IRS Ends L.A. ‘Lockbox’ System That Once Gave Tax Evaders Anonymity

The “Los Angeles lockbox,” a special system allowing tax evaders to make anonymous payments and keep their tax returns secret in safe deposit boxes, has been suspended, Internal Revenue Commissioner Fred T. Goldberg said Friday.

Dozens of tax evaders had received promises of protection against prosecution under a program apparently unique to Los Angeles for the past 15 years.

Unlike other regions, where tax evaders must identify themselves when they make payments and ask for immunity, the Los Angeles IRS office sometimes granted amnesty letters without knowing the names of the recipients.

The system may have “blurred the line” between what is proper and what is unacceptable activity, according to Goldberg.

Goldberg disclosed the suspension of the program at a news conference announcing that the Treasury Department’s inspector general will create an independent task force to investigate corruption and misconduct within the IRS.

The IRS frequently deals with taxpayers who want to clear up their records, but the person normally identifies himself before he gets an assurance that prosecution is unlikely. For example, a lawyer might approach the IRS on behalf of someone who has not paid taxes for five years but wants to pay now and avoid jail. The client comes forward, gives his returns to the IRS and pays the back taxes and interest.

If the client does not have illegal sources of income, he may get a promise of immunity from prosecution. But his identity must be known to the IRS before the agency promises not to prosecute.

The Los Angeles system had a peculiar twist: Taxpayers got immunity without identifying themselves to the government.

The attorney would offer the IRS a check for partial payment of taxes and a key to a safe deposit box with the client’s tax returns for the years he hadn’t filed. Only if the IRS promised amnesty would the lawyer disclose the client’s name and the location of the safe deposit box.

This special system, started in Los Angeles in 1978 and approved by all district directors since then, never received formal approval from agency headquarters in Washington.

“Now you can’t walk in and get that letter in return for cash,” Goldberg told the news conference.