ronald Saranow.”
sh Personal Attack on Panel
In an unusual personal attack on the subcommittee, Guess? said in its statement that:
- A subcommittee staff member and his family had tax disputes with the IRS resulting in “tax deficiencies being imposed . . . this year.”
- Rep. C. Christopher Cox (R-Newport Beach) “curiously participated” in the hearing although his administrative assistant, Robert Sutcliffe, formerly was an attorney for Jordache and the Nakashes in the civil suits against the Marcianos and Guess?.
- When Guess? lawyers voiced concern about the fairness of the investigation in a meeting with the subcommittee staff, an investigator “threatened a personal vendetta against one of the attorneys in any future dealings.”