Ex-Sen. Baker Was a Target of Bogus IRS Case

A criminal investigator for the Internal Revenue Service, using bogus allegations, attempted to initiate a Justice Department inquiry involving former Sen. Howard H. Baker Jr. and two other Tennessee politicians, a Senate hearing was told Thursday.

The agent, who had a serious drinking problem and was later fired for cocaine possession, had a long history of rogue behavior and had publicly boasted in bars in Tennessee that he wanted to get Baker, then-Rep. James H. Quillen and state prosecutor David Crockett.

Such high-profile criminal prosecutions would have advanced the agent’s career, according to testimony before the Senate Finance Committee. Despite the agent’s troubled work history, IRS managers took no action against him.

The allegations came on the third day of the committee’s hearings on misconduct and abuse by the IRS criminal investigation division. The hearings have grown increasingly contentious, with Democrats charging that the investigation is a politically motivated GOP attack on the IRS.

But the hearings produced a series of disclosures pointing to structural problems in the IRS. In separate testimony Thursday, three senior IRS examiners who handle complex corporate audits said that IRS executives went easy on big corporations as a prelude to seeking private-sector employment.

IRS Commissioner Charles O. Rossotti said after the hearing that he would ask the Treasury Department’s inspector general to investigate the disclosures made at the Senate hearings. He said that he plans to take appropriate disciplinary action.

“What I am trying to do is focus on the future and how to fix the IRS so that it will serve the American people,” Rossotti said. “The testimony that the Senate Finance Committee was able to elicit over these last few sets of hearings helps to illustrate the kind of problems that need to be addressed.”

Baker, Quillen and Crockett said they remained indignant over what they regarded as a blatant effort in 1989 to frame them.

Although the investigation never went forward, the men said they were convinced that the allegations remained filed away either at the IRS or at the Federal Bureau of Investigation.

“I have never been so infuriated,” said Baker, a former Senate majority leader and former White House chief of staff to President Reagan. “It is . . . a pernicious evil.”

The alleged plot against the two Republican lawmakers and the prosecutor was hatched in the IRS’ Knoxville criminal investigation office, where agents would get so drunk during and after work that they sometimes could not find their cars, according to Tommy Henderson, an agent who eventually blew the whistle on the phony investigation.

Tony Deaton, the rogue IRS agent who concocted the plot, is dead, according to the committee. Deaton claimed that an informant could provide evidence that Baker and Quillen had received $300,000 to $400,000 a month for seven years from a well-known national company for favorable legislation and political consideration.

Without obtaining proper authorization, Deaton started a formal investigation and forwarded his information to the U.S. attorney in Greenville, Tenn., and the FBI.

Henderson, a low-level supervisor in the office, was dubious about the case and assigned another agent to review the matter and ultimately concluded that the entire case was without merit, he said. But when he reported to senior IRS officials that Deaton was out of control, he found himself branded as a renegade and turncoat, he said.

Henderson’s account was backed up at the hearing by Patricia Gernt and Barbara Latham, two other IRS criminal division agents from Knoxville, who said that they refused to participate in a campaign with management to ostracize Henderson and themselves became outcasts in the office.

Gernt and Latham ultimately were driven out of the agency, filed civil suits and won sizable legal settlements from the IRS for harassment. Henderson, meanwhile, was demoted, but he still works for the agency. All three said that they continue to fear retribution from the IRS.

Baker and Quillen said that they had no idea why Deaton had targeted them and only learned of the matter in recent weeks when the committee staff approached them.

Crockett, a descendant of Tennessee pioneer Davy Crockett, said that he suspects Deaton targeted him when a member of his staff prosecuted Deaton for drunk driving after he was involved in a traffic accident in Tennessee. Deaton was found not guilty after other IRS agents testified on his behalf that he was not drunk.

When Deaton was caught with cocaine in 1997 in Knoxville by a local deputy, he tried to bluff his way out of trouble by saying that he was part of an undercover IRS investigation, Crockett said.

“This agent’s ambition to get some big people to advance his own career was wrong and the failure of those in management who protected him was disgraceful, particularly when management turned their animosity upon the few agents of integrity who tried to bring this agent to their attention,” Crockett said. “We average Americans, who work every day and pay our taxes, still fear the IRS, whose agents can, by virtue of their positions, destroy lives and ruin careers.”

The Senate committee also heard from three agents and examiners in the corporate tax area who said that the IRS had serious problems in pursuing big-money cases. The three agents were Minh Thi Johnson of the Los Angeles IRS district, Maureen O’Dwyer of the Manhattan district and Ginger Jarvis of the Manhattan district.

Jarvis, a team coordinator for large corporate examinations in Manhattan, said that tax liabilities in the hundreds of millions of dollars were “zeroed out” by IRS managers who wanted to create the appearance of promptly settling cases.

In one case, Jarvis said, a $10-million tax liability was lost when IRS agents permitted the statute of limitations to run out.

O’Dwyer testified that IRS managers sometimes went easy on taxpayers who might be able to help them set up careers outside the government.

Johnson said that the Los Angeles district pressured agents to drop complex tax cases and instead direct attention toward easier cases involving small corporations. The agency fails to give agents adequate time to research the corporate audits it does undertake, she said.

“We are ordered by our managers to propose adjustments--in this case increases--in taxes owed without any justification for it,” Johnson said.