Special Force to Investigate Allegations of Misconduct by IRS

The Treasury Department’s inspector general will establish a special independent force of 21 investigators to probe allegations of corruption and misconduct by high-ranking officials at the Internal Revenue Service, officials said Friday.

The top levels of the IRS will be policed for the first time by persons outside the agency’s own ranks, an outgrowth of congressional hearings last year on scandals involving the Los Angeles criminal investigation division of the IRS.

The new investigative operation has already been given the task of checking 76 allegations against IRS officials, sources said. One of the inquiries focuses on Los Angeles agents and officials who bought investments from a firm already under tax audit by their office.

The IRS is giving Treasury $2 million to hire investigators for the first year of the new operation, IRS Commissioner Fred T. Goldberg told a news conference. “If it takes more money, we’ll give them more money,” Goldberg said. Future, permanent funding will come from Treasury appropriations approved by Congress.

Goldberg, while defending his agency’s operations, said the oversight by independent outsiders would improve “public confidence.”

“The bedrock of the tax system is the real and perceived integrity of this agency,” Goldberg said.

The IRS has traditionally thwarted efforts by outsiders to investigate the agency, asserting that its own inspection division could assure internal integrity. The congressional hearings and continuing controversy over activities in Southern California prompted the change in policy.

Under the new system, the Treasury’s inspector general will investigate allegations or complaints against IRS officials with the civil service rank of GS-15 or above.

The inspector general will also handle complaints against IRS inspection division personnel at any level. The inspection division is the IRS internal police force, charged with detecting wrongdoing by the agency’s employees.

The question is “who’s watching the watcher,” said Goldberg. “The answer is, now, the independent inspector general.”

A broad grant of authority to the inspector general gives him additional authority to investigate any “visible allegation,” such as a widely publicized news story about problems of misbehavior at the IRS, Goldberg said.

Although Goldberg said Friday’s announcement was the “product of the agency’s own self-examination,” he is also responding to morale problems among rank-and-file workers concerned about alleged abuses by their supervisors.

Past and present IRS personnel supplied substantial information about problems in Los Angeles, Chicago, Atlanta and other locations to the commerce and consumer subcommittee of the House Government Operations Committee, headed by Rep. Doug Barnard Jr. (D-Ga.).

Goldberg “deserves the praise of the public and the enthusiastic support of the Congress for his newly announced employee integrity action plan,” Barnard said Friday. “That plan, if properly implemented, will go a long way toward solving some extremely serious senior employee misconduct and morale problems at the service.”

The IRS “exercises greater power over the day-to-day lives of American citizens than any other agency of government,” Barnard said. “In order for our self-assessment tax system to work properly, the public must be confident that IRS employees are respectful of taxpayers’ rights and dedicated to exercising their responsibilities fairly as well as effectively.”

The focus of Barnard’s subcommittee hearings last summer was IRS involvement in a bitter dispute between two successful clothing manufacturers, Jordache of New York, and Guess? of Los Angeles.

Using information supplied by executives of Guess?, the Los Angeles criminal investigation division of the IRS opened a probe of Jordache, which led to an IRS raid on Jordache headquarters in New York and the seizure of a million documents. No charges have been filed against Jordache, and the papers have been returned.

Congressional committee investigators asserted that the IRS may have been been improperly influenced by Guess? officials to undertake the probe of Jordache.

The owners of Jordache, the Nakash family, bought 50% of Guess? in 1983 from its founders, the Marciano family, for $5 million. The families, multimillionaires from the sale of jeans, have been feuding for years.

The Marcianos sued to cancel the sale and won an important victory last year when a Los Angeles Superior Court jury supported their claims that the Nakashes invested in Guess? aiming to steal its designs. Damages will be decided in a second trial, scheduled to begin next week.

The Barnard subcommittee compiled information on a wide variety of alleged abuses at the IRS, including alleged incidents involving IRS agents drinking on duty, using government expense accounts to pay for trips to visit mistresses, and reprisals by high-ranking officials against agents who complained of corrupt practices.

In addition to announcing the agreement with Treasury Inspector General Donald Kirkendall to investigate corruption, IRS commissioner Goldberg said the agency will tighten its financial rules and controls on employee investments.

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