Management Abuses at IRS Outrage Senators

The Internal Revenue Service is beset by management corruption and misconduct that goes unpunished, even when allegations are proved, a Senate hearing was told Tuesday.

The agency’s managers have engaged in documented cases of sexual harassment, theft of government property and illegal harassment of taxpayers but were not held accountable, according to investigations by the Treasury Department’s inspector general and testimony from a senior official of the IRS office of general counsel.

In one case, a senior executive stole several luxury vehicles--perhaps as many as 20--that had been impounded from taxpayers but was not called to account until after he had retired, said Harry G. Patsalides, deputy assistant inspector general for the Treasury Department. Patsalides also said that the retiree paid restitution of only $20,000.

In another case, Patsalides said, an IRS employee sent an anonymous letter threatening retribution against a Los Angeles tax attorney who had testified about agency abuses at congressional hearings last fall. A follow-up investigation found that the letter had been written on an IRS typewriter and mailed from an IRS office in Long Beach but no action was subsequently taken, Patsalides said.

The session Tuesday was the first of four days of hearings this week on IRS corruption and abuse and follows similar disclosures at hearings last fall. Those earlier hearings made the IRS a prime target for political attacks and spurred legislation to restructure the agency and curtail some of its powers.

The House overwhelmingly approved its version of an IRS reform bill last year. The Senate is scheduled to take up similar legislation next week.

Tuesday’s testimony evoked further outrage among members of the Senate Finance Committee, chaired by Sen. William V. Roth Jr. (R-Del.), which has been looking into problems at the agency for more than a year.

Roth said it was clear to him that the agency not only is abusive toward taxpayers but that it has serious integrity problems affecting its internal operations, particularly its powerful criminal investigation division.

IRS Probe to Be Led by Webster

Acknowledging that it has such problems, the IRS on Tuesday announced the appointment of William H. Webster, former chief of the CIA and FBI, to head an investigation. Michael E. Shaheen Jr., a former top Justice Department official, will assist.

At Tuesday’s hearing, senators clearly were taken aback by Patsalides’ allegations of official misconduct by top IRS officials, particularly the incident involving the car thefts.

The thief, who was not named, was one of the agency’s four regional directors for undercover operations, Patsalides said. He obtained titles to the cars by convincing state automobile licensing authorities in New York that he needed the ownership records transferred to him for undercover operations.

The cars included BMWs, Mercedes-Benzes and Lincoln Continentals taken under liens for back taxes, according to the Finance Committee staff. The executive gave the cars to his wife, his son and a friend of his son, the staff said.

The IRS never criminally prosecuted the official but put him on administrative probation and obtained the $20,000 restitution from him. Patsalides testified that the agency’s records were so poor that it was never sure exactly how many cars the executive stole but that the number may have reached 20, he said.

Patsalides also detailed the circumstances surrounding the threatening letter sent to the Los Angeles tax attorney, who had testified at Senate hearings last fall. Although the identity of the attorney was not disclosed, The Times learned that he is Robert S. Schriebman of Rolling Hills Estates.

“I was stunned,” Schriebman said in an interview. “I have never been threatened in all the years I have been practicing.”

The letter to him was typed at the top of a newspaper story about a Los Angeles business that had been raided by the IRS.

“You and your clients are next,” the letter said. “You are currently under investigation and I’m waiting for the day your name is in the paper.”

During the hearing, the committee distributed a copy of the letter. IRS investigators tracked the letter to the agency’s office in Long Beach and found the typewriter ribbon that bore the imprints of the letter.

But IRS investigators dropped the inquiry after the individual suspected of writing the letter denied any involvement. Patsalides said that he would reopen the case if the IRS inspection division fails to do so on its own.

Sexual Harassment Allegations

Patsalides also said that, based on his investigation, a former IRS national director of equal employment opportunity was named to his post after he was the subject of sexual harassment claims. Patsalides said that the director was the target of sexual harassment claims later while he served in that office. He eventually was given a written reprimand and transferred to a new job.

The Finance Committee produced a surprise witness when it called Yvonne D. DesJardins, the IRS’ chief of employee and labor relations in its office of general counsel.

DesJardins testified that the agency uses a double standard, excusing gross misconduct by its top executives that would not be tolerated among lower-level employees. DesJardins also said that the IRS routinely shelves investigative reports of misconduct by managers, including two cases involving travel fraud and one alleging sexual harassment.

DesJardins said that she was responsible for handling reports of executive misconduct from May 1994 to October 1996, and that even when misconduct was substantiated, in most cases no disciplinary actions were taken. The ultimate decision to shelve the reports was made by IRS Deputy Commissioner Michael Dolan, DesJardins said.

Dolan issued a statement late Tuesday, saying that Webster’s review will include looking into disciplinary actions that he had decided. “I welcome this review,” he said.

Attorneys Allege Abusive Treatment

The hearing also included testimony from four tax attorneys alleging abusive treatment by the IRS’ criminal division. Ray Cody May Jr., a Shreveport, La., tax attorney and part-time district attorney, said that he became the target of an abusive audit by IRS agents after he refused to allow them to interview his client.

“Taxpayer representatives need protection from the IRS,” he said.

IRS Commissioner Charles O. Rossotti on Monday outlined a seven-point plan to improve the criminal investigation division, anticipating at least some of the damaging disclosures coming out of the hearings.

The program includes launching a review of the IRS inspection service, the internal investigation arm of the agency, by former General Accounting Office Chief Charles A. Bowsher.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

A Senate Audit

A Senate panel began hearings into assertions that the IRS abuses its power and punishes employees who call attention to agency problems.

“The whistle-blowers are ostracized and careers destroyed . . .”

--Yvonne D. DesJardins, left, chief of the IRS employee and labor relations section

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HEARING TOPICS

* Weaknesses in oversight

* Discrimination in the agency

* Different disciplinary treatment for IRS executives and rank-and-file workers.

* How investigative techniques to deal with violent and dangerous criminals are used against taxpayers.