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INTERNAL REVENUE SERVICE

GOVERNMENT ------------- - “ . - i . — . - - - - -

Storage

H E A R I N G S

BEFO RE A

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESE NTATIVE S

NIN ET IE TH CONGRESS

FIRS T SESSION

ce

SUBCOMMITTEE ON DEPAR TMEN TS OF TREASURY AND POST OFFICE AND 

EXE CUTIVE OFFI CE APPR OPRIATIONS

TOM STEED, Oklahoma, Chair ma n

OTTO E. PASSMAN, Louisiana 

JOSEPH P. ADDABBO, New York 

JEF FER Y COHELAN, California 

SIDNEY R. YATE S, Illinois

Aubrey A. Gunnels,

SILVIO O. CONTE, Massachusetts 

HOWARD W. ROBISON, New York 

CHARLOTTE T. REID, Illinois

Staff Assistant to the Subcommittee

CHARGES OF ABUSES BY INTERNAL REVENU E 

SERVICE AGENTS

Printed for the use of the Committee on Appropriations

SAN SAS STAT E UNIVERSIT Y LIBR ARIES

INTERNAL REVENUE SERVICE

H E A R IN G S

BE FO RE A

SUBCOMMITTEE OF THE 

COMMITTEE ON APPROPRIATIONS 

HOUSE OF REPRESENTATIVES

NI NE TIET H CONGRESS

FI RST SES SIO N

SU BC OM MITTE E ON DEP ART M EN TS OF TR EA SU RY AND PO ST OFF IC E AND 

EX EC UTI VE OFFIC E APP ROPR IA TIO NS 

TOM STEED, Oklahoma, Ch airma n

OTTO E. PASSMA N, L ou isia na SILV IO O. CO NT E, M as sa ch us et ts

JO SE PH P. ADD ABBO, New Yo rk HO WA RD W. RO BISO N, New York

JE FFE R Y CO HE LA N, C alifo rn ia CH ARL OT TE T. REID , Il linois

SID NE Y R. YA TE S, Illino is

Aubrey A. Gu n n els, S ta ff A s s is ta n t to th e S u b c o m m it te e

CHARGES OF ABUSES BY INTERNAL REVENUE

SERVICE AGENTS

Printe d for the use of th e Committee on Appropriations

82-750

U.S. GO VE RN ME NT PRIN TIN G O FFIC E 

WAS HI NG TO N : 1967
COMMITTEE OX APPROPRIATIONS

GEORGE H. MAH ON , Te xa s, C h a ir m a n

F R A N K T. BO W , Ohio 

C H A R LE S R. JO NAS , Nor th Ca ro lin a 

M ELV IN It. LA IR D , Wisc on sin 

E LFO R D A. CE D EIt BER G , Mich igan 

G LEN A ItD P. LIP SC O M B, Cal if or nia 

JO HN J. RH ODES, Ar izon a 

W IL LIA M E. M IN SH ALL, Ohio 

R O B E R T H. M IC H EL, Il lin oi s 

SIL V IO O. CO NTE , M as sa ch us etts 

OD IN LA N G EN , Minne so ta 

BEN R E IF E L , So ut h Dak ot a 

GLE NN R. D A V IS , Wisc on sin 

H OW AR D W. ROBIS ON, Ne w Yo rk 

GAR NER E. SH R IV ER , Kan sa s 

JO SE PH M. MCD AD E, Pen nsy lv an ia 

M A R K AN D R EW S, North Dak ota 

W IL LIA M H. H AR RIS ON, Wyo ming 

LO U IS C. W YM AN, New Ha mpshire 

B U R T L. T A LC O T T, Cal if or nia 

CH A R LO TT E T. REID , Illin oi s 

DO N ALD W. It lE G L E , JR., Mich igan

M IC H A E L J. KIR W AN , Ohio 

JA M IE L. W H IT TE N , Miss iss ippi 

GEORGE W. AN DREW S, Alab am a 

JO HN J. RO ON EY , Ne w Yo rk 

R O B E R T L. F. SIK E S, Flo ri da 

OTT O E. PASS M AN , Lo ui sian a 

JO E L. EVIN S, Te nn essee 

EDW AR D I’ . BO LA ND, M assa ch us etts 

W IL LIA M II. N ATCII ER , Ken tu ck y 

D A N IE L J. FL OOD, P enas ylv ania 

TO M ST EED , Ok lah om a 

GE ORGE E. SH IP L E Y , Il linoi s 

JO HN M. SLA CK , JR „ W es t V ir gi nia 

JO HN J. F L Y N T , J r„ Ge or gia 

N E A L SM IT H, Io wa

R O B E R T N. GI AI MO, Co nn ec ticu t 

JU L IA B U T LE R H AN SE N, W as hing to n 

C H A R LE S S. JO ELS ON, Ne w Je rs ey 

JO SE PH P. ADDAB BO, New Yor k 

JO HN J. M CF AL L, Cal if or nia 

W. R. H ULL , JR., Miss ou ri

J E F F E R Y CO H ELA N, Cal if or nia 

TH OM AS G. M ORR IS , Ne w Me xic o 

E D W AR D J. PA T TE N , New Je rs ey 

CLA R E N CE D. LO NG , M ar yl an d 

JO HN O. M AR SH , JR„ V ir gi nia 

SID N E Y R. Y A T E S, Illinoi s 

BO B CA SE Y , Tex as

D A V ID PR YO R , A rk an sa s

K en n et h SpRANk i.e, C le r k a n d S ta ff D ir e c to r

P au l M. W il s o n , A s s is t a n t C le r k a n d S ta ff D ir e c to r

(II)
INTERNAL REVENUE SERVICE

CHARGES OF ABUSES BY INTERNAL REVENUE SERVICE

AGENTS

T hursday, August 10, 1967

W IT N E S S E S

SH EL DON S. CO HEN , COM M IS SI ONER 

W IL L IA M H . SM IT H , D EPU T Y COM M IS SI ONER 

DO NA LD W . BA CO N, A SSIS TA N T COM M IS SI O NER (C O M PLIA N C E) 

JO S E P H R O SA PE PE, D IR EC TO R , PU B L IC IN FO R M A T IO N D IV IS IO N 

JA M E S M IL L E R , LEG A L A D V IS E R TO COM M IS SI ONER 

NORM AN SI M S, D E PU T Y D IR EC TO R , O FFIC E OF BUD GE T AN D 

F IN A N C E , O FFIC E OF T H E SEC R ETA R Y

Mr. Steed. The committee w ill be in order.

Th e com mittee is conven ing this mo rni ng to discuss some problem s 

wi th the Com mission er of In te rn al Revenue and his staff. As you 

know , Mr. Com missioner, the cu rre nt issue of the natio nal magazine 

Re ader's Digest ca rri ed an art icl e written by Mr. Jo hn Ba rro n entit led “T yr an ny in the In tern al Revenue Ser vice” in whi ch a considerable num ber o f case histories a re rep orted w hich could give th e a ve rage rea der the imp ression th at the gr ea t tax collecting agency which 

you head is going b eyond its a uth orities and good judgme nt in ca rrying out its work.

As you kn ow, i t has been the policy of th is subcommittee no t on ly to 

go into gr ea t detail in the budgets th at we supervi se, but fro m tim e 

to time to sit in conference with those agencies to keep up with cu rrent activities , problem s, and changes in pro gra ms. So we are very 

conc erned about this a rtic le, its authe ntici ty, and w hat n eeds to be p ut 

on the r ecord to p lace all t he fac ts in prop er focus. We are not here to 

prosecute or defend. We are, as you know, int ere ste d only in the fa ctual 

situation.

We know, of course, th at collecting tax es is no t one of the most po pul ar and plea sa nt fun ctions of Gov ernment, but it is probably one of 

the most im po rtan t and necessary. I recall th at in all of y ou r ap pe arances before t his com mittee you hav e in the record discussed in gr ea t 

detail your appreciat ion of the fact th at the Am erican people have 

always ta xed them selves un de r our code in a way t hat no p eople in all 

his tor y have done, and th at the o verwhelm ing ma jority o f people have 

been honest and fo rthr ig ht in th eir dealings with their Government. 

You have also s tat ed t hat you think it is of t he u tmost imp ortance for 

this pub lic confidence to be main tai ned at all costs. I have always 

agr eed with that.
2 INTERNAL REVENUE SERVICE

We realize the re are always those who wan t to cheat and evade, a nd 

ap plying the law to th at type of people is n ot the m ost ple asa nt task . 

We know th at in an org aniza tion inv olv ing as many huma n beings 

as yours does, it is possible, th at now and then some ag ent can exceed his 

au thor ity or engage in activities th at good judgme nt would n ot u pho ld. 

We are not inclined to get too excited a t some misha p on occasion, but 

when the charge is mad e th at this is wides pread and by inference, at 

leas t, has the acquiescence of manag ement, I think th at poses a questio n that is very serious. I am sure you feel the same way. Ou r association s with you and your people have been to the c on tra ry of those 

charges. I know you have introd uced some inn ovations in the agency 

since you have been the head of it t hat make it more palat able to the 

taxp ay er to do business with the agency. I recall earlier t his year you 

made ava ilab le some articles fro m a New Yo rk new spa per in which 

the y ha d interview ed peop le who ha d been call ed to face yo ur reven ue 

age nts on th eir tax ret urns, and almost witho ut exception the y were 

high in th eir pra ise of the t reatm en t the y received at the hands of the 

In tern al Revenue Service. I tho ught the efforts you hav e mad e to improve the rel ations between th e age nts of th e In tern al Revenue Service 

and the t axpa ye rs were beari ng frui t, and th at is w hy it was distur bing to me to see th is a rticle.

Fi rs t, you have read this article, have you not?

Mr. Cohen. Yes, I ha ve ; w ith gre at distres s, I might add.

Mr. Steed. I think first we would like to hav e a ny gen eral statem ent 

you might wa nt to make in response to this, and the n we will have 

questions we w ould like to p rop ound a nd go on with the review of the 

whole problem .

Mr. Cohen. T ha nk you, Mr. Ch airma n. I do appre cia te the op po rtunity to meet with you and discuss in th is way the very distu rbing 

article . It is distu rbing to me because, as you well poi nted out, the 

efforts, not only du rin g my administ ratio n but fo r a g ood long time in 

the Inter na l Revenue Service, have been in tryi ng to mod ernize pr ocedu res to make them more hum ane and accessible to people and to 

eliminate all possible disp utes. To th at end we ha ve mad e great pr og ­

ress, which I thi nk has been recognize d in m any places ind epe ndent of 

the ad mi nis tra tio n or the p ar tic ul ar agency involved.

So a bro ad accusation of a bre akd ow n in the system I believe is 

unc alle d for. In an agency with BO.OOO peop le ma kin g independe nt 

jud gm ents we do not claim infal lib ility. There are occasions when 

err ors are made . Bu t I think the re are e nough checks and balances in 

the system th at each time a judgm ent is made the re are checks made of 

it so th at no one jud gm ent goes off on a tan gent very fa r befo re it is 

brou gh t back. T his is the majesty o f the system .

T would like to ru n throug h a quick overview of the system, the 

things we have done and why we th ink gen eral cha rges are uncalled 

for, and then handle a few specific instances th at were bro ught up. 

Then I will l>e glad to answer any questions you might have.

I think , if the chairma n does not mind, the way to star t off is to 

rea d a lette r I received yeste rda y aftern oon. My s ecretary bro ught it 

to me at 5 o’clock yes terd ay. It is a carbon copy of a lette r sent to a 

Con gressm an. It is from a taxp ay er I never he ard of and our people 

don't know him. It is addressed to Con gressman Charles TV. W halen,
INTERNAL REVENUE SERVICE 3

Jr., of Ohio, and I don't know Mr. Whalen either. I will read the letter, if you don't mind, in its entirety. It is not very long.

(Thereupon the following letter was read by Mr. Cohen:)

Hughes White Truck Sales Co.,

Dayton, Ohio, August 7 ,1967.

Hon. Charles W. Whalen, Jr.,

Congressman, Th ird District, Ohio,

Washington, D.C.

Dear Chu ck : Have you read the article by John Barron in the August issue 

of Reader’s Digest, entitled “Tyranny in the Intern al Revenue Service?"

I did, a few nights ago, and I’m still incensed that a high grade publication 

like Reader’s Digest would stoop to print such a scurrilous and misleading 

article.

Even if Mr. B arr on’s report of certain insta nces is basically factual. I feel he 

is completely unjustified in trying to infer that these are represe ntative of the 

general policy or practice of th e Inte rna l Revenue Service.

In his peroration, Mr. Barron writes: “Let your Congressman know what you 

thin k of IRS abuses.” Here with I am following his suggestion, except for omission of his las t word “abuses.” As head of two small corporations, The Hughes 

White Truck Sales Co. and The Hughes Investment Co., I have had many contac ts with IRS rega rding Income Tax. Withholding Tax. Highw ay Use Tax. etc., 

and without exception its rep rese ntatives have been well traine d and fair minded. 

These contacts, over a period of nearly forty-seven years, have made me a sincere 

adm irer of IRS and its personnel.

Finally, Mr. Barron w rite s: “It is important for all of us to stop being afraid 

of IRS. When it acts unfairly, we should speak out.” I agree with his last sentence, but not his implication that it is so likely to use un fai r tactics that we 

need be afra id of it. If th e law now has objectionable feature s, it is the function 

of Congress to correct them. As an average “honest American tax pay er” (Mr. 

Barron’s words), I have every confidence tha t IRS will enforce them properly 

and fairly.

Sincerely,

Bob Hughes.

Mr. Cohen. This is a letter that was completely unsolicited. I 

called Mr. Hughes last night to thank him for the letter and ask for 

permission to use it, and he said he would applaud my use of the 

letter and in fact would be glad to make it public himself. He said 

when he went in business 47 years ago his first contact with the 

Internal Revenue Service was in connection with an excise tax problem. lie said he computed the excise tax and then went to the agent 

because it was complicated, and the agent in charge of that office 

pointed out he had mistakenly overcomputed the tax and that the 

amount he owed was less than his computation. He said over the years 

sometimes he has come out on top and sometimes at the bottom, but 

never was he treated unfairly.

These letters I have here are all addressed to this particular article. 

I could have brought in a great many more, if I brought you all the 

letters addressed to me during the year—and I always read letters 

addressed to me and signed. I don’t read unsigned ones, but all those 

tha t are signed are given to me by my secretary and I read them, 

whether they are complaints or praise.

It is rather surprising that in an agency such as ours, which bv 

its nature can never be popular, the number of letters praising the 

Internal Revenue Service is rather large; because people who are 

happy with our operations are not prone to write.

One letter is from a gentleman who discusses the fact he just finished the first field audit he ever had and the Internal Revenue Service assessed him $10,000 in taxes. H e says he is not enamored to pay
4 INTERNAL REVENUE SERVICE

$1 0,0 00, bu t be thou gh t the au dit was conducted in a professio nal and 

fa ir way, and he believes the au dit is rig ht. Th is taxp ay er feels his 

con tact with the In tern al Revenue Serv ice af te r going throug h an 

“orde al,” in his terms, is one of ad miration .

Th e basic str en gth of a self-assessment tax system is t he confidence 

the taxp ay er has in his Governm ent. I think I distr ibuted to the committee some tim e ago a couple of talks I made alo ng this line. Mr. 

Rosapepe will distr ibute them . Two o f th em are illu str ati ve. I m ade a 

ta lk to th e N ational In du strial Conference Bo ard an d one to the Ex ecutive C lub in C hica go indic ati ng that the basic s tre ng th of the American 

tax system is m utu al confidence. T he taxp ay er has confidence the Gov ­

ern me nt is trea ting him fairl y, and the tax agent is convinced the 

ave rage Am erican tax pa ye r is a n honest man. I t hink th at is t he key ­

stone as Congress would wa nt it and as the people would want it. So 

any charge th at anybod y is bre ach ing t hi s tr ust an d confidence— and 

the th ru st of this art icle is that we h ave— is p ar tic ul ar ly d istressin g in 

the lig ht of the fac t th at we t hink we hav e mad e some gr ea t chan ges 

in efforts in the last 5 years.

I m igh t ju st o utline to you some of t he thing s th at have occurr ed in 

the last 5 or 6 years.

The In tern al Revenue Serv ice, as you all are well awa re, is a comple tely decentralized org aniza tio n wi th its offices a s close to the ta xpa ye r as possible so it can create a n a ura of closeness and lack o f f ormality and lack of inconvenience to the taxp ay er to travel a great dis ­

tance to have his d isp ute h eard. Th ere are 900 revenue offices all over 

the cou ntry. We encourag e our agents to discuss the taxp ay er's affa irs 

with him in an infor ma l way and to d ispos e of the case by agreem ent 

if at all possible, ga ther ing the fac ts an d ma kin g a quick dispos ition 

if possible. Most tax pa ye rs—by and large, the ove rwh elm ing perce ntage— are com pletely coo perativ e and th is is a process th at tak es very 

lit tle time. Some tax pa ye rs hav e anxie ty about this. I can ’t say th at 

there are n’t a g ood many who might feel th at way, b ut our age nts a re 

instr ucted to try to keep them a t t he ir ease and to explain to them t ha t 

th e ordina ry tax au dit is just a fac tfinding e xpe dition. By and larg e, 

th e In tern al Revenue Serv ice pu ts its tru st in the taxpa ye r. He is the 

one in control of th e facts. Th e agent has no wav of knowing if he has 

three or f ou r c hildre n or wh eth er the o ther fact s claimed in his return 

are tr ue or not t rue . T herefore , it is not reflectio n on the in tegr ity of the 

taxp ay er when the re tu rn is called fo r a verific ation; and th at is all 

it is, a ve rification of the fac ts given by him.

Mr. Steed. In connectio n w ith your reference to these aud its, perh aps 

it would be h elp ful at th is point i f you would outlin e which audit s are 

man da tory and which ones are selected on a ran dom basis.

Mr. C ohen. I th in k a par t o f th e problem of this o r any othe r article 

is a lack of un de rstand ing of the basic princ ipl es we follow in our 

system. F ir st I wou ld like to describe the ma the ma tical verification 

process. Ev ery re tu rn that goes throug h ou r auto ma tic d ata processing 

syste m is verified fo r its m ath . We don’t call th at an audit . Th is is a 

pu re ma the ma tical verifica tion . Th e interesti ng th in g to me is th at 

there were ap prox im ate ly 3.5 million correc tions in ari thm eti c made 

du ring t his proce ss last year. Th e taxp ay er receives notice th at i t ap ­

pears h is arith me tic is wrong, and here are the res ult s of o ur ca lcu lations.
INTERNAL REVENUE SERVICE O

The numb er of return s which indic ate d errors in comp uta tion th at 

the taxp ay er made ag ains t him self, to his own detrime nt, last year 

amounted" to 1.400,000. A bo ut $82 m illion was ref un de d to these ta xpayers by the In te rn al Rev enue Ser vice wi thou t any req ues t on th eir 

pa rt, in fact w ith ou t kno wledge on th ei r part that th ey ha d overp aid 

us. Th is is not ind ica tive of a des ire on the part o f the I nter na l Revenue Service to get th e last buck. These p eople did no t know they had 

overp aid us. It is tr ue , o f course, t hat the other 2 million people whose 

return s we verified m ade m istake s the other way. Th e objective of o ur 

whole existence is to determine t he prop er tax , not a pen ny more and 

no t a penn y less.

Now, why do we choose a re tu rn fo r au dit? Very few are chosen at 

random . R andom selection is only used as a scientific device to show our 

other methods are working. Th e reason a retu rn is chosen fo r au dit is 

th at th ere is some cha racte ris tic about it th at leads one to believe ther e 

is an err or. So you wou ld think in the ove rwh elm ing m ajority of those 

chosen fo r au di t there was a su bstan tia l err or. Hav in g chosen abo ut 

3.5 million, whi ch was the c apaci ty of ou r manp ow er last ye ar to a ud it, 

we discovered 38 per cent of those were absolutely corr ect. We ve rified the figures wi th the taxp ay er an d the taxp ay er was able to 

show his clai med ded uctions, et cete ra, were correct, and in each such 

case the taxp ay er received a lette r th at af te r ver ific atio n the retu rn 

was accepted as co rrec t.

Ano ther 7 perce nt received refund s because it was determined 

th at th eir tax was overpaid. Some thing in the neighborho od of $154 

millio n was ref un de d on those returns. That is 45 percen t of all the 

return s filed th at were chosen fo r au di t because it was th ou gh t the re 

was er ro r and were fou nd n ot to h ave er ro rs or to h ave er rors in favo r 

of the t axpayer.

When y ou get to t he end of t hat s tatistic al road yo u find 55 percen t 

of those chosen for au dit did hav e errors a nd ad jus tm en ts were m ade 

of over $3 billion, about evenly distr ibuted between indiv idual and 

corpo rat e adjus tments, about $1.5 billion in indiv idual adjus tm ents 

and about the same, $1.5 billion, in corp orate adjus tments.

So the process is no t one of ex tra ctin g the last d oll ar, a s some have 

alleged. Th e process is one of de ter mining t he ri ght tax .

Now, we h ave a n agent d ete rm ine th e facts. That is his on ly job; he 

is n ot a law yer, he is not a jud ge ; his job is to det erm ine th e fac ts and 

ap ply th e law as wr itten .

Th e tax pa ye r, of course, h as a r ig ht t o be repre sen ted by a l aw yer or 

an accou nta nt and most tax pa ye rs with com plic ated problems are 

represented. Ou r agents are instr uc ted to be ex tra careful with ta xpayers not rep res ented to be sure he un derst ands the proced ure and 

the law.

Th e taxp ay er, when he receives his preli minary notice fro m the 

agent , is inf orm ed th at if he disagrees wi th the agent he has certa in 

righ ts of app eal. Some righ ts are provide d by the In te rn al Revenue 

Code, bu t many are provide d by the ma chi ner y we have set up to 

eliminate as ma ny disputes as possible. The am azing th in g abo ut 

our system is t hat so few d ispute s a rise. Some hu nd red millio n return s 

were filed last year and $148 billion was collected last year. Fo rtyeig ht m illion refun ds am ounting to $7.5 billion w ere made. When you 

th in k of the numb er of pieces of pa pe r an d the questio ns involve d,
6 INTERNAL REVENUE SERVICE

the miracle of th e system is t ha t it makes so few errors. Th is is not Io 

say we ma ke no er ro rs ; we are hu ma n beings.

Th e taxp ay ers, 55 perce nt of those audited, hav e received notice 

th at the agent prop oses an adjustment. They hav e an app oin tment 

and discuss thes e adjus tments with the agent. M ost of them are agreed 

upon at th at point. I f he chooses, the tax pa ye r has two ad minist rative righ ts o f appeal which we h ave been constan tly l ibe ral izi ng over 

the las t few years. Th e first app eal is one we encourage all the small 

tax pa ye rs, th e ones w ith factua l questions or involving a small amo unt 

of money, to go throug h, because it is the leas t for ma l and the most 

accessible to him and will work best in th at k ind of case. Th is is w hat 

we call the distric t co nference procedure. I f he has a claim of less th an 

$2,500 he merely has to call or wr ite the office and sav he wants an 

inform al conference and it is gra nte d. No f orm al legal d ocuments need 

to be filed and he does n ot hav e to be rep res ent ed unless he chooses it. 

Th e person who hea rs his appea l is indepe ndent o f the perso n who set 

up this origin al claim or adjustme nt. Conferees will sit perm anently 

in a great m any cities, 50 or 60 cities around the country, and when the 

need is there he rides c ircuit to the smaller tow ns throug h the v arious 

State s so th at nobody has to tra vel any great distanc e to accom plish 

this inf orm al face-to-face conference with a ma n indepe ndent of the 

au dit procedure.

Most of t he cases are dispo sed of rig ht here. Th e taxp ay er m ay not 

have und erstoo d the importanc e o f the m atter or he may not have been 

able to properl y focus on the pro blem , and in most cases, over 75 perc ent 

of the cases, are disposed of righ t there. Th at is the end of the roa d, 

sometimes because the taxp ay er underst ands now and gives up, and 

sometimes because he has pro duced more fac ts and we are able, on d iscovery of those addition al facts, to reduce or eliminate th e amoun t of 

the claim .

The second level of appeal is fo r those ta xp ay ers s till u nh appy a fte r 

this first procedu re, and I th in k 40,000 took this firs t procedure.

Mr. R obison. 40,000 out o f how many ?

Mr. Cohe n. We st ar t wi th 3.5 million and 40,000 took the first 

procedure.

Mr. Conte. You emp hasize the fac t the perso n is a dvis ed he has th e 

righ t of a ppeal and th e rig ht t o have a la wye r. Do you advise him imme dia tely th at he ha s a rig ht to ha ve a lawyer ?

Mr. Cohen. The au dit proced ure is not a lega l procedure. It is a 

fac tua l determinat ion . Th ere is no formal ins tru ction to him that he 

sho uld hav e a lawyer. Th e problem there is th at we might scare him 

into believ ing h e has to be repr esented. li e doesn’t hav e to. The rules 

sav he can be repres ented if he chooses, and we make t ha t clear to him.

Mr. Conte. Rut he has a rig ht to a lawyer ?

Mr. Cohen. H e has a rig ht to a l awyer or an acc oun tant.

Mr. C onte. The R eade r’s Dige st m entioned cases where the ta xp ay er 

was not allowed to call a lawy er.

Mr. Cohen. I will g et to th at alleg ation later.

Th e A pp ellate Division is where we suggest people with complicated 

cases go, or people dissatisfied with the first confe rence. Th e A ppellate 

Division sits in abo ut 40 cities perm anently and likewise ride s circuit 

to cities where there are prob lems, so th at, again , the taxp ay er does 

not have to go gr ea t distances to h ave a conference. Th e a ppellate con-
INTERNAL REVENUE SERVICE 7

feree s are 700 in num ber. Th ey are com pletely ind ependent of our 

whole field of opera tion. Th eir line of au thor ity runs from me in 

Wash ing ton and does n ot come fro m any bod y in the district office that 

has an ything to do wi th ass ert ing t he deficiency. I th in k both the ba r 

associations and the a cco unting grou ps have a pp lau ded this effort and 

t his procedu re h as been successful.

Mr. Steed. How l ong has it been in effect ?

Mr. Cohen. T he ap pellate pro ced ure h as been in effect fo r 30 ye ars 

or more. The inform al conference pro cedure, which we j ust improve d 

th is y ear or late last ye ar by going to th is $2,500 n o-document-need ed 

stag e, has existed fo r 10 or 15 y ear s in various f orm s a nd we have been 

constan tly t ry in g to improve it. My conferences with the ba r and accountan t grou ps ind ica te to me th at it is going very well, and I am 

constan tly seeking improveme nts.

About 26,000 cases a year go the Ap pella te Div isio n rou te and the 

figures get a lit tle more star tlin g here because 90 percen t of all the 

cases th at go into the Ap pella te Division are disposed of by agree ­

ment. The taxp ay er and the conferee agree on a deficiency—o r lack 

of one. T he issues hav e been sharpe ned and th ey agree. F ive or six p er ­

cent are defa ult ed. T he ta xp ay er does n ot show u p ; they decide to drop 

it. Only 3 per cent of the cases th at went thro ug h our Ap pella te D ivision last y ear went to the courts.

The star tlin g fac t in the Un ite d State s—a nd th is sta rtl es everyone 

I have discussed th is with, pa rti cu la rly abroa d—is th at we hav e so 

little t ax c ontroversy. We have less ta x cases g oin g to the court system 

in the Un ite d State s than in a country such as We st Germany , which 

has about one-t hir d of our population . Ge rmany has a fine system. I 

think ours is better. Th is is the mir acle of the system . Th e taxp ay er 

is notified throug ho ut this pro cedure as to how he can proceed. In 

order to keep down the burde n on the court s we encourage the ta xpayer to come in and discuss the case wi th us, and I th in k we do a 

cre ditabl e job. Th at is not to say the re is n ot a b etter way o f ha nd lin g 

cases. We are constan tly seek ing to find be tte r tech niqu es. We have 

over the years imp rov ed and h ope to im pro ve even more.

We now have electron ic retriev al ca pability which gives our conferee s the ab ility to know wh at kind of cases are pe nding a roun d the 

cou ntry. I have demo nstrated th at technique t o you here when it was 

used in ou r chief coun sel’s office. I t is now being used and sprea d to 

our regional ap pellate div isio n offices so th at we can sim ultane ously 

or relatively quickly know around the countr y the way cases a re a ris ing 

all over the country and the way the y are being hand led in other 

places so th at we can be fair. T hat is, so we can t re at the taxp ay er who 

lives in Oklahom a t he same as we tre at the taxp ay er who liv es in Massachusetts, New York, Ca lif ornia, or wherever he might be.

Th at is not to sav th at 5 y ear s fro m now we would not have be tte r 

techniqu es. I h ope t hat we will. Und er th e pre sen t s tat e of science and 

the present sta te of the hu ma n m ind, th e te chniques a re ra th er soph isticated and I th in k fro m th is discussio n th at you will see they work 

pr et ty well. We are no t rel ying com pletely on th is alone to keep the 

system goin g. We u nd ersta nd th at in a sy stem lik e ours where t he co nfidence of the peop le is the critical factor between gr ea t success, and 

gr ea t effort on the othe r ha nd to br ing a system up, one mu st have 

critic al ana lysis con stantly. Th ere fore, we hav e gone out to solicit 

82 -7 30 — 67------ 2
8 INTERNAL REVENUE SERVICE

criticism of our system, aggressive ly solic it cri tic al comm ents on the 

Reven ue Service.

We do this in a ra th er uniq ue way for almo st any organiz ati on in 

the Gov ernment, and I might say a numb er of foreig n governments 

hav e now observed the system and think they might w an t to adopt it 

fo r th ei r countries. We have on the national level a Com missioner's 

Ad vis ory Gro up. Th is Ad vis ory Group consists of law yers , acc ountants, both certified and noncertified , businessmen, business tax repr esentatives, members of the tea chi ng profession. They are chosen on 

reco mm end atio n from public bodies. We ask the ba r association to 

recommend people. W e ask the Am eric an In stitut e of Cer tified Publi c 

Ac countan ts to recom mend members. We ask the Na tio na l Society of 

Pu blic A cco untan ts to recomm end m embers. We have recomm end atio ns 

fro m an organiz ati on called T ax Exec utiv e Ins titu te who represent the 

tax officials of larg e corporatio ns. T his group meets wi th the Com missioner an d his staff here in Washin gto n fo ur times a year, usu ally 

fo r 2-day meetings, sometimes long er. Th e age nda is set by joint 

rec ommenda tion ; tli at is, each of these groups has th e ri ght to pu t 

any item on the agenda , discuss any item it wishes. We br in g up our 

items. Th e pur pose is to find ou t wh at we look like to oth er people.

We know it is difficult to engage in self-criticism, so when we have 

a new pro gra m, fo r example, when ou r i nformal c onference pro ced ure 

was being clarified, we pre sen ted th is prog ram to this gro up well in 

advance of its dissemination to ou r own offices, o r of its ado ption, to 

find ou t if the rep res entat ive citizens of th e United States think it 

would work and wh at sug gestions the y migh t make.

I t has been an excellent sou nding boa rd. Th ey can br in g us the 

criticism s th at the y he ar fro m th ei r org aniza tions, fro m th ei r fello w 

mem bers, and the public , and the y can help us in tran sm itt in g the 

idea s th at we h ave fo r imp roveme nts. We s im ila rly h ave such gro ups 

me eting with ou r di strict offices an d our reg ion al offices aro und the 

cou ntry. Ea ch tr ies t o discern wh at problems there are, what problem s 

are a ris ing , so t hat we can head th em off' b efore they become major in 

consequence.

I th in k th at you can see we are no t wa lking away from criticism. 

I th in k th at healt hy, con structive criticism is the way to find bette r 

me thods of ru nn ing Government, or pr ivate ins titution s, fo r th at 

matter.

The problem tha t concerns us all is the problem th at has been arou nd 

since the beg inn ing of time. One of my favorite qu ota tions, and I may 

hav e used it before this committee before, is from Ed mun d Burke , 

who was a fri en d of the Am eric an colonists, you recall, du ring the 

Revolution and prere vo lut ion ary period. Bu rke sa id : “To tax and to 

please, no more th an to love and to be wise, is not giv en to men.'5

Our agency is the agency th at sta nds between the Con gress which 

ena cts the laws and the tax pa ye rs who mu st pa y the ta xes. Th ere for e, 

if the taxp ay er feels agg rieved , and un fo rtu na tely th e seat of man's 

sensitivities is usu ally his pocketbook, so Jefferson once said , he tak es 

it out no t on him self and not on you gentlem en eit he r, bu t on us. So 

it w ill be fore ver. We just have to be stoic about it.

I am pleased to say th at most tax pa ye rs un de rstand t he ir r esp onsibilitie s, do a job, and , if e rro rs are m ade, a tte m pt w ith us, in the best 

way we both can, to find t he rig ht a nswer. As you c an see, the nu mbers
INTERNAL REVENUE SERVICE 9

of disputes which arise are infinitesimal when compared with the number of disputes which might conceivably arise. We are seeking better 

techniques all the time.

Another thin g I might add, and this is perhaps a personal distress 

to me, as 1 indicated, this Commissioner reads his own mail. lie is 

appointed by the President with the advice and consent of the Senate 

for the purpose of overseeing an agency tha t is, perhaps with the 

exception of maybe the Defense Department, the most important 

agency of the U.S. Government, Without a revenue system no government runs.

With an inefficient revenue system, most countries break down. The 

Commissioner's job is to represent the people. Most of the Commissioners of recent years have been appointed from outside of the Government, from the private sphere, and have had experience on both 

sides of the fence, so to speak. They understand the revenue system 

both as it works from the Government side and as it works and affects 

the taxpayer.

It is rather distressing to find people who feel that the Commissioner has become part of a “system” which is designed “to get 

people.”

I do not conceive my job tha t way. I tr y to get out whenever I can, 

whenever the workload will permit, to visit field offices, talk with our 

regional rank-and-file employees to find out what their problems are, 

to meet with accounting and law groups around the country.

Last week in a trip to the American bar convention I met with three 

CPA societies, a couple of bar groups, and tried to discuss with their 

members what problems they have. 1 am pleased to say that I got very 

few real complaints. I had some constructive suggestions for improvements but no real feeling of distrust of this agency.

These people are the ones who deal with the Revenue Service on a 

day-to-day basis on enough cases so they get a measure of the Revenue 

Service. Unless I have misunderstood all of the signs th at I see, I read 

the Revenue Service as being a fine, healthy organization. I think it is 

composed of 60,000 of the finest people in America, tryi ng to do a job. 

It is my job to oversee them and I must say that in the 2 ^ , almost 3 

years, that I have been Commissioner I have done it with pleasure. I 

have felt th at I could be proud of the accomplishments of the organization.

With that general opening, I would like to go into a few details of 

the particular article so th at you might point any questions at particular aspects of the thing tha t you might desire.

(The document follows:)

REPORT OX ARTICLE IX AUGUST READER’S DIGEST

Prepared by In ternal Revenue Service

An art ic le in th e Aug us t issu e of R eader’s Digest, entitled “T yra nny in th e 

IR S ,” co nt ai ns too man y half -t ru th s, dis to rt io ns an d unsu bst anti ate d conclusion s t o re m ai n un an sw er ed , t he I R S s ai d toda y.

Tes tify in g th is mor ni ng be fo re th e Hou se Su bc om mitt ee on A pp ro pr ia tio ns 

he ad ed by Co ng ressman Tom St ee d of Oklah om a, Co mmisi so ne r of In te rn al 

Re ve nu e Sh eld on S. Cohen ga ve a det ai le d re por t on ea ch of th e ca se s men tio ne d 

in th e ar ticl e.

W hile reco gn izing th a t hon es t cr itic is m is de si ra bl e an d ne ce ss ar y, IR S m us t 

res po nd to un fo un de d ch ar ge s, sin ce th e mos t vital elem en t in th e Ame ric an ta x 

system is pu blic confi dence in th e in te gri ty and im part ia li ty of ta x adm in is tr atio n.

The IR S sa id re puta ble pub lica tion s mak e ev er y effo rt to ve rify th e tr u th of 

al le ga tions be fo re pri nti ng them . How ev er, in fa ir ness to th e au th o r of th e a rti ­

cle. ha d he so ug ht to obt ai n fu rth e r deta il s be fo re ha nd on som e of th e ca ses he 

pr es en ts , IR S w ou ld ha ve been un ab le t o com ply .

Und er no rm al ci rc um stan ce s th e la w pro hib its IR S from disc losing th e de ta ils 

of in di vi du al ta x ca se s to an yo ne o th er th an th e ta xpayer or his au th or iz ed 

re pre se nta tive. T hi s pr ov ision of law is de sign ed to he lp in su re pr iv ac y to th e 

fina nc ial af fa ir s of th e American ta xpay er .

On ly if th e in fo rm at io n bec omes a m att er of pu blic reco rd , su ch as th ro ug h 

co urt ac tio n, or if a ta xpayer or hi s re pre se nta ti ve first mak es pu blic disc losu re, 

as in th e ca se s de scrib ed in th e ar ticl e, ca n th e IR S re ve al th e fu ll stor y.

In adm in is te ri ng one of th e mo st co mpl icated law s in th e w or ld —to co lle ct 

ea ch yea r mor e th an $148 billion ne eded fo r th e N at io n's se cu rity , w el fa re an d 

pr og re ss —it is in ev itab le th a t ho ne st me n will oc ca sion ally ha ve differen ce s of 

opini on .

It is also in ev itab le th at, in proc es sing 300 mill ion do cu men ts, even th e be st 

m an ag ed op er at io ns an d th e mo st de di ca ted em ploy ees will mak e som e m ista ke s. 

It is hu m an ly im po ssi ble to de al w ith anyth in g on th is mam moth sc ale an d no t 

mak e som e er ro rs . Th e m irac le of our fine system is th a t th er e are so few mistake s.

The R ea der ’s D iges t sa ys its w ri te r took six m on th s, tr av el le d 5.800 m ile s an d 

he ld 200 in te rv ie w s in ord er to mak e su re he di d no t w ri te ab out “d is gr un tled 

cr ac kp ot s an d co nn iving t a x d od ge rs.”

T hi s mas sive e nte rp ri se re su lted in IB in st an ce s of all eg ed wrong -doing by IR S, 

co ns id er ed w or th y of inclus ion in th e ar ticl e. The fu ll st ory on th es e ca ses is 

at ta ched to th is re port an d re ad er s ca n ju dg e fo r them se lves th e val id ity of th e 

co nc lusio ns in t he a rtic le .

The art ic le st ate s th a t mo st IR S ag en ts, “w an t to be ju st an d re as onab le ” bu t 

cr itic iz es the “sy stem .” Co nv en iently o ve rlo ok ed is th e efficiency a nd f air ness w ith 

which th e “s ys te m ” de al s w ith 100 million ta xpay ers , filing 70 mill ion inc om e 

re tu rn s, in a proc es s th a t re su lts in 48 mill ion re fu nds, to ta li ng $7.5 billion . Mo st 

of th es e re fu nds are mad e w ithi n 45 da ys from th e dat e th e ta xpayer files his 

re tu rn .

W hile, in th e co ur se of a yea r. 3.5 mill ion ta xpayers are ca lle d in to su bst an ­

ti a te t h eir d ed uc tio ns an d claims, som e 25 million are g iven he lp an d in fo rm at io n 

as to th eir ob lig atio ns an d th eir ri ghts —a s a p a rt of th is “sy stem .”

Sen at or Edw ar d V. Lo ng of Miss ou ri, wh ose Sen at e Su bc om mitt ee on Ad mi nis tr ati v e P ra cti ce a nd Pro ce du re h as i nv es tiga te d IR S —a nd wh o has b een cr it ic al 

of th e Service — sa id in th e Con gressio na l Re co rd o f Aug us t 2:

“F ort unate ly , m os t In te rn al Rev en ue Se rvice Age nts are co ur te ou s, 

co ns id er at e an d he lpfu l. Mo st ci tize ns tr y to co op er at e w ith IR S, an d 

th is, ce rt ai nl y, is as it shou ld be. Our ta x sy stem de pe nd s on th is gre at 

de gree of co op er at ion. ”
12 INTERNAL REVENUE SERVICE

The misrepresentation s in th e article are too numerous to he refuted in detail. 

A few examples of the most glaring ones, however, will give readers an opportun ity to put the whole a rticle into perspective.

As “proof” of some of the conclusions that “may sound incredible to those who 

have not yet been victimized by IRS,” the article cites several sources of its 

material. These should be considered in some deta il:

“Court rulings”—In several cases the article makes the point that suspected 

tax evaders were found not guilty, implying they should not have been brought to 

tria l. As everyone knows, it is the responsibility of the courts to decide whether 

anyone has willfully violated the law. IRS does not determ ine guilt or innocence 

in a tax fraud case, but only inve stigates the facts.

Under our legal system a gran d jury must indict before anyone is held for 

crim inal tria l. The fact that a court may acqu it the individual means only that 

the government was unable to prove beyond a reasonable doubt that criminal 

tax fraud was committed. Las t year the conviction rat e of persons indicted for 

tax frau d was 97 percent.

“Congressional Investigations and Unrefuted Sworn Testimony”—Several of 

the cases cited in the article came from the hearings of the Senate Subcommittee 

on Adm inistrative Practice and Procedure. Reference to “unrefuted sworn testimony” is made several times in the article. Where it refe rs to stateme nts made 

before the Senate Subcommittee, the article does not make clear that these were 

legislative hearings and not ju dicial trials.

Americans who have seen court tria ls know th at “sworn testimony” does not 

alway s produce the complete truth, unless there is cross-exam ination by the 

defense attorney and testimony of other witnesses to bring out the whole story. 

In the subcommittee hearin gs there was no cross-examination of witnesses.

“Admissions by IRS officials themselves”—It is the policy of IRS to admit a 

mistake and at tiie same time to tell what has been dene to correct the err or and 

what is being done to prevent it from happening again.

This policy is essential to maintain the confidence the American people have 

in IRS for providing fair, courteous and imp artial service to taxpayers. This 

includes apprehending those few who would put an un fai r tax burden on the ir 

neighbors by willfully failing to pay the ir own proper share.

Among the most serious distortions in the article is reference to the additional taxes “extrac ted” from 1.9 million taxpay ers for “alleged” errors found 

during “special” exam inations las t year. These so-called “special” exam inations 

are nothing more than normal audits of return s selected through procedures 

which identify return s most likely to contain errors in applying the tax laws.

The article then relates the 1.9 million taxpay ers who made mista kes of this 

kind to the 1.324 taxpay ers who were found guilty of actual fraud—with the 

implication that taxpay ers not convicted should not even have been questioned 

in the first place. This implication overlooks the difference between returns with 

honest errors caused by complexity of the law and the relatively few cases 

where there was proof that the taxpay er wilfully committed tax fraud.

Furthermore the article does not bother to tell what happened to the rema inder 

of the 3.5 million return s that were selected for exam ination during the year.

Of those 3.5 million, over 1.3 million taxpay ers were notified tha t their return s 

were accepted without change and 3(X).(KX) oth er taxpay ers received $154 million 

in refunds, because exam ination showed they had made errors which caused 

them to overpay the ir tax.

These figures were not used in the article, presumably because they would 

not jibe w ith the state ments th at IRS agents are .judged by the “alleged err ors” 

they find and “how often they bring in more dough.”

Obviously, thousands of IRS agents and auditors, who found errors in some 

return s but also reported “no change” in 1.3 million ret urns or gave refunds 

in 300.000 cases, were trying to do th eir job in line with IRS policy to determ ine 

the correct tax—no more, no less.

In addition the article did not point out th at IRS refunded $82 million to 

1.4 million other taxpay ers who made mistakes in arithm etic and overpaid 

their taxes—fu rth er evidence that IRS seeks only the correct tax.

In March 19GG, P resident Johnson made specific reference to these unexpected 

refu nds made by IRS in the preceding year, st at in g:

You have not forgotten th at a good tax collector is not only efficient, 

but a good collector also ought to be fair and just—and he should tre at 

the other fellow as he would like to be treate d if he were on the other 

side of the desk.
INTERNAL REVENUE SERVICE 13

Among the many misrepresen tations of fac t in the article, there is space 

here to nail down only the most glaring examples of ina ccu racy:

IRS maintain ed “a staff of specialists in illegal snooping.”—As any law enforcement organizatio n, IRS has a staff of investig ators trained in the techniques of detecting violations of the law. It has no staff of specialists in 

‘‘illegal snooping.”

“Wiretaps, bugs, spying equipment, lock picking devices were used.”—The 

article does not say that Congress is considering a dozen bills on the subject 

of electronic surveillance because the law is unclear. Nor does the artic le 

point out that in over 300.000 criminal inve stiga tions over eight years, there 

were only 04 wiretaps, 32 bugs, a nd 29 phone booth bugs—all in connection with 

investigation of racketeers, gamblers, moonshiners and other crim inal evaders.

“Such lawlessness was encouraged from high levels of IRS.”—Quite to the 

contrary, all questionable use of electronic devices was stopped in July 1905 as 

soon as it became known to top managers of the IRS.

“Top IRS burea ucr ats have tried to cover up and withhold data.”—The facts 

are that in addition to more than a hun dred letters and reports submitted to 

the Senate Subcommittee by IRS. some 50 officials and employees were instructed 

by Commissioner Cohen to testify “fully and frankly.” These included, besides 

Mr. Cohen himself, an ass istant commissioner, regional commissioners, division 

directors, dis trict directors, branch chiefs and supervisors.

The only data withheld from being sprea d on the public record by the subcommittee was information which cann ot be disclosed because of specific provisions of the law or which identified innocent third parties.

As a basis for its conclusions on IRS activities, the arti cle mentions subcommittee interviews with 621 individuals and 2,756 pages of “sworn testim ony.” 

However, the article did not say that more than half of these individuals had 

nothing to do with IRS. They included ma nufac turers and salesmen of electronic devices, employees of other federal, state and local governments, college 

professors, consultants, police informers and a varied collection of convicted 

criminals.

More importantly, the article did not mention the cases of the following persons who were among the 621 individuals interviewed or who gave “sworn 

testim ony.” These individuals or their testim ony are not mentioned because appare ntly they would not have sustained the thesis of the ar ticl e:

Ilx-IRS agent John W. H arris of Boston, convicted on charges brought by IRS 

th at he was shaking down a taxpayer.

Ex-IR S agent Archie P. She rar of San Francisco, dismissed for refusing to 

bring in his own tax records.

Ex-IRS agent Joseph Rasonsky of San Francisco, dismissed for insu bordination.

Bernard Spindel of New York, an d Harold K. Lipset of San Francisco, wiretap 

experts who served as consultants to the subcomm ittee and were later indicted 

by a New York grand jury.

Ex-police official William M. Canaday of Kansas City, convicted of tax evasion, whose appeal lat er was denied.

Thomas Wheeler of Asheville, N.C., who testified he was wiretapped, with neithe r evidence nor reason to supp ort such a claim, and who was convicted of tax 

evasion (la ter reversed on an unrelated tech nicality).

Anthony (Tony) Grosso, Pit tsburg h gambler who testified he paid a Pi tts ­

burgh police lieu tenant $1,000 a month for protection and to be informed if the 

“Feds” wiretapped him.

The Reader’s Digest article says IRS can ass ert t ha t a citizen owes taxes and 

force him to prove he does not. The American system of taxation is a self-assessment system in which the taxpay er tells the Government what he owes and not 

vice versa.

As Vice Pre sident Humphrey said in a tal k la st ye ar:

—the American tax agents and the citizens are really on the same 

team and they do not oppose each other in an atmosphere of d ist rust and 

suspicion or contempt but rather meet with a feeling of mutual respect 

* * * You do not arbitra rily tell the citizen what he owes * * *

In complying with the Revenue laws, it is necessarily the tax payer’s responsibility to estab lish facts pecu liarly within his own knowledge. For the average 

citizen, this “burden of proof” in an examination, is met with a simple sta tement of wages, canceled checks, or receipts to substantiate deductions and 

payments.
14 INTERNAL REVENUE SERVICE

When taxpay ers disagree with a revenue agent’s findings, they are advised 

of the ir righ ts of appeal. For small taxpayers, dis tric t conferences are ava ilable with independent conferees stationed througho ut the country. No formal 

protest documents are needed when the tax amounts involved are $2,500 or less. 

Last yea r nearly 40,000 taxpay ers obtained such conferences. In addition, almost 

26,000 taxp aye rs took advantage of the IRS regional appeals procedures.

The article, in a gross over-simplification, say that IRS, at its whim, can 

seize a tax pay er's assets. Collection of taxes from those who will not pay voluntar ily is a necessary procedure in extrem e cases, in fairness to those who do pay.

However, only when there is an overt action on the pa rt of a delinq uent taxpayer to purposely dissipate his assets or to take them out of the country, 

will the IRS seize assets without warning. In every other case, a person who 

owes taxes is given ample opportunity to pay voluntarily. He is given several 

writte n notices, afforded conferences and, if warranted by his financial condition, pa rt payment agreements are worked out. Enforced collection is made only 

as a la st resort.

As Senator Fra nk Lausche of Ohio says in the Congressional Record of 

August 2:

“—Every one of us realizes that to the extent that one individual 

fails to meet his tax obligation, others are compelled to bear a part of 

th at delinquency.—”

The arti cle quotes one U.S. Senator as criticizin g IRS collection practices. 

Yet it does not mention that Senator John Williams of Delaware, for example, 

for more than 10 years has been encouraging IRS to take more prompt and 

strict action against delinquent taxpayers.

In pursuing its mission, the IRS makes every effort to trea t all taxpayers 

fairly, regard less of economic, political, or social status, whethe r they are managers or employees, judges or farm ers, editors or members of Congress. As Senator 

Williams told the IRS :

“I do not object to my accounts being audited. Quite the contrary , I 

have always taken the position that no official of government is too high 

to be audited in exactly the same manner as is every o ther taxp ayer, and 

I would criticize you if this procedure were not followed.”

Through the years, IR S has invited taxp aye rs to w rite to the ir Distric t Director 

or to the Commissioner in Washington, D.C., when they think a mistake has 

been made or they have received unfair trea tme nt. This invitation continues 

in effect with assu ranc e that IRS will consider every valid complaint and will 

tak e corrective action wherever warran ted.

(De tail s of individual cases mentioned in the Rea der’s Digest article are 

attach ed.)
I nte rnal R ev en ue Ser vi ce ,

Washington, D.C.

SUMMARIES OF CASES MENTIONED IN READER’S DIGEST ARTICLE 

OF AUGUST 1967

Jfr«. Michael Darrah—Kansas City, Mo.

and Kenneth R. Layne

The Reader’s Digest alleged tha t IRS agents “intruded upon” Mrs. Darrah, 

who “pleaded with the men to come back another time” ; tha t she was not permitted to call her fath er and advised not to call a lawyer; and the “terrified 

woman” was “being held a prisoner in her own home.”

The facts are the se:

An income tax investigation of Kenneth R. Layne, Mrs. Darrah’s father, was 

begun in April 1961. An interview of Mrs. Darrah became necessary, as Mr. 

Layne claimed unexplained receipts were partly her income turned over to him.

The interview with Mrs. Darrah, accompanied by her husband Michael whom 

she wished to he present, took place on Sept. 14, 1961, at the U.S. Courthouse, 

Kansas City, Mo. For the convenience of Mr. and Mrs. Darrah, the interview 

began at 7 :30 p.m. Mrs. Darrah ’s information essentially corroborated her 

fath er’s statements about her earnings while living in her father’s house.

Mrs. D arrah then read a statement containing the gist of her testimony which 

had been prepared afte r she finished, discussed it with her husband, stated it 

was true, but refused to sign it until her fath er had read it. Although the agents 

would not permit the unsigned statement to leave the office, they agreed she 

could bring her father, or anyone else of her choice, back to the U.S. Courthouse to read it there. The interview ended before 10:00 p.m.

During this interview, the agents learned Mrs. Darrah was expecting a child 

in early January 1962. Because of this, she was not contacted again until afte r 

her baby was born. Kenneth Layne’s attorney informed the agents late in January 

1962 that the baby had been born a week or two previously. On Feb. 7, 1962 she 

was telephoned for an appointment to obtain her signature on her statement prepared in September 1961.

Mrs. Darrah invited the IRS agents to come to her residence a t a time when 

her husband could be present. She said she would call back and set up a definite 

appointment, which she did a few days later.

By appointment the agents met Mr. and Mrs. Darrah at their home, arriving 

about 9 :30 a.m. on Feb. 15, 1962. The subsequent interview disclosed changes 

were necessary in the original September 1961 affidavit, and it was retyped at the 

Darrah home.

After reading it and discussing i t with her husband, and with her fath er or 

his attorney, Mrs. Darrah signed the corrected affidavit at 1 :30 p.m.

Mr. and Mrs. Darrah, who were pleasant and cordial during the entire visit 

at their home, served the group coffee around the noon hour, and did not ask the 

agents to leave or to return at another time. Mr. D arrah was present the entire 

time. Neither agent, at any time, attempted to prevent her from telephoning her 

fath er or anyone else. As a matte r of fact, she did telephone her fath er or his 

attorney.

The Reader’s Digest says Mr. Layne “ultimately” was absolved of any wrongdoing. He was indicted by a Federal Grand Jury Feb. 27, 1964 on two counts 

charging income tax evasion. His tria l was held in December 1964, and he was 

acquitted on the day before Christmas 1964. These events took place nearly 

three years after the interview with Mrs. Darrah. The Reader’s Digest concludes 

that Mrs. Darrah’s unfortunate nervious breakdown was directly caused by the 

interview.

15

82-7 50— 67 3
16 INTERN AL REV ENUE SERVICE

Lew M. 'Wa rden, Jr. — Al am ed a, Ca lif.

Th e R ea der ’s Digest all eg ed th a t at to rn ey Lew M. W ar de n, Jr . “p at ie ntly 

an sw er ed qu es tion s” ab out hi s ta x re tu rn bu t re fu se d to su rr ender files conce rn in g hi s cli en ts, which “an IR S ag en t de man de d.” As a re su lt IR S “a rb it ra ri ly 

disa llo wed his le gi tim at e bu sine ss de du ctio ns fo r th re e yea rs ,” seize d hi s ba nk 

ac co un t an d confi scate d hi s sa ilbo at , th en “a ft er ho un di ng his fo r 33 m on th s” 

su dd en ly drop pe d all ch ar ge s ag ain st him .

Th es e a re the fa ct s :

W he n an ex am in at io n of Mr. W ar den ’s ta x m att ers w as be gu n in Ju ne 1962, 

he re fu se d to an sw er qu es tio ns ab out his ta x re tu rn s an d re fu se d to mak e his 

reco rd s av ai la bl e to th e ex am in in g officer. The re co rd s re qu es ted w er e thos e 

re la ti ng on ly to his pe rs on al fina nc ial act iv itie s and hi s pe rs on al ta x si tu at io n, 

no t as th e R ea de r’s Diges t says , reco rd s which co nt ai ne d “con fid en tia l in fo rm ation ” ab ou t Mr. W ar den ’s cli en ts.

F or ov er tw o ye ar s, Mr. W ar de n re fu se d to pr od uc e his bu sine ss re co rd s to 

ve rify cert ain ite ms on his re tu rn , an d tw ice re fu se d a co nferen ce to dis cu ss 

hi s ta x si tu at io n. In ord er to de te rm in e Mr. W ar den ’s co rr ec t ta x, th e IR S ha d 

to gath er in fo rm at io n in de pe nd en tly to su bst anti ate cert ain ite m s of expe nse 

claimed fo r th e yea rs 1959, 1960 an d 1961.

Lac ki ng M r. W ar den ’s rec or ds to su ppo rt h is claimed de du ctio ns , IR S proposed 

cert ain a dju st m ents ca llin g fo r addi tional ta x on th e re tu rn s a t iss ue. Mr. W ar de n 

w ro te to th e Sa n Fra nc isco IR S office, re fu si ng to ac ce pt th e deficiency findings. 

In a su bs eq ue nt le tt er to IR S, Mr. W ar de n co nc lude d w ith a des ir e to av ai l himse lf o f th e IR S ap pe al p ro ce du re.

W ith th e case t her ef ore tra n sf err ed to th e IR S App ellate D ivisi on , Mr. W ar de n 

ap pe ar ed in April 1963 a t an App ellate co nferen ce , but ag ai n re fu se d to supp ly 

his bu sine ss reco rd s. In De cemb er 1963 a st atu to ry no tic e of deficie ncy was issue d, sh ow ing th e prop os ed ad ju st m ents to his re tu rn s.

A mon th ea rl ie r, in No vemb er 1963, Mr. W ar de n st art ed an ac tio n in D is tr ic t 

Co urt, alle ging th a t ce rt ain in di vi du al s em plo yed in IR S had ac te d arb it ra ri ly 

in prop os ing cer ta in defic ien cie s in hi s 1959, 1960 an d 1961 ta x re tu rn s. Th e com ­

pla in t fu rt h er sa id th a t th e de fe nd en ts ha d sche med and co ns pired to de pr iv e 

him of hi s co nst itutional righ ts.

On Ja n. 8, 1964, Ju dge Zi rpoli dism issed Mr. W ar den ’s co mplaint. The C ourt’s 

fin din gs in clud ed th e st at em en t th a t th e ac ts of IR S em ploy ees were un de rtak en 

solely to de te rm in e Mr. W ar den ’s co rr ec t ta x fo r th e th re e y ea rs in qu estio n, an d 

th a t no ne of th es e ac ts w as under ta ken fo r th e pu rp os e of de ny ing him an y 

ri gh t, privile ge , or im m un ity guar an te ed by th e Con stitut io n.

Mr. W ar de n filed an a p p e a l; he su bs eq ue ntly dr op pe d th e ap pe al. In F eb ru ar y 

1964 Mr. W ar de n filed a pet itio n w ith th e U.S. T ax Cou rt, on hi s inco me ta x 

deficien cy for 1 959,196 0, an d 1961.

A t a pr e- tr ia l co nferen ce in No vemb er 1964, Mr . W ar de n ga ve th e fi rs t in dica tion of co op eration by in fo rm in g mem be rs of th e IR S Reg iona l Co un sel’s staf f 

th a t he w as com pilin g re co rd s to su bst anti ate ex pe ns es on his re tu rn . Tw o mon ths 

la te r, in Jan u ary an d Feb ru ary 1965, Mr. W ar de n fin ally mad e them av ai la bl e 

fo r ex am in at io n a t his pl ac e o f b usiness.

W ith th e re co rd s th us av ai la bl e, it w as a t la st de te rm in ed th a t no ad di tion al 

ta x w as due. B ut th is oc cu rred only a ft e r Mr. W ar de n mad e hi s reco rd s avail ­

ab le, a re as on ab le ac tio n which , if ta ken a t th e tim e of th e in it ia l re qu es t fo r 

them , m ig ht h av e save d bo th tax payer a nd gov er nm en t tim e an d mon ey.

The R ea der ’s Diges t sa ys Mr. W ar de n unfa ir ly had his ba nk ac co un t “seize d” 

by the IR S, which a lso “co nfisc ated hi s sa ilbo at .”

Mr. W ar de n ow ed ta xes re po rted by him on his or ig in al re tu rn s. He w as 

se riou sly de linq ue nt in pa ym en t of th es e ta x es; ta xes which were no t in qu estio n. The Co lle cti on Di visio n, in ac tivitie s en tire ly di st in ct fro m th e ex am in at io n 

of his ta x re tu rn s, mad e nu mer ou s ef fo rts to co lle ct th es e taxe s, ad m itte dl y 

ow ed by Mr. W ar de n. On ly aft er he re fu se d to s ub m it fina nc ial d ata wh ich wo uld 

ha ve en ab led IR S to de te rm in e w het her colle cti on could be de fe rr ed , he was 

in fo rm ed iu .Tune 1964 th a t ac tio n to co lle ct th e ta x w ou ld be n ec essa ry.

On Ju ne 25, 1964, a lev y was serv ed on hi s ba nk ac co un t, an d on Ju ly 17, 1964. 

hi s au x il ia ry slo op w as seize d in th e ya ch t harb or whe re Mr. W ar de n ke pt it 

moo red. Th ese ac tions wer e unre la te d to th e ex am in at io n of his ta x re tu rn s an d 

prop os ed ad ditio nal ta x. Th ey took place as p a rt of en fo rc em en t ac tio n to collec t 

ta xes se riou sly de linq ue nt in p ay men t.

On Aug. 4, 1964, Mr. W ar de n mad e fu ll pa ym en t on all his ex is ting ta x liab iliti es , an d hi s boat w as re le as ed to h im.
INTERNAL REVENUE SERVICE 17

Businessman (u nnamed )— Tennessee

The Rea der’s Digest alleged that an IRS age nt opened a tax payer’s personal 

mail and showed a copy of a letter from “ano ther woman” to the taxpayer’s wife, 

trying to anger her so tha t she would agree to inform against her husband.

The facts are the se :

This allegation is sub stan tially true . An investigation made by IRS at the time 

of the incident which occurred on October 15, 1962, confirmed that the agent did 

show a copy of a lett er to the tax payer’s wife.

IRS neither authorizes nor condones such conduct on the part of its employees. 

IRS employees are instructed never to remove from a tax pay er’s office any records or books of account withou t the tax payer’s permission or due process of 

law. The IRS investigation resulted in disciplinary action being taken against 

the employee.

Roger Logan—Detroit, Mich.

The Rea der’s Digest alleged that IRS “slap ped” liens on the suburban Detroit 

home of Roger Logan (real name not given by the Digest) simply because “it 

had two old claims aga inst someone with a similar name.”

The facts are th es e:

On Nov. 8,1950, IRS filed a lien against a “Roger Logan” (note the absence of a 

middle initial) of a Detroit street address for unpaid income taxes. On March 

8, 1961, IRS filed a second lien aga inst the same “Roger Logan,” now living 

at another Detroit street address, for additional unpaid taxes.

In the late summer of 1965, a nother individual, the one identified in the Digest 

article as “Roger Logan” of suburban Detroit, sought to sell his home. This 

individual had a middle initial which we will call “X”. “Roger X. Logan’s” 

property title was not cleared.

On Sept. 1, 1965, Mrs. “Roger X. Logan” came to the IRS office to clarify the 

matter. Displaying cancelled checks to show that the “Logans” had paid all 

the ir taxes, Mrs. “Logan” requested an immediate release of the lien. IRS cannot 

give a release of outstand ing liens until it has been determined th at the tax 

liability is satisfied, and Mrs. “Logan’s” cancelled checks were not in payment 

of the tax covered by these liens.

An IRS clerk explained to Mrs. “Logan” th at the IRS would check o ut the matter but that it would take several days. Since Mrs. “Logan” indicated that she 

wanted an immediate release, the clerk, apparen tly assuming Mrs. “Logan” was 

the taxpay er named in the liens, advised that the only way this could be accomplished would be for her to pay the tax and then file a claim for refund. This indicates th at during the discussion both the IRS clerk and Mrs. “Logan” w’ere 

unaware th at a case of mistaken identity was involved.

Th at same day Mrs. “Logan” discussed the ma tte r with her attorney . The 

attorney and IRS were able to s ubs tantiate the fac t that the lien was not again st 

“Roger X. Logan.”

On Sept. 2, a certificate of non-attachment was prepared releasing “Roger X. Logan” from the effects of the lien, and Mrs. “Logan” was notified by telephone. 

Mrs. “Logan” or her attorney then secured the certificate and the ti tle was cleared.

Noel Smith— Taylor, Mo.

The Reader’s Digest alleged that “farme r” Noel Smith had his books checked 

for nine years without IRS telling him it suspected “any significant irre gularity.” 

Other allegations are tha t Smith’s assets were seized, that he was presented with 

a bill for over $501,000 and that IRS later decided he “actu ally owed $54,573 in 

taxe s.”

The facts are t he se :

The Reader’s Digest article in reciting c erta in facts does not give the reasons 

behind the facts and the full story does not supp ort the conclusions draw n in the 

article.

Mr. Smith, like any other taxpay er with a large income, a variety of complex 

financial transactio ns and numerous business interests has had his return s 

examined nearly every year. Tax payers in high er income brac kets have learned 

to expect as routine an examination of each year ’s return .

In 1953 an exam ination was begun of Mr. Smith’s 1951 and 1952 tax returns. 

Because of ap par ent understateme nt of income and a lack of records, an extensive 

investigation was necessary. Developments during the exam ination extended the 

audit to include the years 1946 to 1953. Mr. Smith could hardly have been u naw are 

at this point t ha t IRS suspected “significant irregularitie s.”
18 INTERNAL REVENUE SERVICE

In Ju ly , 1956, w hi le co nferen ce s were be ing he ld w ith Mr. Sm ith or hi s re pre ­

se nta tives to disc us s th e prop osed ta x ad ju st m en ts , IR S le ar ne d th at Mr. Sm ith 

w as at te m pti ng to disp os e of hi s pr in ci pa l ho ldings, th us je op ar di zi ng ev en tu al 

co llec tion of an y ta x. To pro te ct th e Fed er al Re venu e, on Aug. 9, 1956 no tic es 

o f lie ns were tiled fo r a to ta l of $375,688.45. No fu rt h er colle cti on en fo rc em en t 

acti on w as de em ed nec es sa ry a t th a t tim e.

In Ju ly . 1957. IR S le ar ne d th a t Mr. Sm ith w as tr an sf err in g hi s as se ts to 

an o th er co un try. Thu s, it became ne ce ss ar y to en fo rce colle cti on by se rv in g 

levi es on te n an t fa rm er s, gra in elev ator s, ba nk s an d life in su ra nce co mpa nies 

ho ld in g as se ts belon ging to Mr. Sm ith . Beg inning in Octo be r 1957 th ere were a 

se ri es of c ou rt ac tion s in it ia te d by Sm ith to re st ra in th e co lle cti on of h is t ax es .

D ur in g th is pe rio d, 3,285 bu sh el s of g ra in w er e sei zed by IR S an d sol d to av oid 

des tr uct io n of t he gr ai n by flooding o f th e st or ag e units. IR S ag en ts were pr es en t 

whe n th e gra in w as rem ov ed by th e pu rc ha se r. The re is no ev iden ce of des tr uction of Mr. Sm ith’s pro per ty by anyo ne. Proc ee ds were cr ed ited to Mr. Sm ith .

U ltim at el y, in Oc tob er. 1960, it was de term in ed tha t, fo r th e pe riod 194 6-53 

addit io nal ta x du e to ta le d $54,573.11. Mr. Sm ith pa id th is am ou nt to ge th er w ith 

o th er ta xes and i n te re st d ue fo r 1956 a nd 1957 to ta ling $102,270.32.

The redu ction in ta x was du e pri m ar ily to ad ju st m ents in in ve nt or ie s an d co st 

bas is of re al pr op er ty In comp iling th e ne t w orth st at em en t on which th e ta x 

w as ba sed, th e IR S us ed th e in ve nt or y an d co st fig ures re por te d on th e ta x 

re tu rn s. T he se a mou nt s were ch an ge d be cause Sm ith e st ab lish ed th a t t h e am ou nts 

pr ev io us ly r ep or te d on his ta x r etu rn w ere no t c or re ct.

A fter se ttle m en t of th e 194 6-53 ta x, an ex am in at io n w as mad e of th e 1956 - 

1959 re tu rn s an d re fu nds of $6,559.47 fo r 1956 an d $1,762.01 fo r 1957 w er e ma de. 

The se re fu nd s were ba sed on net op er at in g loss carr ybac ks fo r 1958 an d 1959. 

A re fu nd check of $8,321.48 plus i n te re st w as s en t to M r. Sm ith in Se ptem be r 1961.

Su bs eq ue ntly, claim s of $7,820.12 fo r 1957 an d of $4,834.27 fo r 1960 were filed. 

The se claims were disa llo wed by th e IR S an d Mr. Sm ith filed su it. The c ase w as 

se ttle d an d a re fu nd allo wed fo r th e 1957 cla im . A ch ec k in th e am ou nt of 

$9,812.43 co ve rin g re fu nd plu s in te re st w as issu ed in M ar ch 1965.

Gordo n IF. W ar re n— Richl an d, Mo.

The R ea der ’s Dig es t allege d th a t IR S ag en ts de m an de d of Mr. W ar re n, pre si ­

dent of a ban k in Ric hl an d, Mo., th e re co rd s of a de po si to r an d th a t Mr . W ar re n 

w as th re at en ed w ith fine and im pr ison m en t if he attem pte d to not ify th e 

de po sitor.

The facts a re th e s e :

D uring an ex am in at io n of a ta xpayer's re tu rn s in 1961 it be ca me ne ce ss ar y 

to ex am in e re co rd s of th e P ula sk i Ban k. Tw o Rev en ue ag en ts on Apr il 13. 1961, 

ask ed Mr. W arr en fo r th es e reco rd s. Mr. W arr en as ke d firs t to notify th e 

dep os itor and did , in fa ct , m ak e a teleph on e ca ll to th e de po sito r who could 

not be re ac he d a t th a t tim e. Mr. W ar re n de clined to su pp ly th e in fo rm at io n.

The ag en ts cite d th eir lega l auth ori ty to ha ve th e in fo rm at io n an d in fa ct 

re ad to Mr. W ar re n th e ex ac t la ng ua ge of th e la w in cl ud in g th e pr ov isions 

w hi ch st ate th e p en al ty f or viol atio n. Mr . W arr en w as n ot t hre ate ned in an y way .

On May 18, 1961, IR S ag en ts ag ai n vi site d Mr . W ar re n ; he ag re ed a t th a t tim e 

to su pp ly th e re qu es te d in fo rm at io n. I t w as actu ally su pp lie d ear ly in Ju n e 1961.

In fo rm in g an y pe rs on of his ob lig atio ns an d ri ghts und er th e la w is re quir ed 

of Rev en ue ag en ts. The y wou ld be re m iss in th e ir du ties not to do so.

W ait re ss — Richl an d, Mo.

The R ea der ’s D ig es t all eg ed th a t an IR S ag en t th re ate ned to co nfisc ate an d 

“disp os e of ” a w ait re ss ’s car un less sh e pai d a ta x bill th a t d a y : th a t on ly aft e r 

sp en di ng da ys ge ttin g a sw or n affid av it do cu men tin g de du ctio ns w as sh e ab le to 

g et IR S to a dm it th e bi ll w an ’t owed .

The f acts a re th e se :

A dd iti on al ta x pl us in te re st w as asse ssed on a jo in t re tu rn file d fo r 1962 by 

th e w aitre ss and h er husb an d a ft e r th ey fa iled to supp ly re qu es te d in fo rm at io n 

co nc er ni ng de pe nd en ts claimed as ex em ptions on th eir r etu rn . The y w er e no tif ied 

o f th e as se ss m en t Ju ly 24, 1964, an d pa ym en t w as re qu es te d. A dd iti on ally , 

re ques ts fo r pa ym en t w er e m ai led on Sept. 29, 1964, and Fe b. 16, 1965, and a 

fina l b al an ce due lett er w as m ai le d M arch 16,1 965 .
INTERNAL REVENUE SERVICE 19

The case was then assigned to a Revenue officer on April 20, 1965. He found 

no one home on May 7 a nd Jun e 14, but finally found the tax pay er at home on 

July 19. She said she would try to borrow the money at the bank and bring her 

tax return prepar er to the IRS office on Jul y 21 to substantiate proof of tlie 

exemption. The appointment was not kept by them.

On Sept. 1, the Revenue officer left a note at th e residence asking th e taxpay ers 

to phone him. She did and made an appointment for Sept. 7 but on that day the 

tax prepar er was ill and the meeting was postponed unt il Sept. 14. The Sept. 14 

appointment was not kept.

Finally on Oct. 5, the Revenue officer filed a lien, and notified the taxpayers t hat 

he was prep ared to seize their auto and truck. The seizure was not made when 

she said she would try to get a bank loan. While two Revenue officers waited 

she arrang ed for the loan. This was the day described by the Reader’s Digest.

Gordon W. W arren, the bank president (see case above, said the check would 

be mailed to arrive on Oct. 11. When the check did not arr ive on Oct. 12, the 

Revenue officers went back again to get the check or seize the car and truck.

This time Mr. Wa rren said the check would be mailed the following day. It 

was received on Oct. 14, 1965, nearly 13 months after the first notice. As p art of 

the loan agreement with the bank the tax pay er agreed to get proof of the exemption so a refund could be made and the loan repaid. Proof of the exemption was 

provided and a refu nd credited.

Fred and Ka therine Tomlinson—Richland, Mo.

The Reade r’s Digest alleged tha t IRS, withou t warning, seized the bank account 

of Mr. and Mrs. Tomlinson for overdue taxes. Afte r the seizure, Mr. and Mrs. 

Tomlinson mailed a cancelled check to IRS proving they had paid the ir taxes in 

full.

These are the fa cts :

A 1962 income tax ret urn filed by Mr. and Mrs. Tomlinson erroneously reflected a withholding tax credit. Prop erly prepa red, the return should have 

claimed the credit as an estim ated tax payment. On July 30. 1964, IRS sent a 

lette r to Mr. and Mrs. Tomlinson requesting information to assist in identifying 

the credit claim. The taxpay ers did not reply.

On Oct. 9, 1964, the credit was disallowed and the taxpa yers were notified that 

the assessment was made. A check date d Dee. 23, 1964, was received in pa rt 

paym ent of the additional taxes.

On Ja n. 29, 1965, not having received the balance, the IRS office sent a balance 

due notice. Again no reply was received. A notice of levy aga inst their bank 

account was served by a Revenue Officer on March 31, 1965. Later that day. the 

Revenue Officer received a call from Gordon W. Warren, president of the bank 

(see case above), saying he had a copy of a letter from IRS and proof that the 

paym ents had been made.

The Revenue Officer agreed to release the levy if he could get proof of payment. On April 6, 1965, he received the letter that had been sent by IRS on 

Jul y 30, 1964 (which therefo re had been received by the taxpay ers almost nine 

months ea riler). There was also proof of payment made by two checks, one on 

Sept. 24, 1963, and the other on April 6, 1964. The notice of levy was released 

on April 7, 1965.

Jer ry G. Pfn iste r— Chicago, III.

The Rea der’s Digest alleged th at IRS atta che d Mr. P fnister’s salary “without 

warning,” and that “only lat er would IRS give him a letter admittin g tha t it 

had made an erro r and he owed noth ing.”

The facts are these :

Mr. Pfnister filed a joint return for 1965 withou t paying the tax due on May 

27,1966.

On th at date IRS mailed Mr. Pfnis ter a first notice to which he responded 

on July 18, 1966, with a partial payment. Two more months passed withou t 

furth er payment.

On Sept. 5, 1966, the couple was notified by mail th at the ir account was being 

assigned for collection due to its delinquency, and they responded with a second partial payment on Sept. 14, 1966. There followed a period of five m onths, 

during which time no furth er reduction in the balance took place, despite 

repeated telephone calls, letters, and personal contacts from IRS.
20 INTERNAL REVENUE SERVICE

Finally, in response to a call on Feb. 10, 1007, Mr. Pfn ister on February 13 

telephoned and agreed th at he would pay ano ther par tial payment immediately 

and send the balance due on his delinquent tax account by March 6, 1007. The 

day after the call, Mr. Pfn ister did send another payment as he had promised, 

and then in early March he remitted two sep arate payments, to cover the 

balance. But, one of the two payments was inadvertently sent to the wrong IRS 

office.

Since the collection office w as unaware this paym ent had been made, it faced 

a situ atio n in which Mr. Pfn ister apparen tly had disregarded his own pledge 

of the month before, and IRS had no other course of action left but to levy on 

his salary.

After the Notice of Levy had been served, Mr. Pfnis ter on April 5, 1967, 

visite d the IRS, presented canceled checks, including the misdirected check, 

showing payment of his delinquent taxes in full, although he still owed some 

accru ed interest. He paid the balance due and then asked th at his employer be 

told th e reason for the levy on his salary.

Immediately on learning the situation, IRS contacted the employer by telephone, offered a verbal apology in behalf of Mr. Pfnis ter and an explanation 

for the service of the levy. Mr. Pfnis ter then was given a Release of Levy for 

his employer, with a written explanation. These specific efforts were made to 

clarify and explain the service of the Notice of Levy.

This is a fa r cry from the Reader’s Digest conclusion th at “This callous disregard of the rights, feelings and welfare of ordinary people goes on all the 

time.”

Claude F. Salter—San Francisco, Calif.

The Reader’s Digest alleged that Claude F. Salter, formerly Chief of the 

San Francisco Audit Division, was demoted because “he consistently said no” 

to “superiors who asked special treatm ent for certain taxpay ers.” The article 

furth er alleged that IRS “tried to have him declared unfit by ordering him to 

the U. S. Public Health Service Hospital” and improperly implying that Mr. 

Salter was mentally ill.

The facts are th es e:

The voluminous record of a long series of hearings and appeals on Mr. Salter’s 

demotion does not indicate any evidence that Mr. Salter’s superiors ever asked 

for special trea tment of certain taxpay ers as alleged by the Reader’s Digest.

Over a period of years Mr. Salter had exhibited personality traits that made 

it impossible to reta in him in a management position.

When Mr. Salter’s views were in conflict with those of his superiors, he expressed his opposition with shouting and indiscreet language. As an example, 

on Feb. 8, 1963, he was inform ed that an agent under his supervision was to be 

disciplined because the agent improperly discussed the tax problems of one 

tax payer in the presence of another person without the consent of the taxpayer. Mr. Salter objected vehemently, using loud and profane language. This 

was one of a number of incidents in which he displayed increasingly intem perate 

conduct.

Since Mr. Salter continued to behave in this manner, the possibility that he 

might be ill arose. As a routine matter he was refe rred for a complete checkup 

to the U. S. Public Hea lth Service Hospital. As a result of the exam ination he 

was declared medically fit for duty.

Believing that the best inte rests of the IRS required reassignment of Mr. 

Salter to a position of less responsibility, the Regional Commissioner in San 

Francis co transf err ed him to a non-managerial position in the Appellate Division.

When Mr Salter was demoted in September 1964, his salary was reduced 

from $19,310 to $18,580. His present salary is $19,813.

Mr. Salter appealed this demotion to the Washington hea dqu arte rs of IRS. 

After a 3-day hearing in December 1964. the regional action was upheld. Mr. 

Salter then appealed to the Regional Office of the Civil Sendee Commission 

which conducted a 2-day hearing in July 1965. nis appeal was rejected. Mr. 

Salter next appealed to the Board of Appeals and Review of the Civil Service 

Commission in Washington in October 1965. This appeal was rejected in March 

1966. That same month Mr. Salter requested reconsideration from the Board of 

Appeals and Review and this was denied.
INTERNAL REVENUE SERVICE 21

Donald R. Lord— Dedham, Mass.

The Rea der’s Digest alleged that “three IRS agen ts pushed past” Mr. Donald 

R. Lord, when he answered a knock at his door “one Saturday morning, still 

in his pajamas.” Afte r confiscating boxes of papers, and “threatening him with 

a j ail sentence if he resisted,” they left and subsequently “hounded” his relatives 

and “even tried to question his 88-year-old grandm other.”

The facts are these :

On a Wednesday at 10:15 a.m., having made an advance appointment with 

Mr. Lord (not a surpris e visit as Reade r’s Digest implies), thre e IRS agents 

arrived at his house, and Mr. Lord fully clothed (not in his pajamas) admitted 

the agents.

Mr. Lord is the son of a deceased accountant for a taxpay er under investigation at that time. The agen ts sat at Mr. Lord’s kitchen table, inasmuch as he 

volu ntarily produced the records they wanted to examine. Mr. Lord had no office 

since he is employed elsewhere and his father’s records were at the house. The 

agents inventoried the records, then removed them with autho rity of a summons 

given to Mr. Lord. At no time was Mr. Lord thre atened w ith a j ail sentence if he 

resisted.

The Rea der’s Digest says “soon therafter, a neighbor phoned” repo rting that 

agents had been there that day asking questions “about you.” The neighbor who 

phoned was Mr. Lord’s mother, wife of the deceased accountant, and the time was 

about 8 months later.

On that occasion and later, still seeking additional records in the principal 

case, IRS agents contacted Mr. Lord’s relatives. There was no “hounding” of anybody by anybody. Mr. Lord’s mother had made it known that her deceased husban d’s sister, Miss Marie A. Lord, had ce rtain of Lord’s records. By pre-arranged 

appointment with Miss Lord, and at her invitation, an agent called at her home, 

Miss Lord’s aged mother was in the house, but was at no time questioned.

IRS agen ts did contact the deceased Mr. Lord’s bank, to obtain records of 

financial tran sac tions between himself and the taxpay er under investigation. 

This is not unusual procedure under the circumstances.

The tax payer who was being investiga ted and whose records were involved 

was represented by atto rney Lawrence O’Donnell, also discussed in the Rea der’s 

Digest article.

Laivrence O’Donnell— Boston, Mass.

The Reade r’s Digest alleged that accountant Donald R. Lord had engaged “a 

distinguished Boston lawyer,” Lawrence O’Donnell, who was “suddenly” subject 

to hostile IRS exam ination including questioning of medical expenses for operations, and who finally, in court, proved IRS was “in arr ogant contempt of the 

court order.”

These are the fac ts :

Mr. O’Donnell’s income tax return s for the yea rs 19G2 and 1963 were being 

audited. lie sought through the courts to prevent the audits. On Jan. 25, 1966, the 

U.S. District Court denied his request. Mr. O’Donnell appealed. Here is what 

Federal Judg e Coffin of the U.S. Court of Appeals said on J uly 11,1966:

“Appe llant’s (O’Donnell’s) 1962 ret urn was chosen for exam ination 

because of a large bank deposit consisting mostly of bills of $100 or 

more. His 1963 return was chosen for audit by an agent who had no 

knowledge of the prior selection, as the result of a routine classification of a block of return s, where claimed deductions for medical expenses and Schedule C repo rting of business income and expenditures 

indicated the desirability of checking.”

Concerning “arr ogant contempt” of court, the R ead er’s Digest alleges the Fed ­

eral Court in Boston ruled “seizure of the business records completely illegal * * *” 

but in th at case, District Court Judg e Wyzanski on April 13, 1965, found that 

IRS was not in contempt and r ul ed :

“* * * I dismiss the petitio n with respe ct to civil contempt as well as 

with respect to criminal contem pt.”

Federal Judg e A. J. Jul ian told the res t of the story in his ruling on the first 

of a series of legal actions pertaining to records of a tax clien t of Mr. O’Donnell.

Mr. O'Donnell’s tax client, convicted on April 7, 1967, of tax evasion of $40,425, 

was sentenced to a 5-year jail term and fined $30,000. The records, legitimately
22 INTERNAL REVENUE SERVICE

obtained on April 18, 1962, from Mr. Donald R. Lord (see case above) by IRS 

agents, were taken from IRS by Mr. O’Donnell in defiance of a court order.

In th at case, Judge Ju lia n ruled on Jan. 5,1966, as follows:

“The conduct of respondent O’Donnell * * * constituted contempt of 

court. This contempt persisted from Aug. 23, 1965, until Sept. 28, 11X55, 

when the records were delivered to the Clerk of this Court. I find the 

respondent O’Donnell * * * guilty of civil contempt of court.”

Circuit Court Judge Coffin, to whom Mr. O’Donnell appealed on July 11, 1966, 

sustained the lower cou rt and said :

“The d istrict co urt in its opinion dated Jan. 6, 1966, ably set forth both 

fac tua l findings and legal conclusions. Its orde r adjudged appellan t 

(O'Donnell) guilty of civil contempt and ordered that the records in 

controversy he made available to the Internal Revenue Service for purposes of a complete and unhindered examination for a period of fortyfive days.”

The Judge con tinued :

“The order, which appellant (O'Donnell) has been found below to 

have willfully disobeyed, was one link in a lengthy chain of events in 

connection with an investigation of the ta x liab ility of (names of the tax 

clients.) It was preceded by summonses, refusal to produce, challenges 

to the ir legality, petition for enforcement, a prior order of enforcement, 

appeal, affirmance on appeal, and denial of a sta y of enforcement by a 

Supreme Court Justice * *

“The distric t court found these reasons (the ones advanced by Mr. 

O’Donnell * * *) to be spurious and mere pre texts for the removal of 

the records. The real reason for the removal * * * was to prevent the 

completion of the examination and to impede and ob stru ct the investigation of ta x clients ta x liability .”

The Reader’s Digest said Mr. O’Donnell proved “with testimony of one agent 

who resigned in disgust” illegal use by IRS of the tax records.

Regarding this testimony by the ex-agent, Fed eral Judge Andrew Caffrey on 

April 7,1967, sai d:

“Former Revenue Agent Donald Young left his employment at IRS 

>to take the position at the dog tr ack because his superiors denied him a 

promotion to which he fe lt he was en title d.”

In this opinion, Judge Caffrey fu rth er says :

“On direct examin ation Mr. Young testified glibly as to minute details 

of conduct th at occurred approxim ately five years prior to the date he 

testified * * *. On cross exam ination his manner was markedly different. and even more different when queried by the Court at the conclusion of re-direct and re-cross-examination.”

Webb & Knapp, Inc.

The Reader’s Digest alleges that IRS allowed the real estate firm of Webb 

& Knapp to pile up tax debts over a period of seven years and then wrote off 

$26 million as uncollectible.

The facts are th es e:

The firm of Webb & Knapp is a huge real estate complex whose affairs are 

involved and intricately interwoven through a number of corporations and join t 

ventures.

The tax law perm its certain “carryover” and “carryba ck” tax adju stments 

so tha t financial activities in one tax y ear may be reflected in ta x return s of other 

years. Consequently, it is a practical necessity for IRS to audit very large corporations fo r as many as ten tax years at a time.

This enormous complexity in corporate transaction s and in the tax laws explain s an accum ulation of ta x debts. The a udit takes time ; counter-argument and 

appeals take time.

In audits on the Webb & Knapp case, additional taxes and inte rest tota ling 

$27 million were found for the years 1952 through 1959 and were assessed on 

Nov. 16, 1965. IRS records show th at the additional taxes were due to accounting 

technicalities developed during the course of the audit and were not attrib uta ble
INTERNAL REVENUE SERVICE 23

to evasive repo rting by Webb & Knapp or to any failur e on the pa rt of IRS to 

collect taxes known to be delinquent. A sub stantial portion of these additional 

taxes are in dispute and the cases are pending in the U.S. T ax Court.

The Fed eral District Court for Ma nhattan approved a petition for reorganization under the B ankruptcy Act fo r Webb & Knapp on May 18, 1965.

In December 1965, IRS was advised the assets in the Webb & Knapp estat e at 

that time were approximately $2 million. No possbility of collecting the taxes 

appeare d likely.

IRS wrote off as uncollectable almost $26 million. This is an adm inistrative 

action which means th at there are no assets or prospects of assets from which 

to collect. The tax liability is not discha rged by the “write-off.”

One account, larg er than any anticip ated payment, has been held open for 

the applicatio n of any funds obtained through th e reorganization.

American Skipping Companies—Nero York

Stavros Niarckos

The Rea ders’ Digest alleged that “sim ilarly” to its handling of the tax m atters 

concerning Webb & Knapp, IRS “last year wrote off as ‘uncollectible’ a tax bill 

of more than $23 million” owed by six shipping companies controlled by Mr. 

Stav ros Niarchos.

The f acts are th es e:

Th at Reade r’s Digest is as wrong about this situation as it was about Webb 

& Knapp, and furthermore nothing could be more diss imilar than the two si tuations.

Fir st, no claims for taxes have ever been m ade a gainst Mr. Niarchos as an individual. Mr. Niarchos owned or controlled six American corporations, which owed 

about $17 million in Federal taxes plus inte rest. These taxes were based on the 

government’s contention that income of cer tain of the U.S. corporations was 

improperly diverted to certain foreign corporations cha rtering and sub-chartering seagoing vessels. These taxes are not written off as uncollectible.

The government was unable to collect these taxes. Faced with an imminent 

expiration of the sta tut e of limitations for collection, IRS in 1962 went to court 

to get a judgm ent against the corporations for $17 million plus interest. As a 

resu lt of this action, the court in April 1966 granted judgments tota llin g $25 

million. To date, the government has received $1,501,022.27 in ret urn for not 

seizing assets worth fa r less t han this.

Thus, the six corporations admittedly still owe the government some $23 million. This debt is outstanding, and the government may seize any corporate 

assets discovered in the U.S. in the future.

Lawrence L. Callanan— St. Louis, J/o.

The case of Lawrence L. Callanan is cited by the R eader’s Digest as an example 

of “double sta nd ard” trea tme nt, in which he was trea ted “quite differently” 

from some taxpay ers because he and his union lieu tenant contributed to the 

Democratic Par ty. The article says that the “IRS settled his unpaid tax debt 

of $40,219.84 for a token $17,000.”

The f acts ar e t he se :

The whole story, which could have been asce rtained by checking with Mr. C allanan. his lawyer or accountant, is tha t IRS collected the full tax and intere st from 

Mr. Callanan in a series of payments, the first of which was for $17,000.

In 1964, some time after Mr. Callanan had been released from prison, IRS moved 

to collect outstand ing taxes owed by him for the years 1950 through 1954 in the 

amount of $40,219.84 which included taxes, penalties, and interest.

On April 30. 1964. IRS collected $17,058.65. (Mr. Callanan obtained this money 

by getting a mortgage on his jointly-owned home and borrowing the balance. 

This payment was gre ater than the forced-sale value of any assets IRS might 

have seized.)

At the same time, and in accordance with long-established IRS procedures, a 

collateral agreement was entered into providing for paym ent of the balance. 

(Previous atte mpts to reach agreement on Aug. 2, 1960, and Sept. 20, 1962, submitted by Mr. Callanan’s lawyers were rejected by IRS as being inad equate.)

82-7 50— 67-
24 INTERNAL REVENUE SERVICE

Contra ry to the article's state ment of a total payment of $17,000, Mr. Callanan. 

in accordance with the colla teral agreem ent, paid $3,586.14 on May 18, 1966, and 

on Oct. 25, 1966, paid the final balance of $10,138.09 in taxes and penalties and 

$11,874.36 in inte rest to the date of the payment.

Instead of settling his tax debt for $17,000 as the Rea der’s Digest said, he was 

required to pay the full $40,219.84 plus $2,437.40 in additional interest.

Paul R. Campbell—Kansas City, Mo.

The Rea der’s Digest alleged that an unidentified IRS agent, stopped by policeman Paul R. Campbell for a traffic violation, caused the exam ination of Campbell’s tax ret urn s and that Campbell was “pestered ” for months with inte rrogations.

The facts are t he se :

The IRS is unable to identify the employee allegedly charged with a traffic 

violation. However, an investigation shows that Mr. Campbell’s 1960 income tax 

ret urn was selected for aud it by normal selection procedures.

Mr. Campbell was asked on May 8, 1961, for a form which was required to 

complete his 1960 return. He was also contacted on Feb. 1, 1962, as a result of 

comparison of data on his return with information documents required by law 

to be furnished the IRS. This comparison led to the return ’s assignment for 

examination in May 1962.

Mr. Campbell was requested to bring his records in for examination on June 6, 

1962. The retu rn was found to be correct as filed and the tax pay er was so informed on June 20,1962, two weeks later.

Mr. Campbell's 1960 return was one of 45,666 re tur ns selected for examination 

through the regular procedures in the K ansas City District where nearly 649,353 

ret urn s were filed in 1960.
Mr. Steed. Commissioner, before you take up the various eases cited 

in the article, there is a general question or two I would like to ask at 

this point.

Who in your organization was interviewed by Mr. Barron during 

preparation of this article?

Mr. Cohen. As I recall this article, Mr. Barron has probably been 

in to see some of our people on other matters. As I recall the facts on 

this particular article, Mr. B arron did not come in to speak to any of 

our people. Mr. Rosapepe is out of the room now unfortunately.

As I recall, Mr. Rosapepe telling me, Mr. Barron had been in to see 

him about some other matters but not these partic ular cases. I don’t 

know whether he spoke to any of the employees directly involved.

Mr. Steed. Would it have been possible for him to have gotten somebody at the policy level to go over this material with him?

Mr. Cohen. Pa rt of the problem is, the answer to that is “Yes” and 

“No.” This is one of our difficulties in dealing with the press, as this 

committee well knows.

The Revenue Code has provision which makes it unlawful for us to 

discuss anyone’s private tax affairs as a public matter. The returns, 

the information we learn from the returns and audits, are held confidentially under the law. The only way we can discuss these matters 

is if the taxpayer himself chooses to make them public. I n this case, 

each of these taxpayers has chosen to speak with Mr. Barron and therefore I am a t liberty to disclose our side of the case, or if a taxpayer 

chooses to litigate or the Revenue Service must litigate, any material 

tha t comes out in the courtroom is perfectly proper.

This is one of our difficulties.

Mr. Steed. Aside from the case history itself-----

Mr. Cohen. Excuse me.

Hr. Rosapepe. On one case he did come in. lie came in to discuss 

one case.

Mr. Steed. In addition to the case history phase of the article, he 

makes a statement tha t last year IRS subjected 3,500,000 returns to 

special examination, exacting payment from 1.9 million citizens because of alleged errors. This type of information could have been obtained from the material you produced before this subcommittee and 

which was printed in the hearings.

Having had some experience with writing in my time, I am impressed with the impact this statement has, as it is printed, as against 

what it would have sounded like had he included the remainder of the 

material-----

Mr. Cohen. Which is the material I gav e; the other side of the coin.

Mr. Steed. How many refunds did you make ?

Mr. Cohen. 48 million.

Mr. Steed. All I want to do is point out tha t he could have had 

proper access to that information. I am not questioning his right to just 

prin t as much or as little as he will.

25
26 INTERNAL REVENUE SERVICE

Mr. Coiien. That kind of statistical information could have been 

easily explained. 1 think the words “special examination'’ in his parlance there connotes something there which we do not understand, and 

I do not think tha t anyone who is involved understands.

An audit of a return is a routine procedure. A special examination 

in our parlance, and I think in most tax people’s parlance, is a fraud 

investigation. There are only about 2,000 full-scale fraud investigations in the whole United States in any given year.

When you try to compare peaches and pears, you get rather oddlooking results.

Mr. Steed. What I am trying to establish is tha t in addition to material printed in official hearings in which you participate before 

various committees of the Congress, it is possible for a writer or a 

newspaperman, for instance, to get information that would deal with 

a particular program like your appeal system or policies that are general throughout the system.

Mr. Coiien. Yes, sir. I think from, the hearings here and our annual 

report which contains most of the statistical data. Perhaps it may be 

(hat the gentleman tried and misunderstood or misinterpreted it. 

Id o not know.

Mr. Steed. Let us assume that a writer who had this sort, of material 

and this sort of reaction to it prior to his submitting it fo r publication, 

suppose he had desired to get your side of the story, could he have 

gotten it ?

Mr. Coiien. Yes, sir. Particularly in (hese areas of procedures and 

statistics. These services our Public Information Office generally 

provides to all publications.

Mr. Steed. In that light, were any of the members of your staff invited or given an opportunity or otherwise asked to participate?

Mr. Coiien. Not that I am aware of at all.

Mr. Steed. In the material tha t would have been apropos to this 

article ?

Mr. Coiien. No, sir.

Mr. Steed. Now, you may proceed with your statement.

Mr. Coiien. I would just like to cover a few’ matters.

As was indicated, the gentleman indicates that he traveled 5,800 

miles and interviewed some 200 people to discern some 10 cases. As 

was written in tha t letter, even if the 10 cases were agreed on as facts 

by both sides. I do not think that this is an indication that the system 

is out to get the taxpayer. I think that the premise is not sustained by 

the facts. I think, from the figures that I have given you, it would be 

obvious to you that I do not think that the facts even bear this out.

Senator Edward V. Long, who is otherwise critical of the Internal 

Revenue Service, said as recently as August 2 tha t—

Fortunately most Intern al Revenue Service agents are courteous, considerate, 

and helpful. Most citizens try to cooperate with the IRS. and this, certainly, is 

as it should be. Our lax system depends on this gre at degree of cooperation.

I concur in this completely. It is difficult to answer an article such 

as this because there are half truth s and, with due deference to the 

author, I am sure th at he thought he understood the facts completely. 

The problem is that as we know certainly—as a lawyer I can stated— 

perception is a strange thing. I think this is one of the first things 

one learns w hen one goes to law school. When you talk to one wit-
INTERNAL REVENUE SERVICE 27

ness you are getting the facts as he perceives them from his vantage 

point.

If you talk to a taxpayer who has been convicted of tax evasion, lie 

has a rather skewed vision of the system. If you talk to a taxpayer 

disgruntled for one thing or another, he may not have a complete 

view of the system. He may have a view of the system as he perceives 

it. But in order to discern the full weight of the way the system works, 

one should talk to a cross section of taxpayers and one should talk to 

the people who observe this particular fact as it is applied to this 

particular individual from another viewpoint.

This is the American system of jurisprudence. In order to get the 

facts one talks to a number of witnesses. The catchwords of the article 

say tha t “in sworn testimony it was stated tha t,” and this gives to 

the lay reader a ring of authenticity which, as a lawyer, I can say is 

not there. The reason that a court allows for cross examination and 

allows for the presenting of one’s own witnesses is that we all know 

tha t either because they did not perceive properly or because they 

may be misstating, and tha t sometimes occurs in the best cases, the 

particular sworn testimony may or may not be true. The fact somebody states it in sworn testimony does not make it any more true than 

if it were not sworn testimony. One must look at all sides of a picture 

and then one makes a judgment.

Mrs. Reid. Would the gentleman yield for a moment?

Mr. Coiien. Yes.

Mrs. Reid. Of the various cases which have been cited in this article, 

have you talked with the people involved? Do you say now tha t the 

article is true or not?

Mr. Cohen. Several of the cases T would admit with 20/20 hindsight, 

perhaps the best judgment was not used. That is only a very few’ of 

these. In most of these cases the facts as I understand them are quite 

different. In fact, in several of these cases there have been court decisions which indicate, and I would like to cite them to you in a moment, 

tha t courts have found the facts completely different, if the author of 

the article had taken the time and trouble to discover the court records 

and read the complete records. lie might have discerned in some case 

the courts had just gone the other way. In the number of individuals 

that w’ere witnesses, who gave sworn testimony, and I will only give 

a few to illustrate the kind of sworn testimony that was given, for 

example, one was an ex-IRS agent named John W. Harris of Boston. 

Mr. Ha rris at the time he testified had lieen suspended by the Internal 

Revenue Service a fter examination of some transactions in which he 

had been involved in shaking down, extorting money from taxpayers. 

Mr. Harris has since been convicted.

Mr. Rosapepe. This man is not mentioned in the article.

Mr. C 'ohen. He said some 600 people were interviewed, or gave 

sworn testimony. This is one of the kinds of sworn testimony tha t 

create this atmosphere tha t we are talking about.

We have another Internal Revenue agent who was dismissed for 

refusing to bring in his tax records. He was interviewed, I might say, 

by the Administrative Practices Subcommittee.

Mr. Conte. Is this in the story, too ?

Mr. Rosapepe. This is not.

Mr. Cohen. There are a number of other people such as that. Several 

of the witnesses who testified, for example, before the committee were
28 INTERNAL REVENUE SERVICE

two gentlemen one named Bernard Spindel and a Harold K. Lipset of 

San Francisco, who were so-called wiretapping experts and who also 

happened to be under indictment by a g rand jury in the State of New 

York for engaging in a conspiracy to wiretap private citizens.

We know the reporter interviewed a former police official of Kansas 

City, a man named William Canaday, who was convicted of tax 

evasion, later appealed. The appeal was denied and conviction upheld. I could go on and cite any number of these things. I do not 

mean to say that all of the witnesses that were interviewed were lying 

or had a bad purpose. I do mean to say that some of them perhaps did 

and it certainly colors the way one views the testimony.

Mr. Robison. Mr. Chairman, if you would permit.

I am curious as to how you know which former IRS employees or 

presently employed IR S employees were interviewed by the author of 

the article since he does not identify them, I do not believe.

Mr. Cohen. The people t hat I am referring to here, he mentioned 

tha t 600-some-odd people, I have forgotten the number, were interviewed in sworn testimony by the committee. These people we do know 

were all interviewed by the committee. In one, he did talk to one of our 

people and indicated that he spoke to Canaday.

Mr. Robison. What I want to make sure is tha t this record is clear.

Mr. Coiien. We have not followed this gentleman around and we 

do not know other than what he tells us what he did.

Mr. Robison. Yes, but you are talking about “a committee.” W hat 

is that committee ?

Mr. Coiien. It was the Senate Subcommittee on Administrative 

Practices.

Mr. Steed. Wha t was the date of tha t inquiry ?

Mr. Coiien. These inquires all involved questions which arose in 

almost every instance more than 2 or 3 years ago. There are no cases 

of any transgressions tha t are discussed tha t are more recent than 

about 2i/2

 years ago.

I think we can discuss, if you would like, several of the cases. I do 

not want to dwell at length because we will supply you with summaries of these cases. For example, we had one case reported where 

the Reader’s Digest alleges that this attorney patiently answered questions about his tax return but refused to surrender his files concerning 

his clients and tha t the IRS demanded this. As a result—

IRS arbitra rily disallowed his legitimate business expenses for 3 years, seized 

his bank account and confiscated his sailboat, then after hounding him for 33 

months dropped all charges aga inst him.

Here are the facts, page 2 of the case summary. On this particular 

lawyer, in fact, examination was begun in 1962. lie refused to answer 

questions about his tax records. He refused to make his records available to the examining officer. The records requested were only those 

relating to his personal activities and not confidential information 

about clients. We only wanted to know about liis business affairs. 

This is on page 2 of the summary.

For over 2 years the lawyer, Mr. W arden, refused to produce his 

business records to verify certain items on his return, and twice 

refused a conference which was offered fo r the purpose of discussing 

the situation. In order to determine his correct tax liability, we had to 

gath er information independent of his particula r records to substantiate his expenses for 1959, 1960, and 1961. Lacking his records, the
INTERNAL REVENUE SERVICE 29

only th in g we could go on were thes e th ird- pa rty record s which we 

know on occasion are incom plete.

He wrote to th e S an Francis co office refus ing to accept o ur deficiency 

find ings an d in a subsequent lette r he ind icated he de sired to go thr ou gh 

our appellate procedures.

W ith the case the refore tran sfer re d to our Ap ell ate Div isio n, Mr. 

Warde n appeare d in A pr il 1963 in an ap pe lla te conference. A t this 

tim e again he refuse d to supp ly any records. In December of 1963, 

as req uir ed by law, sta tu tory notice was sen t to him showin g a pr oposed ad justm en t on his return . A mo nth earlier, in Nov ember of 

1963, he sta rte d an action ag ain st the Rev enue Ser vice in t he di stric t 

court alleging th at certa in indiv iduals in the Revenue Service were 

actin g ar bi trar ily . Th e c om pla int f urther sa id the d efe nd an ts schemed 

an d conspired to deprive him of his constituti onal rig hts .

On Ja nu ar y 8, Ju dg e Zir poli dism issed the comp laint. Th e co urt’s 

find ings include the statem ent th at the acts of the In te rn al Revenue 

employees were un derta ken solely to determine Mr. W arde n’s tax 

lia bil ity fo r the y ears in question. None of thes e acts was un derta ken 

fo r the purpo se of denying him any rig hts, privilege , or immu nity 

gu aran tee d by the C onstitution .

He filed an app eal. Sub seq uen tly he dro pped the appeal. In Fe bru ar y 1964, h e filed a petition with the U.S . Ta x Cou rt on his deficiencies and at a p re trial conference in November he gave the first i nd ication he might coo perate wi th the In te rn al Rev enue Ser vice by 

inform ing the Ch ief Counsel’s staff he was com piling record s to sub ­

sta nt iate his expenses. Two mo nth s late r, in J an uar y a nd Feb ru ary, he 

fina lly fo r the first time mad e his records ava ilable to the In te rn al 

Revenue Service. W ith these records ava ilable f or the firs t time it was 

determined th at no add ition al t ax i n fact was due. Th is oc curred on ly 

af te r he had made his records ava ilab le, a reasonable action, w hich if 

tak en on the in itial requ est, wou ld have saved both the taxp ay er and 

the G ove rnm ent a gr ea t deal o f tim e an d effo rt.

Th e Re ad er’s Digest sto ry said Mr. W arde n un fa irly h ad his ban k 

acco unt seized by IR S, which also confiscated his sailbo at. Th is is 

rea lly an othe r ch ap ter and relate s to the rec alcitra nce of the tax pa ye r 

in rega rd to anoth er m atter. Mr. Warde n owed taxes reporte d by him 

on his o rig ina l retu rn b ut n ot pa id wi th th at return . He was se riou sly 

delinquent in the paym ent of these taxe s, tax es no t in questio n in the 

deficiency a t all.

Th e Collect ion Div isio n, in activitie s en tirely disti nc t an d sep ara te 

fro m exam ina tions of his tax returns, mad e num erous effo rts to collect 

these taxes admitted ly owed by W ard en. On ly af te r he ref used to submit fina ncial da ta which would enable th e Rev enue Service to de termine w hethe r th is collection co uld be de fer red on the basis of ha rdsh ip, 

he was notified in Ju ne of 1964 the ac tion t o collect t he tax es wo uld be 

commenced.

On Ju ne 25 a levy was served on his ba nk account and on Ju ly 17 

his sloop was seized at the y acht ha rbor w here h e kept i t moored.

These actio ns were u nrela ted to a ud it of his tax re tu rn and to ok p lace 

as a p ar t of an enforcement acti on to collect a delinquency . On Au gu st 

4,1964, M r. W arde n m ade fu ll paym ent of all e xis tin g tax lia bility and 

his boat was relea sed to him.

I would like to outlin e fo r you the steps th at are take n befor e any 

seizu re is made of any one ’s assets. Con tra ry to w ha t the au thor m ight
30 INTERNAL REVENUE SERVICE

believe to be the case, this is an action which we regard as very serious 

in both our own behalf and on behalf of the taxpayer. Therefore, before any action is taken in a normal case, three notices, three written 

notices are sent to the taxpayer. If in response to any one of these 

notices the taxpayer establishes that payment would create an undue 

hardship, as distinguished from inconvenience, or that in fact there 

has been some mistake made or in fact a liability is not owed, then we 

can either make adjustment arrangements if a mistake has been made, 

or make periodic payment arrangements which suit his financial 

condition.

If collection in full, or part payment, is not accomplished, then and 

only then do we authorize any action to enforce the payment of the 

tax. Even then he is usually given one last notice tha t we have come to 

the end of the road. If enforced action is taken, we try to avoid any 

unnecessary hardship on the taxpayer. We do try to take into account 

the facts as we understand them. Mind you, in most of these cases the 

taxpayer has been completely uncooperative. I t is difficult to discern 

the facts.

Mr. Conte. Commissioner, are you all through with th at page?

Mr. Cohen. Yes, sir.

Mr. Conte. The next one that you mention seems to be a bit underhanded to me. That is where the IRS man opened the man's letter from 

another woman and showed it to the taxpayer’s wife.

Mr. Cohen. I do not try to justify this action. We admit this is a 

mistake. In fact, I have written letters to Congressmen and other people that on occasion our people make mistakes. They are human beings.

Mr. Conte. This woman must have been highly indignant the minute 

she saw a letter like that. That is on page 4 of the summary. W hat 

happened to this agent ?

Air. Coiien. This one, disciplinary action was taken. Rig ht now I do 

not know what it was.

Air. Conte. This is just unpardonable.

Mr. Coiien. I would agree.

Mrs. Reid. Would you yield ?

I wonder if you can furnish to us what action has been taken with 

the agents who apparently were involved in these cases.

Air. Coiien. I can try to find out. I do not know right now.

(Subsequently, the following information was supplied for the 

record by Commissioner Cohen:)

The Tennessee Case

There was only one agent involved in the Tennessee case. He came with the 

Service in February 1950, and thus, at the time of the incident, had been with 

the Service for 12 years. He is a competent employee who progressed to positions of increasing responsibility and had received a number of awa rds for making beneficial suggestions on improving the Service’s operations. He had an unblemished record prior to the incident.

A thorough investigation was made by the Inspection Service which substan ­

tiated the agent’s improper action s in the case. I might add th at the agent has 

ste adfas tly denied—and it was never establshed—tha t he opened the envelope 

in question although he does admit making a copy of the letter and showing it 

to the tax payer’s wife. The agent was given a letter of official repriman d dated 

Febru ary 9, 19C>5. from the Acting Distric t Director, Nashville.

The other cases cited:

In the other cases cited by the article, when all the facts became known, i t was 

found that our employees had not done anything wrong—either in violating the 

law or regulations or depriving a taxpay er of his legal rights.
INTERNAL REVENUE SERVICE 31

Mrs. Reid. I t seems to me the pro ble m here is with perso nalities in 

your own De pa rtm en t in the way of ha nd lin g these situations. Ce rtainly, in a way, i f it is a t all tru e, anyone who would write to anyone 

would object.

Mr. Cohe n. I wou ld agree. Di sciplin ary acti on is tak en un der the 

ap pr op riate procedures, which take int o acco unt whate ver ex ten ua ting circumstance s migh t hav e existed, wh at the ma n’s record might 

have been before. I s this an isolated case o r is th is a case where we have 

had a problem with th is p ar ticu la r agent before? In the lig ht of t hat 

histo ry, sometimes an action which is an isolated act ion will be pu nished in one way whereas if the action is an acti on where an age nt 

has mad e a serious mistake in more th an one inst anc e, it might lead 

to h is dism issal. Th ey va ry fro m case to case. I do not recall or have 

the reco rds wi th me to in dic ate that.

Mr. Conte. I w ould app rec iat e tha t informa tio n

Mrs. Reid. Also, Mr. Com missioner, you men tion the few n umber s in 

the art icl e in relation to the many, ma ny cases which you have before 

you but it certa inl y is true t hat just a few tend to reflect on the e ntire 

Service.

Mr. Coiien. T his is absolutely corr ect. Th is is one of the reasons we 

have had an inc rea sing emp hasis in our tra in in g effort on courtesy 

and tac t. Aly slogan, th at 1 have tri ed to emphasize in a numb er of 

tal ks to all of ou r employees is, th at we m ay have to disagree, but we 

sho uld neve r be disagreeable. I think thi s is the way we try to operate.

Air. Steed. Mrs. Reid, I tri ed to get the Comm issio ner to agree th at 

these courses they give in thi s are a could be like a cha rm school, li e 

never ha s quite come to an ag reement yet.

Mr. Com missioner, at this po int th is discussio n could leave an implic atio n th at th is disciplin ary a ction is on ly tak en by you when something like this hap pen s. Why do you no t gi ve us a pi ctur e of w ha t goes 

on all the time, wh eth er the public mak es a comp laint or no t?

Mr. Coiien. I have three disciplin ary cases on my desk rig ht now 

on appeal from regio nal or district peop le. One of the cases com plained 

of here is a disciplin ary action tak en ag ains t a form er sup erv isor, a 

gen tlem an nam ed Sa lte r, who was in ou r Sa n Francis co office, who, 

the region al Com missioner felt, did no t have the c ap ability of supervising. He was abusive both to the people sup ervised and to oth ers 

and as a result, there of th e di strict dire ctor f elt may be he had a ph ysical or m ent al problem and suggested he have an exam ina tion, medical 

exa mination . Th e doc tor said, “No, he is in good health. He is fit for 

du ty.” Und er the circumstanc es, since the regional com missioner did 

not feel he was capable as a sup erv iso r, he was tran sfer re d to anoth er 

job which, I un de rst an d, he is pe rfo rm ing in a fine fashion. Th is is 

the kind of effo rt that good sup erv isors ought to br ing about.

I f a man is n ot suited f or th e pa rtic ul ar jo b, we may be able to find 

him a job t ha t he can do w ithout any difficulty. We ou gh t to lie looking 

at ourselv es and we are constan tly looking to make sure th at we are 

pu ttin g rou nd pegs in rou nd holes and squ are pegs in squ are holes.

Mr. S teed. You also made referenc e to the fact th at some employees, 

some age nts, have act ually been caught doing illegal acts and they 

have been prosecu ted and im prisoned.

Mr. Coiien . Yes, sir. We have a very active insp ection prog ram 

which constan tly is pro bin g to make sure of two th in gs : One, an in82-7 50 —07----- 5
32 INTERNAL REVENUE SERVICE

ternal audit procedure which is to discern whether we are following 

the law and the procedures established. This is an independent office, 

again directly under my jurisdiction, that goes out to all of our offices 

all over the country once a year to make an audit of procedures, to 

make sure that our people are doing what they should do, that management is directing and supervising in a proper way and reporting 

back to me.

Their second role is to constantly inquire into the integrity of the 

Internal Revenue Service so tha t no blemish goes uninvestigated. If 

there is any suspicion of any wrongdoing on the part of any Revenue 

employee, it is investigated. This is im portant both for the taxpayer's 

benefit and for our employee’s benefit As often as we find where an 

employee has done something wrong, has perhaps exceeded his authority, quite often we also find tha t taxpayers have given erroneous 

reports of abusive conduct for the purpose of trying to avoid some 

other responsibility.

Mr. Yates. Did the employee, Mr. Commissioner, in the Tennessee 

case exceed his authority or was he authorized by the Department to 

look at the taxpayer's mail ?

Mr. Coiien. No, he was not authorized.

Mr. Yates. Did not Senator Long’s investigation relate to a time 

when you were tagging mail of delinquent taxpayers?

Mr. Cohen. No. That related to another area altogether. Tha t related to a procedure used by the Post Office Departm ent for listing of 

addresses. There wras no mail opening. No discussion of breaking the 

seal on the mail.

Mr. Bacon. There was a legal procedure where we seized a business. 

The legal interpretation was that the mail tha t came into the business, 

including business mail, was properly part of the business. We did 

open that mail for business receipts. Tha t had been stopped because 

of the complaints and reinterpretation legally. T hat is the only situation.

Mr. Cohen. Even when th at was done, as long ago as 3 years ago, 

even when tha t was done, it was always done where possible in the 

presence of the employee or the management of the business. In other 

words, they w’ould go to the manager and say the business received so 

much mail. Some of this is probably checks. We would like to open it 

to discern w’hether there are any assets probably taxable.

Mr. Yates. If I can return to this particular case-----

Mr. Cohen. In this case there was no authority to do what he did.

Mr. Yates. Not from the supervisor ?

Mr. Cohen. No, sir.

Mr. Yates. This is just an enthusiastic agent ?

Mr. Cohen. Yes, sir; bad judgment.

Mr. Steed. Commissioner, I would like to ask you this sort of a question : Suppose I am one of these timid, terrified 105 million taxpayers 

tha t one of your agents comes to see and despite all tha t you have 

done to try to make the Service as high class as you can, he happens 

to be the kind of an individual who approaches me either with some 

highhanded type of thing t hat is mentioned here, or some that no one 

has thought up yet, and I feel I am being made a very unfair victim. 

Suppose I wired you. "What would take place if I wired you—had the 

nerve to let somebody know about it ?
INTERNAL REVENUE SERVICE 33

Mr. Cohen. I do not think it takes nerve. I think it takes good sense 

to know the Government wants its people to operate in a proper fashion. This is the job of the district director. It is the job of the regional 

commissioner and it is certainly the job of the Commissioner of In ­

ternal Revenue. Therefore, we have instructed, and I think we did 

not even need to instruct our district people and our regional people 

and certainly our inspection people, to be constantly ready to receive 

any complaints that taxpayers might make. Any complaint that a tax ­

payer might make is generally, if warranted, investigated by our In ­

spection Service to discern if there is a violation of our rules of the 

road, law or otherwise. If there is, proper disciplinary action is taken 

by the Service management. If there is not, the employee certainly 

ought to be cleared and given a letter by the Intern al Revenue Service 

saying we find a complaint unj ustified.

Every year the Inspection Service investigates hundreds if not 

thousands of these things. In those few cases they discern that we have 

had someone do something wrong, a repo rt is made to the supervisory 

official in charge of this employee so he might take an appropriate 

disciplinary action. In a case where they find nothing is wrong, then 

the employee as a citizen of the United States deserves a letter saying, 

“We find your actions were entirely proper.” He gets such a letter.

Mr. Yates. In the Tennessee case how much time had elapsed between the time he opened the taxpayer’s personal mail and the original 

beginning of the dispute ?

Mr. Cohen. I do not know that fact that closely.

Mr. Bacon. We will get the facts on that.

Mr. Cohen. Mr. Bacon will let you know probably within a day.

Mr. Steed. Commissioner, as a Member of Congress I have had a few 

occasions where some constituent meeting me would start outlining a 

very rough time that he had had with one of your agents. In his original 

presentation of the situation he was very severe and outspoken in his 

analysis of the man’s highhanded and unfair treatment. So far in every 

case where I said, “Why didn’t you call me? Perhaps I could have 

helped you,” he always wound up by saying, “Well, I got it all worked 

out and I didn’t want to bother you.” My impression was that sometimes people in the first instance are a little inclined to exaggerate.

Mr. Cohen. I th ink there is a rationalization. All of us like to think 

tha t we are pretty careful and we have done a p retty good job. A fter 

all, this agent’s job is to make sure tha t you have been reasonably careful and done a pretty good job. No one of us likes to have our ability to 

do that good job questioned.

There is a natural feeling of antagonism tha t perhaps creeps in. 

When the agent discovers that you have made some error, there is a 

feeling, I am sure, tha t arises in the taxpayer that, “Well, I am embarrassed by this.” There is a feeling of chagrin, and some taxpayers 

being naturally more aggressive, might take it out in ways of venting 

their anger.

I think what happens in most cases when they become analytical and 

see what the process is really about, they discover that substantial ju stice has been done here. This is not really bad.

From my own practice I recall representing taxpayers in a transaction in which they went with some knowledge. The law is unclear 

here. The tax might apply this way and it might apply the other way.
34 INTERNAL REVENUE SERVICE

We are not exactly sure but it is a good business transaction and you 

ought to go ahead with it whatever the tax consequences will be. By 

the time the taxpayer goes into it and the agent comes in 2 or 3 years 

later the taxpayer has rationalized in his own mind the answer th at he 

wants. This is human nature. He is now determined tha t the lowest 

possible tax applies even though he was told at the beginning tha t it 

might be this or it might be that. When the agent asks him those questions, it is painful and that rationalization process requires almost 

that he say, “This is absolutely highhanded and erroneous.” I have sat 

with taxpayers who have gone through that process.

From the taxpayer’s representative point of view, I can say that I 

have seen it now from both sides.

All the right does not ever exist in any one institution or person. 

The Revenue Service does the best job it knows how to determine the 

correct facts.

One case in the list there tha t is particularly disturbing to me is the 

one on page 12, and 13, and so on that involves the Donald R. Lord case 

and his lawyer named O’Donnell.

If you will bear with me, I would like to go through this particular 

one because I think the court records indicate very clearly the nature 

of the particular problem here which could have been easily determined.

The Reader’s Digest alleged that “three IRS agents pushed past” 

Mr. Donald R. Lord when he answered a knock at his door “one Saturday morning, still in his pajamas.” After confiscating boxes of 

papers, and “threatening him with a jail sentence if he resisted,” they 

left and subsequently “hounded” his relatives and “even tried to question his 88-year-old grandmother.”

The facts are these, as we understand them :

On a Wednesday at 10:15 a.m., having made an advance appointment with Mr. Lord (not a surprise visit as Reader’s Digest implies), 

three IRS agents arrived at his house, and Mr. Lord, fully clothed 

(not in his pajamas) admitted the agents.

Air. Lord was not being examined for his own return. Mr. Lord is 

the son of a deceased accountant for a taxpayer under investigation at 

that time. The agents sat at Air. Lord’s kitchen table, inasmuch as he 

voluntarily produced the records they wanted to examine. Mr. Lord 

had no office since he is employed elsewhere and his fath er’s records 

were at the house. The agents inventoried the records, then removed 

them with authority of a summons given to Air. Lord. A t no time was 

Air. Lord threatened with a jail sentence if he resisted.

The Reader’s Digest says “soon thereafter, a neighbor phoned” reporting that agents had been there that day asking questions “about 

you. ' 'I he neighbor who phoned was Air. Lord’s mother, wife of the 

deceased accountant, and the time was about 8 months later.

On that occasion and later, still seeking additional records in the 

principal case, IRS agents contacted Air. Lord’s relatives. There was 

no “bounding* of anybody by anybody. Air. Lord's mother had made 

it known that her deceased husband’s sister, Aliss Alarie A. Lord, had 

certain of Lord's records. By prearranged appointment with Aliss 

Lord, and at her invitation, an agent called at her home. Aliss Lord's 

aged mother was in the bouse, but was at no time questioned.
INTERNAL REVENUE SERVICE 35

IKS agents did contact the deceased Mr. Lord’s bank, to obtain 

records of financial transactions between himself and the taxpayer 

under investigation. This is not unusual procedure under the circumstances.

The taxpayer who was being investigated and whose records were 

involved was represented by attorney Lawrence O'Donnell, also discussed in the Reader’s Digest article.

Mr. Yates. By way of information, what is the force of a summons? 

How can you remove records through the authority of a summons? 

Should not that word be “subpena” ?

Mr. Cohen. The statute reads “summons.” There is an administrative summons authorized under the Internal Revenue Code which is 

enforceable by judicial action. I f the taxpayer declines, it is enforceable by court action.

Mr. Bacon. I have a recollection of the case because I was in Boston 

as regional commissioner at the time. When it was reported to me, it 

was not disputed at tha t time. The investigation related to a person 

up there who was later convicted, and I was alerted to the case and 

so I knew some of the circumstances.

The agents reported they talked to Mr. Lord, who had the records, 

and they gave him what we call a courtesy summons, which banks or 

others frequently ask for.

Mr. Coiien. He wanted to give them voluntarily, but he wanted the 

summons to show he had been forced.

Mr. Bacon. He gave us the records voluntarily, and we gave him 

the summons. He could have said, “I have 10 days to supply them.” He 

did not make that request for 10 days, so our agents took the records 

but at the same time gave him the summons.

Mr. Yates. It is in the nature of a subpena ?

Mr. Cohen. Yes; it is a misnomer.

Mrs. Reid. I do not understand what you are saying.

In the article, apparently Mr. Lord was the one who was interviewed 

by the writer.

Mr. Cohen. A number of years later Mr. O’Donnell and others 

appeared before the Senate committee and made a number of accusations. I do not know, but perhaps that is the genesis of the problem.

Mrs. Reid. The different story which you are telling is the story 

told by the agents ?

Mr. Cohen. This is the story as we understand it.

The last aspect of this is Mr. O’Donnell’s aspect, and I think, in 

addition to our agents’ version, we do have it from a district court judge 

and out of a circuit court judge’s opinion. So if you will bear with me, 

I would like to go into that.

Mr. Bacon. May I mention th at our data come from our daily records and the diaries of the agents as to what they did on these cases.

Mr. Coiien. Tha t is why we can tell you the time. The agent writes 

a daily report. So if he tells us a year later we can pretty well sustain 

where he was a year earlier.

The Reader’s Digest alleged that Accountant Donald R. Lord had 

engaged “a distinguished Boston lawyer,” Lawrence O’Donnell, who 

was “suddenly” subject to hostile IRS examination, including questioning of medical expenses for operations, and who finally, in court, 

proved IRS was “in arroga nt contempt of the court order.”
36 INTERNAL REVENUE SERVICE

These are the facts: Mr. O'Donnell's income tax returns for the 

years 1962 and 1963 were being audited. He sought through the courts 

to prevent the audits. On Janu ary 25, 1966, the U.S. district court 

denied his request. Mr. O'Donnell appealed. Here is what Federal 

Judg e Collin of the U.S. court of appeals said on July 11, 1966:

Appellant’s (O’Donnell’s) 1962 return was chosen for examination because of 

a larg e bank deposit consisting mostly of bills of $100 or more. His 1963 return 

was chosen for audit by an agent who had no knowledge of the prior selection, 

as the resu lt of a routine classification of a block of returns, where claimed 

deductions for medical expenses and Schedule C repo rting of business income 

and expenditures indicated the desirab ility of checking.

Concerning “arrogant contempt” of court, the Reader’s Digest 

alleges the Federal court in Boston ruled “seizure of the business records completely illegal * * *” but in that case District Court Judg e 

Wyzanski, on April 13,1965, found that IR S was not in contempt and 

ruled as follows:

* * * I dismiss the petition with respect to civil contem pt as well as with 

respect to crim inal contempt

Federal Judge A. J . Julian told the rest of the story in his ruling 

on the first of a series of legal actions pertaining to records of a tax 

client of Mr. O’Donnell.

Mr. O'Donnell’s tax client, convicted on April 7,1967, of tax evasion 

of $40,425, was sentenced to a 5-year-jail term and fined $30,000. The 

records, legitimately obtained on April 18, 1962, from Mr. Donald R. 

Lord (see case above) by IRS agents, were taken from IRS by Mr. 

O'Donnell in defiance of a court order.

In that case, Judge Julian ruled on Jan uary 5,1966, as follows:

The conduct of respondent (O’Donnell) * * * constitu ted contempt of court. 

This contem pt persisted from August 25, 1965, until September 28, 1965, when 

the records were delivered to the Clerk of this Court. I find the respondent 

(O’Donnell) * * * guilty of civil contempt of court.

Circuit Court Judge Coffin, to whom Mr. O’Donnell appealed on 

July 11,1966, sustained the lower court and said:

The Distric t Court in its opinion dated Janu ary 6, 1966, ably set forth both 

fac tua l findings and legal conclusions. Its order adjudged appellant (O’Donnell) 

guilty of civil contempt and ordered th at the records in controversy be made 

available to the Intern al Revenue Service for purposes of a complete and unhind ered exam ination fo r a period of 45 days.

The judge continued:

The order, which appellant (O’Donnell) has been found below to have wilfully 

disobeyed, was one link in a lengthy chain of events in connection with an 

investigation of the tax liab ility of * * * (names of the tax clie nts). It was 

preceded by summonses, refu sal to produce, challenges to the ir legality, petition 

for enforcement, a prior order of enforcement, appeal, affirmance on appeal, and 

denial of a stay of enforcement by a Supreme Court Justice . . .

The Distric t Court found these reasons (the ones advanced by Mr. O’Donnell . . .) to be spurious and mere pretexts for the removal of the records. The 

rea l reason for the removal . . . was to prevent the completion of the exam ination and to impede and obstruct the investigation of tax clients’ t ax liability.

The Reader's Digest said Mr. O’Donnell proved “with testimony of 

one agent who resigned in disgust” illegal use by IRS of the tax 

records.

Regarding this testimony by the ex-agent, Federal Judge Andrew 

Caffrey on April 7,1967, said :

Former Revenue Agent Donald Young left his employment at IRS to take the 

position at the dog track because his superiors denied him a promotion to which 

he felt he was entitled .
INTERNAL REVENUE SERVICE 37

In th is op inio n, Jud ge Caffrey further say s:

On direct examin ation Mr. Young testified glibly as to minute details of conduct 

th at occurred approximately five yea rs prior to the date he testified . . . On 

cross-examination his manner was markedly different, and even more different 

when queried by the Court at the conclusion of redirect and recross-exam ination.

For example, one of the cases is poli tic all y sensitive and the ref ore I 

think i t is im po rta nt th at we ge t the rec ord clear on this.

Th e artic le a tte mp ted to show there is a double sta nd ard, t hat some 

tax payers are treated better because th ey a re we alt hy o r im po rta nt.

As the sta tem ent shows, in rega rd to the Niarc hos Sh ip ping Line s 

th at no tax was forgiv en, t hat th e Governm ent collected all of the tax 

th at it was possib le to collect, that in no even t did the Governm ent ever 

have a claim ag ain st Nia rchos as an indiv idual, it was only ag ain st 

corpo rate en tities c ontrolled by him, and that none of i t ha s in fa ct been 

forgiven.

For example, in t he case of th e so-called double stan da rd tre atmen t 

of L awrence L . C all anan, who was a la bor lead er in the S t. Lou is, Mo., 

area, the y ind ica ted we s ettled a $40,000 ta x lia bility fo r $17,000. T he 

fac ts on this one are cry sta l clear an d th is is why I wa nt to mentio n 

this.

Th e whole story, which could have been asce rtaine d by ch ecking with 

Mr. Ca llanan, his law yer or acco untan t, is t hat I R S colle cted t he full 

ta x and inter est fro m Mr. Ca lla na n in a series of paym ents, the first 

of whic h wa s fo r $17,000.

In 1964, some time af te r Mr. C allanan ha d been released fro m prison , 

IR S moved to collect ou tst an din g tax es owed by him fo r the years 

1950 throu gh 1954 in the amount of $40,219.84 whi ch included taxes, 

pen alties, an d interest.

On Apr il 30, 1964, IR S collected $17,058.65. Mr. Ca lla na n obtained 

th is money by ge tti ng a mo rtg age on his jointly owned home and bo rrow ing the balance. Th is paym ent was gr ea ter th an the forc ed-s ale 

value of any assets IR S migh t have seized.

A t the same tim e, an d in accorda nce wi th long-establis hed IR S pr ocedures, a co llateral agreem ent was entered in to prov idi ng fo r paym ent 

of the balance. Previou s att em pts to reach agreeme nt on Au gu st 2, 

1960, and Sep tem ber 20, 1962, s ubmitted by Mr. Ca lla na n’s lawyers, 

were rejected by IR S as being inadeq uate.

Co ntrary to the artic le’s sta tem ent of a total paym ent of $17,000, 

Mr. Ca lla nan, in acco rdan ce with the collater al agreem ent , pa id 

$3,586.14 on May 18, 1966, an d on October 25, 1966, p aid the final ba lance of $10,138.09 in tax es and penaltie s and $11,874.36 in inter est to 

the date of t he pay ment.

Inste ad of settling his tax debt fo r $17,000 as the Re ader's Digest 

said , he was req uir ed to pay the fu ll $40,219.84 plu s $2,437.40 in a dd itio nal intere st.

Th is is an easy one that makes me a lit tle angry.

Mr. Steed. For the sake of conti nuity , we will insert th is m ate ria l 

at the beginn ing of y ou r discussion o f the case histor ies so tha t, as you 

have discusse d ite ms in it, i t will be han dy for read ers.

Mr. Cohen. In orde r not to belabo r the com mittee, I trie d to pick 

ou t the item s th at were of intere st or which were pa rtic ul ar ly easily 

exp lained so th at you m ight see the teno r of the problem.
38 INTERNAL REVENUE SERVICE

Mr. Steed. Com missioner, now th at I have gone throug h wi th you 

wh at I think is the basic record, other mem bers have questions they 

would like to pro pound. I would like to yield to Mr. Passma n.

Mr. P assman. Than k you, Mr. C hairm an.

Mr. Ch airma n, I should think that the ind ivi dual members to some 

exten t would jud ge the IR S by the experience the y have ha d in their 

own congressional distr ict. I have been in Congres s 21 years, ope ratin g 

businesses pr io r to coming to the Congress, and seve ral years af te r I 

came here. My distric t is no different th an any othe r congres sional 

di str ict. I t is diversified. 1 have requests for servic e, of course. Many 

of them come from tax payers both by mail and per son al interview 

du ring my visits back to my distr ict office.

I am somewhat out of chara cte r when I defen d Fe de ral agencies, 

bu t the In tern al Revenue Serv ice and the Po st Office D ep artm ent are 

two 1 know s omething about. 1 have ha d reason to commend them for 

the way the y have ru n their businesses over a perio d of many years.

I have had many dis gruntle d taxp ay ers come in, dis grun tle d by 

age nts, and by refe rrin g them back to the In te rn al Revenue Office it 

has always served my pur pose well. I hav e never int erfered, because I 

have neve r known of an instance where a taxp ay er h as act ually been 

mistreated. Some of them h ave been dea lt wi th somew hat firmly, but I 

know of no instanc e where there has been any mistreatment.

So I would be in clin ed to disco unt this artic le very g reatly and t ake 

the position t hat i f the In te rn al Revenue Serv ice sho uld ever s ta rt listen ing to the whims o f too many Members o f the Con gress and t ax pa yers, th e system w ould break down.

So I a ctu ally would n ot have any com men t on th is article oth er than 

to say I think it sh ould be very grea tly discounted and I would reg ret 

very much if the I R S shou ld let this go by wi thou t tryi ng to get some 

answer, even if it is the heari ng s here. I can not believe they would not 

give some in div idual an op po rtu nity to respond . I believe, in f airnes s to 

the Service, th at in some way t his article sh ould be resp ond ed to.

I am no t going to waste the tim e of th e comm ittee. I th ink I have 

he ard from two constituent s with resp ect to this article since it ap ­

peare d. That w ould indica te there is no t a lot of dissat isfact ion in the 

di strict that I rep res ent and I question wh eth er th ere ha s been too many 

comp laints elsewhere.

Fina lly , IR S ag ents are hu man just lik e Members of Congress, an d if 

a client becomes abusive, I do not th in k you would wa nt an agent th at 

wou ld not resp ond with some pr etty stra ight tal k. I hav e had many 

checks in my life and I always won dere d why I ha d them. Ru t the y 

have always turned ou t well and I surren dered my books and vouchers 

an d said, “ Eve ry thin g is wide open, just check as lo ng as you wan t to.” 

W ith th at, M r. C hairm an, I do not th ink I have any more questions.

Mr. Steed. Mr. Conte?

Mr. Conte. Com missioner, would you agree th at the small tax c ourt 

concept spo nsored by Se nator M agnuson and mentioned in the article 

would be a very valuab le mean s o f d ealin g with th e typ es of problem s 

we are disc ussing ?

Mr. Cohen. I am not at all sure. I would like to exam ine it, but as 

you can see there is a ra th er inform al low-cost means of prov idi ng 

taxp ay ers wi th th e assistance th ey now need. The Ta x Court un der i ts 

prese nt arrang em en ts is rea dily accessible. I t sits all over the country.
INTERNAL REVENUE SERVICE 39

It does have the authority even under its present jurisdiction to appoint commissioners to hear cases, and in fact when I was in Seattle 

last week I learned there was a Tax Court commissioner sitting hearing some cases in that city. The Tax Court has experimented recently 

itself under present procedures with pro se dockets, th at is with taxpayers who file their cases without representation of attorneys. As I 

recall the figures, the Tax Court judges indicated that most of these 

are disposed of under present procedures amicably without too much 

controversy. The problems that do come up are generally problems of 

understanding.

One of the things tha t the Congress has just recently done, that is 

going to help us tremendously and help, I think, the Tax Court tre ­

mendously, is a suggestion that I had the privilege of making almost 4 

years ago, involving the most litigated, the most controversial issue 

that faces us in the courts and through our appellate procedure. This 

was the question of who is entitled to the dependency exemption for the 

children of divorced spouses. The wife, under ordinary circumstances, 

has the custody of the child and the husband is providing, under a 

court decree, some measure of support and the wife is contributing also.

We had constant controversy in tha t area, most of it ending up in 

court, unfortunately, because neither taxpayer would cooperate with 

the other one. They felt they wanted the deduction for themselves, 

and we were really the stakeholder, incuring the animosity, I might 

say, of both taxpayers.

The Senate passed the House bill just the other day, I think last 

Friday, tha t would set up presumptions and would encourage courts, 

when they hand down decrees, to designate tha t person who is entitled to the dependency exemption. This will give the taxpayers the 

ability of knowing in advance what the tax consequences are going to 

be and getting the Revenue Service out of the middle.

W e are looking for other areas such as that, where we can suggest 

to the Congress means of obviating the dispute in the first instance. 

These are the kinds of disputes little taxpayers find themselves in.

I think with that kind of a constructive approach and the constructive approach of the Tax Court in trying to handle pro se taxpayers 

in an informal way. We are all cooperating, the Tax Court, the bar, 

and the IRS. I would think we really ought to tr y tha t before we go 

to any new procedure which may add expense and burden in effect 

rather than alleviating the problem.

In other words, I would say let’s try to make the present procedure 

work. If it does not and we see what our problem is afte r study, I 

think yes, we may want to go to some other procedure.

Mr. Conte. Can you explain to me why under our tax collection 

system, contrary to practically all other legal situations, the burden 

of proof is on the individual being claimed against rath er than the 

one making the claim ?

Mr. Cohen. This is one of those problems th at at first brush always 

causes people surprise. I think if you think about it for the moment, 

logic requires it.

Ours is a self-assessment tax system. The taxpayer tells us what he 

owes rather than vice versa, as in many countries. The taxpayer represents th at this is my fair share of the tax under our tax laws. The 

taxpayer is peculiarly acquainted with the facts and we are not.
40 INTERNAL REVENUE SERVICE

Under our laws he is entitled to deduct medical expenses, dental expenses, interest, charitable contributions, and the like, a whole long 

list of items. These items are only in the knowledge of the taxpayer. 

The Revenue Service has no independent means of discerning these 

facts. So that the law rightfully says to the taxpayer, you are entitled 

to these deductions providing you furnish sufficient proof to establish these facts. And that is the reason for that rule.

Mr. Conte. I am not too much concerned with the big taxpayers 

who have the means and the resources. I am concerned about the taxpayer with lesser means who does not have the financial resources.

Mr. Cohen. In the main, these problems are really de minimus. The 

taxpayer has a checkbook and he has receipts for doctors or dental, 

or medical expenses, and that is all th at is required. In most of these 

cases, while you say burden of proof, which sounds rather formalistic, 

the degree of proof is one of reasonable probability that the expenses 

were incurred.

There are one or two areas where the law sets up a very strict 

standard of proof. Fo r example, in the entertainment expense area, but. 

this is not a problem that the unsophisticated get into, it is a problem 

that the sophisticated get into. In that area the Congress has established a very tough principle of proof and requires more elaborate 

records.

But as to interest, for example, on my mortgage I get a statement 

each year as probably each of you do from the bank tha t holds your 

mortgage—if you do not get one you could on request—tha t you paid 

$345.05 in interest this year.

I likewise have a copy of my statement from the county tax assessor 

tha t my taxes on my house were whatever the dollar amount was. And 

these things are the only things th at might be required in the normal 

course of an examination of a garden variety tax return. We are not 

talking about sophisticated records or elaborate procedures.

One of the things I think the committee is pretty well aware of tha t 

we are doing is trying to disseminate more information to taxpayers 

as to the ways they can miminimize their tax. This is their right under 

our law, and therefore we are getting up any number of pamphlets 

and we have any number of TV programs and we have educational 

programs in the schools to tell taxpayers the kind of records that will 

substantiate deductions so we do not have controversy, which we attemp t to avoid.

Air. Conte. Along that same line of questioning, your agency has 

the right to place a lien on a piece of property ?

Mr. Coiien. Yes, sir.

Mr. Conte. Or attach a salary, attach a lien on a bank account ?

Mr. Cohen. Yes.

Mr. Conte. This happens once you find out a tax is due and has not 

been paid. I am just wondering whether you ever thought of having 

preliminary hearings ?

Mr. Cohen. As I indicated to you earlier in the morning, I went 

throu gh the procedures tha t are adopted before any such action is 

taken—three notices, offer of conference procedures, and so on.

Mr. Conte. I realize that, but the point I was going to make is what 

type of hardship is this going to work on the individual. Is it going 

to put him right out of business ?
INTERNAL REVENUE SERVICE 41

Mr. Cohen. This is the purpose for offering the conference.

For example, if we discern that this is an employer, fo r example, 

and he has a going business and there are people employed here, it is 

to the mutual interest of the taxpayer and the Government th at this 

business go on. It helps employment, it keeps up the economy, it provides more tax moneys in the long run. So we are not interested in 

driving this man out of business. Yet at the same time, as against other 

taxpayers in a comparable situation, we have to be f air to them, they 

are paying their taxes on time, and so we must be sure the tax is going 

to be paid. And so in that kind of a situation, where the taxpayer can 

give us a reasonable assurance that over a reasonble period of time he 

can pay the tax under ordinary arrangements, we will enter into such 

arrangements. It may require escrows, it may require monthly payments. We have great flexibility and we try to use that flexibility to 

keep the taxpayer going in business but paying his liability.

Mr. Passman. That is also true of individuals. If an individual 

is delinquent, many times you may take possibly $2 to $3 a week?

Mr. Cohen. We may take a payroll deduction from his employer if 

they want to do tha t if it is an appropriate case.

Mr. Passman. I know you have many adjustments where an individual was permitted to make monthly payments over several years 

rather than causing him to lose his job.

Mr. Coiien. We are as conscious of those problems as I think you 

gentlemen might be.

Mr. Conte. I have some other questions I will forgo. I have one last 

question.

As usual, I want to compliment you for what an outstanding job 

you have done here today in presenting this case for IRS. Not only 

IRS , but also the taxpayers. I find that you have made a good case 

in all of these except the Tennessee case on the right of privacy.

Mr. Coiien. I have never maintained because a person is a, Revenue 

employee he is infallible. We have to make, in handling this volume, 

some mistakes. I thin k we likewise have to be sensitive to have a proper 

procedure to correct them and we think we do.

Mr. Robison. On this Tennessee case, is it not so, since that happened, that there has been a change in procedure with respect to your 

righ t or your privilege or your practice of opening mail ?

Mr. Coiien. That is true, but I do not think even under whatever 

procedure existed at the time what was done there was excusable.

Mr. Robison. I would not think so either.

Mr. Cohen. It was an individual aberration and we could not seek 

solace in the fact tha t under some other circumstances a similar event 

might not have occurred. This is just an aberration.

Mr. Robison. It is true that your practice along those lines has 

changed, right?

Mr. Cohen. Yes, sir, dramatically.

I might indicate to the committee tha t recently I received a letter 

from Senator Edward Long which indicated “The reverse of the a ttitude on the part of IRS in relation, for example, to electronic eavesdropping is noted and we congratulate you for your efforts in this 

direction.”
42 INTERNAL REVENUE SERVICE

So I t hink it is recog nized that whatever problem s may have existed 

3 or 4 yea rs ago—and t hey were de m inim is, as I have i ndicated in our 

re po rt which I th in k has been distr ibu ted to the committee—th ey no 

lon ger exist.

Mr. Conte. I am p leased to h ear th at.

Th e qu estion I wan t t o ask is th is : T his He ade r’s Digest artic le seems 

to me to ema nate , a g rea t portion of it, from Senator Lon g’s hearings.

Mr. Cohen. A number of the cases th at are discussed were brought 

up in th e he aring.

Mr. Conte. I am just won dering why, and you c ould tell us, you did 

not answer it at th at time as you have answered it so well here this 

morning.

Mr. Cohen. Par t of this is the fac t o f the w ay a he ari ng goes.

Mr. Conte. You were called first?

Mr. Cohe n. I was called first; yes, sir. Wh en some of thes e cases 

became public knowledge, while we d id not introd uce o ur answers into 

the reco rd, as we had no op po rtu nity to do so, we did distr ibu te as 

press inf orm ation, and did distr ibute in fac t to the committee, wh at 

we called fact sheets, which gave the fac ts as we understood them in 

several of these cases.

Someof these charges th at are mad e in the article are no t directly 

from the hea rings, bu t are outgr ow ths from the hearings. So the 

combina tion is th e reason th at the answ ers do not ap pe ar in the he ar ­

ings, both reasons really.

Mr. P assman. ITave you ha d many inq uiries from Members of 

Congress ab out t his item ?

Mr. Cotten. Th e Pu blic In form ation Office tells me we have 40, 50, 

00 inquiries, mostly in terms of “I hav e got ten a lette r from my 

con stituen t. W ha t is you r re ply ?”

Mr. P assman. Th an k you.

Mr. S teed. M r. Add abb o?

Mr. Addabbo. Mr. C ohen, first of all. I know yo ur office handles tens 

of tho usa nds of cases and what we hav e rea d about and wh at has been 

discussed here this mo rni ng are pro bab ly the exception s. I have been 

in tou ch with your office on several occasions on b ehalf of c onstituen ts 

of mine. In the last 7 or 8 yea rs I hav e had a dozen cases, w hich is p er ­

haps nom inal, but still every harass ed taxp ay er is entitled to the ful l 

pro tection of the Constitution .

One of the com pla ints we hav e received I un derst and is a spotcheck mad e bv the tax office, a TC MP form which goes into th e man's 

life his tory fro m th e year 1, and sometimes in the wo rki ng of these 

we receive complain ts.

Mr. Cotien. The TCM P a ud it takes longer th an normal.

Mr. Addabbo. An d the pho ne calls are con tinu ous and all hours of 

the night.

I wish in these cases you would at least lim it the m to the taxp ay er 

an d not the ne ighbors------

Mr. Cotten. I think I have discussed the TC MP program wi th the 

com mittee before. Th is is an att em pt to be able to tell this committee 

and the committees th at are wr iting tax legisla tion and the Secre tary 

of the T reasury what the real problem s on a cross sectional sample are 

like. There for e, the taxp ay ers whose return s were chosen—th at is a 

pu re ran dom selection o f re turns—have no pa rticul ar concern inv olved.
INTERNAL REVENUE SERVICE 43

They were not picked because they have errors on their return, they 

were picked because we picked returns in the cross section of population. It is an attempt to find out what kind of problems arise and it 

will give us a statistical tool to use to develop better auditing techniques. It may be uncomfortable, I realize that.

Mr. Addabbo. But again the depth and the time and the type of 

investigation-----

Mr. Cohen. And I think the fullness of the examination is necessary and tha t the particular taxpayers understand fully the reason for 

this. We will cooperate with him in making it as painless as possible. 

I think you are right.

Mr. Bacon. I would like to clear up a misunderstanding.

I know of no instance we have had occasion to visit neighbors or 

anybody besides the taxpayers.

Mr. Addabbo. How about relatives ?

Mr. Bacon. No.

Mr. Coiien. Not in that kind of examination.

Mr. Smith. There were only 38,000 in the United States last year.

Mr. Cohen. We vary the sample from year to year to get the kind 

of information we need.

Mr. Addabbo. In the hearings before the subcommittee of the 89th 

Congress, second session, we went into the question of revenue agents, 

and your answer in testimony was:

Our revenue agents are under no pressure to produce cer tain amounts of 

reve nue; there are no quotas. Rather, emphasis is on quality and fair ness with 

which the exam inations are conducted.

Is it not a fact tha t your agents are required to keep time sheets and 

case histories and plus or minus on tax collected ?

Mr. Cohen. No, not the plus or minus. The time sheet, yes, and case 

histories yes, sir, because these are the only things from which a supervisor can discern whether an agent spent too much time on a case.

In other words, if there is a small amount of tax involved, do not 

spend a lot of time, do not bother this taxpayer any more than 

absolutely necessary. And we have to make sure as supervisors that the 

tax return is given tha t amount of energy it warrants and no more. 

The only way we can do that is to have the agent keep records.

I must say th at when I worked for an accounting firm and when I 

worked for a law firm, I kept time records. They are the only things 

by which supervisory officials can judge how effective you are.

In other words, the important thing to us is how much time does the 

average audit take for this particular degree of complexity, not how 

much money is brought in, because the money that is brought in is 

pure chance. This particular man made a serious mistake, the next 

fellow did not. The complexity of the a udit may be just the same.

So these are the purposes for this kind of records. As a lawyer, I 

can say to you I practiced law with Adlai Stevenson and he kept 

time records.

Mr. Addabbo. This we can understand, but when the agents say 

that they have been demoted or have been passed over for promotion 

because they have not had certain production sheets up to par-----

Mr. Cohen. I suspect the real reason is a rationalization on the 

employee’s part. We do counsel our emplovees and trv to advise them 

if we feel they are dillydallying or wasting time. The watching of
44 INTERNAL REVENUE SERVICE

tim e is an effo rt on our behalf to make sure th at they do not stay in 

a taxp ay er's office any more th an is absolutely necessary for a par ­

tic ular case and th at the y are as pro ductive as the pa rticul ar kinds 

of au dits th at they are worki ng on would norm ally br ing in, bu t not 

in ter ms of dollars bu t in terms of utilizatio n of time.

Mr. Bacon. 1 think we should cla rif y th at. We do hav e a control 

record fo r each exa mination and th at does include on it the am ount 

of any deficiency o r overassessment.

Mr. Addabbo. Th is we realize and are happ y a bout.

Mr. Cohen. I think I outlin ed to you the pro ced ure th at is proper 

and, as fa r as I know, is carried out.

Mr. Addabbo. I think it would be well fro m tim e to time to send 

ou t me morandum s to yo ur field offices.

Mr. Cohen. Th is was the sub ject of discussion recently. I think 

th at is the thing we w orry most abo ut, the pr op er sup erv ision in this 

ma tte r.

Mr. Addabbo. Ar e your age nts adv ised of court of appea ls and 

Ta x C ou rt decisions ?

Mr. Cohen. Yes, we br ing those to th eir attention as rapi dl y as 

possible.

Mr. Addabbo. Ar e they told to adh ere to those decisions of the 

court of appea ls or the T ax Co urt ?

Mr. Cohe n. Th e problem t here is, if you have a Ta x Court decision 

on app eal. We no tif y them the Ta x Co urt has decided ag ain st us

?

 b ut 

whe re we are appealing o r the tax pa ye r is ap pe aling and the decision 

is no t final—you can ’t say, because a single co urt has determ ine d a 

sing le case, t ha t the law is decided. As soon as the law is clear we send 

out notificatio n to our field offices th at this appe ars to be the settled law 

and this is th e way we will o pera te.

Mr. Smit h. I t is no t unusu al fo r two cir cu it courts to decide dif ­

fer ently.

Mr. Cohen. Where you have a conflict of cir cuits and an appeal is 

pending , we tell them there is a case now b eing appea led to the Supre me 

Co urt th at will determ ine this issue, and if the taxp ay ers don’t wa nt 

to get into litigation the y can sit and wa it un til the decision comes 

down. If an answer will come from the S uprem e Court th at will solve 

the problem, we will hold the sim ila r cases. We had a case a couple 

years ago, Clay Bro wn was th e nam e, where we had a numb er of sim ­

ila r cases and we suggested to the tax pa ye rs th at since this case was 

in the S uprem e Co urt i t would be to our m utu al int ere st to wait. Tha t 

wor ked out. We lost th at case in th at instan ce and gav e up a number 

of other cases lik e it.

Mr. Addabbo. On the question of haras sm ent, is it not a fac t if the 

taxp ay er feels he is being ha rassed o r is not being tre ate d prop erly by 

the agent, all he has to do is call the sup erv iso r of th e district office 

and tell him the problem?

Mr. Cohen. Tha t is rig ht. I f he feels aggrieved he should ge t in 

touch wi th the distr ict office and m ake his f eeling known. It is not entir ely un he ard of th at you have ju st a pla in perso nality conflict, two 

people ca n’t get along. I t may be the t ax pa ye r’s fa ul t or it may be t he 

ag en t’s fa ul t or it may be nob ody’s fa ul t, rea lly, it is jus t a conflict of 

perso nalities. In th at case an othe r man will be assigned who has a 

different kind of perso nality . That does no t mean the taxp ay er is 

wr ong o r th at the a gen t is w rong.
INTERNAL REVENUE SERVICE 45

Mr. A ddabbo. You do n't go into a lon g inves tigation ?

Mr. Cohen. I n th at typ e of case, unles s the tax pa ye r gives a reason 

th at is n ot reasonable, such as if he says the a gent is fin din g ev ery thing 

again st him and when you look at the rec ord you see ther e is reason for 

t'ne agent so find ing, we will not change the agent in a case such as 

th at; bu t if a reason is giv en th at ap pe ars to hav e va lid ity , a chan ge 

is m ade.

Mr. A ddabbo. Tha nk you.

Mr. Steed. Mr. Robison.

Mr. Robison. M r. Addabbo touched on thi s, bu t I would like to tie 

it down fo r the record. As I un de rstand fro m wh at you hav e said, 

there is no quota or other stan da rd of measu rem ent by which IR S 

age nts are jud ged wi th respect to th eir efficiency o r “prod uc tiv ity ” and 

by w hich measure they ea rn prom otions ?

Mr. Coiien . Absolutely not. I t wou ld be silly of us to ope rate on 

th at basis because an issue determined tod ay on one basis may work 

to the ta xp ay er ’s ad vanta ge tom orrow. Th is has happened before. 

Th ere a re usu ally two sides to every legal question and we d on’t know 

whi ch side will wo rk to the b enefit of a ll tax payers. Many work both 

ways. So the answer we have to find is the righ t answ er, wh eth er or 

not in a pa rtic ul ar case it works to the advanta ge of the Government 

or to the adv an tag e of the tax payer.

Mr. Robison. I think probably one of the best barom eters, ap art 

fro m t he m ail pro duced by the Re ader’s D igest article, of wh eth er or 

not the people back home feel the y are being tre ate d fa irly by the In ­

tern al Revenue Service is the am ount of mail you get from Cong ress, 

mail received bv Congressmen fro m th eir constituents as to their 

tre atm en t by IR S agen ts an d referred to you.

Would it be yo ur jud gm ent—a nd you can supply it for the record 

if you want to—t hat this mail has been going up or down in rece nt 

years ?

Mr. C oiien. I can give you a j ud gm en t t hat m ost of the problem s we 

see are problem s of time. A tax pa ye r files a refun d claim and we ha ven’t 

seen i t yet. I t is n ot a m atter of how he has been treated . In m any cases 

refund s hav e been mailed and th e taxp ay er moved and the ref un d 

has no t been forw ard ed, or some qu irk such as that. Th e numb er of 

com pla ints I see of congressional type mail------

Mr. R obison. Do you see them ?

Mr. Coiien . I see them all. Th ey are small. It wou ld be an ard uous 

task to go back and check th em, but the te no r ove r th e l ast couple y ear s 

has been better. Most people who wa nt to c omp liment y ou don’t write 

you. Bu t I asked some o f the fellows 6 months ago or so to collect a few 

of tho se and we have an aw ful lo t of letter s from people who say, “Y ou 

know , I go t ho oked or clipped or nick ed fo r $5,000 or $10,000, but y our 

au ditors did a p re tty good job. I don’t n ecessarily ag ree with th e re sult, 

bu t I w as giv en every courtesy, it was exp lain ed to me, and I was told 

I could go to court .” And he writes say ing the agent should be commended. I hav e a lot of them . I di dn 't wa nt to b urden the record by 

br inging them all here, bu t this is ind ica tive of t he fact it h as gotten 

across to our ag ents that this is th e best policy.

Mr. Rorison. B ut you do not see a great up tu rn o f com pla ints coming to you from Members of C ongress ?

Mr. Cohe n. No.
46 INTERN AL REN’EN UE SERV ICE

Mr. R obison. W ith resp ect to the message you just mentioned. 1 

notice fro m some of the addit ion al ma terial han ded to us th at one of 

the speeches you mad e was sen t out by De puty Com missioner Sm ith 

to reg ion al and distric t officers. Is this an attempt to ge t the message 

across to olde r agents in the field ?

Mr. Coiien . T his is an attempt to expound the philosop hy we have 

all ove r the Service. Mr. Sm ith asked me if I would mind his doi ng 

this, an d he did it. Mr. Rosapepe has asked me to film talks I have 

made to gro ups so he can disseminate them. I can t alk to all the regional 

an d district officers a nd I do so, and I pick a s mall grou p of r an k and 

file employees I can sit down with and discuss wh at we are doing and 

wh at th ei r prob lems are, but to rea ch all the employees this is th e t ech ­

nique Mr. Rosapepe has suggested. I am a n ovice in the field of pub lic 

inform ation but I think he h as done a good job of it.

Mr. Robison. I suppose th is philosop hy approa ch is a par t of your 

trai nin g pro gra m for new IR S agents?

Mr. Coiien. Rig ht.

Mr. Robison. 1 wonder if you have ever forma lized t hi s attit ud e in 

any specific direc tive ?

Mr. Cohe n. The re is a sta tem ent of the missio n of the Int er na l Revenue Service which embodies it, sign ed by myself. I t is in the manua l.

Mr. Robison. If it is no t too long , could it be made a par t of the 

record ?

Mr. Coiien. Yes. One of them is one Mr. Caplin tn d I d ra fted when 

he was Com missioner and I was Chief Counsel.

(The statem ent re ferre d to follows:)

U.S. Trea sur y Depa rtme nt, I nterna l Revenue Service, P ubl ic I nformation

Div is io n, T ec hn ic al I nfo rma tion Relea se

For re lea se, Fri day, Ma y 1,1964 .

Com mission er of In te rn al Rev en ue M or tim er M. Cap lin to da y an no un ce d th a t 

th e follo wing Re ve nu e Pro ce dur e will be pu bl ishe d in In te rn al Re ve nu e Bul le tin 

No. 1964-22 , d at ed J une 1 ,19 64.

REV. PROC. C 4 -2 2

S ta te m en t of Som e Princ ip le s of In te rn al Re ve nu e Tax A dm in istrat io n.

Th e fu nc tion of th e In te rn al Re ve nu e Se rvice is to ad m in is te r th e In te rn al 

Rev en ue Code. T ax Po lic y fo r ra is in g reve nu e is de te rm in ed by Congres s.

M ith th is in mi nd , it is th e duty of th e Service to carr y out th a t policy by co rre ct ly ap pl yi ng th e la w s en ac te d by C on gre ss ; to de te rm in e th e re as on ab le m ea nin g of va ri ous Cod e pr ov isions in ligh t of th e Co ng ressiona l pu rp os e in en ac ting 

th e m ; and to pe rfor m th is wor k in a fa ir an d im part ia l m an ner , w ith neit her a 

go ve rn m en t n or a t axpayer p oi nt of view.

At th e h eart of ad m in is tr ati on is in te rp re ta ti on of th e Code. I t is th e re sp on sibi lity of e ac h pe rson in th e Servi ce, ch ar ge d w ith th e dut y of inte rp re ting th e law , 

to tr y to find th e tr u e mea ning of th e st atu to ry pr ov ision an d no t to ad opt a 

st ra in ed c on stru ct io n in th e be lie f t h a t he is “pro te ct in g th e re ven ue ”. T he rev en ue 

is pr op er ly pr ot ec te d only wh en we asc er ta in an d ap pl y th e tr u e mea ni ng of th e 

st atu te .

The Se rvice also has th e resp on sibi lity of ap pl yi ng an d ad m in is te ri ng th e law 

in a reas on ab le, pra ct ic al m an ne r. Is su es sh ou ld on ly be ra is ed by ex am in in g 

officers when they ha ve m er it, ne ve r arb it ra ri ly or fo r tr adin g pu rpos es. At the 

same tim e, th e ex am in in g offic er shou ld nevei’ h es itat e to r ais e a m er itorious issue . 

It is also im port an t th a t ca re be ex er cise d no t to ra is e an issu e or to as k a co ur t 

to adop t a po sitio n in co ns iste nt w ith an es ta bl ishe d Se rvice po sitio n.

A dm in is trat io n shou ld be bo th re as on ab le an d vigo ro us . I t sh ou ld be co nd uc ted 

w ith as li tt le de lay as po ssible an d w ith g re at co ur te sy and co ns id er at en es s. It
INTERNAL REVENUE SERVICE 47

sh ou ld ne ve r tr y to ov er re ac h, an d sh ou ld b e re as on ab le w ithi n th e b ou nd s of law 

and soun d ad m in is trat io n. It sho uld, ho wev er, be vigo ro us in re quirin g co mp lia nc e 

w ith law an d it shou ld be re le nt le ss in it s att ack on unre al ta x de vices an d fr au d.

Mr. R obison. A sug gestion was made about a small Ta x Court. 

The Re ader's Digest artic le seems to leave the imp ression t hat people 

ca n't go to the prese nt Ta x Co urt wi thou t an attorney. Is that rig ht?

Mr. Coh en. No. I would say about o ne-th ird of th e p eti tio ns filed in 

the Ta x Co urt are pro se un rep res ented by tax counsel. I have dis ­

cussed this with the chief judge of th e Ta x Co urt, and t he co urt bends 

over bac kw ard to mak e sure the fu ll facts are br ou gh t ou t in these 

cases. I have also discussed with the b ar association th at in tho se cases 

where the c ou rt feels counsel sho uld be prov ide d, th at the ba r association c oop erate and provide counsel.

Mr. Robison. That is my point. Th is m ight be an area where the 

ba r asso ciation might be he lpful or the concept of an omb udsm an 

could be used.

Mr. Cohen. Th e court does have au thor ity and, on occasion, ap ­

po ints counsel in cases where th ey th in k counsel is needed. Th ere was 

a case in th e Supre me C ourt las t y ear whe re a cou rt-appo inted counsel 

carried the case thro ug h to the Supre me Court. It ha d been filed pro 

se. The court fe lt counsel should be ha d and appoint ed counsel.

Mr. Robison. My final question has to do wi th the allegation in the 

Reader’s Digest artic le th at in some cases agents questio ned people 

and prevented them du rin g th at p eri od fro m callin g th ei r att orne y or 

accountan t to give t hem assistance or mo ral support . Is there any requireme nt of law th at exis ts with respec t to yo ur op era tio n in this 

rega rd ?

Mr. Coiien . There is absolutely no inhib ition on a nyone at any time 

fro m being repres ent ed by a law yer of his choice. Th ere is a statute 

th at states all certified pub lic acc ounta nts and law yer s wi thou t citations ag ain st them are allow ed to appear. T he re a re othe r ind ivi duals 

also qualified to appe ar, a nd a p erson can g et a nyo ne fro m th at realm 

to rep res ent him , and in fact we enc ourage t hat he do so.

1 can un de rst an d a taxp ay er pe rhap s fee ling th at when th e agent 

star ts asking him questions he h as to ans wer th em rig ht now o r he will 

get ups et, bu t th at is no t the case at all. Anybody who desires to be 

repres ent ed ju st has to say, “I will engage counsel an d will you ge t in 

touch w ith me in a week” and that is it.

Mr. Robison. Would it be useful fo r the S ervice to make th is a par t 

of the pro ced ure in a case where the taxp ay er may not have an un ­

de rst an ding of his righ ts ?

Mr. Coi ien. Maybe we should pu t it in a l etter t o the taxp ay er. We 

can check that o ut. These are o ur rules. We h ave no inh ibi tio n on re presentatio n.

Mr. Conte. W ill the gen tlem an y ield ?

A t one time we used to have a T reasur y license of some k ind good f or 

6 years.

Mr. Coh en. Fi ve years. That is only tru e as to th e peo ple no t li ­

censed by th e State, such as certified public acc ounta nts o r law yers. I f 

a person who is n ot a certified public accountan t or a law yer feels he 

wants to do some tax work, he can tak e an exam ina tion and if he passes 

it qualifies him to practice . B ut any qualified law yer o r certified public 

accou nta nt can practice.
48 INTERNAL REVENUE SERVICE

Mr. R obison. In conclusion, I would like to say I th in k th is he aring 

has been most useful to the committee and to the public.

Mr. Steed. A t th is po int, since it h as a beari ng on th is su bject under 

discussio n in the sense of action t aken by the Comm issioner t o expound 

his polic ies to his employees pr io r to th e appeara nce of th is art icl e 

in the Re ader's Dig est, we will make th is material a par t of the 

record at this po int.

(The docu ments re ferre d to fol lo w:)

December 29,196G.

To: Assistant Commissioners, Chief Counsel, Regional Commissioners, Regional 

Inspectors, Distric t Directors, and Service Center Directors.

Fr om : Deputy Commissioner.

Su bje ct: December 1 5,19G6, Speech of Commissioner Cohen.

As you know, we have a procedure whereby we send to all of you a few 

copies of speeches made by the Commissioner or myself where a tex t is available. 

We do this, of course, so th at you can be aware of the kinds of m atters the Commissioner and I are ta lking about and also as an aid for possible use in speeches 

by you or members of your staffs.

On December 15tli, Commissioner Cohen made a ma jor address before the 

National Ind ustrial Conference Board in New York which I want to say a special 

word about.

In this speech the Commissioner sought to draw attention to the changing 

philosophy that h as been evolving in Revenue over the las t several yea rs and its 

significance to the taxpayer. I thin k you will agree, however, th at this new philosophy also has significance for all of us and calls for a questing spirit, a willingness to examine old ways and old assumptions, and a creative att itu de toward 

our work. For this reason, we wanted not only to call the speech to your special 

atten tion, but also to give you enough copies to permit a wider distribution than 

is normal.

William II. Smith.

Attachment.

Remarks by Commissioner of Internal Revenue Sheldon S. Cohen Before National Industrial Conference Board, New York, N.Y., December 15, 19G6

“to tax and to please”

Ju st about 60 years ago my gra ndfather arrived in this country—a penniless 

refugee from oppression—with a family of eight children. My fathe r was the 

youngest of two boys. In today’s parlance, my father was a high school dropout 

at the age of 16—not by choice but to help the family survive. He was an educated 

man and demanded the best his children could do in all aspects of their activ ities. 

Now, a few years late r, I have the privilege of appearing before this group of 

ind ustrialists—some of the most prosperous in America. This, gentlemen, is the 

finest trib ute to the American system I know. The system we have built provides 

this kind of success for those who are willing to work and contribute to the ful ­

fillment of our country ’s aspirations. This is the beacon which will show the 

underdeveloped countries of the earth t ha t ours is th e system to be em ulated—not 

some other to tal ita ria n system which reduces man to a crea ture of the st ate with­ out individual desires or aspirations.

The title of my talk, of course, comes from Edmund Burke, th at g rea t friend 

of the American colonies and one of the ear liest advocates of American tax reform. If his advice had been followed, the American Revolution might have 

taken a different form or, indeed, might not have even occurred. Mr. Bu rke sa id : 

“To tax and to please, no more tha n to love and be wise, is not given to men.”

Burke was as perceptive of the need for people to determine the ir own tax 

system as he was of the tradition al unhappy lot of the ta x collector.

By co ntrast, in April of this year, the Honorable William II. Timbers, a Federal 

judge in Connecticut, had this to say :

“. . . in my own view . . . attempted tax evasion is tantam oun t to str iking a t the jugula r vein of the United S tates . . .

“. . . defense of freedom of this country, of the free world, has a very direct relationship to th e vigorous, adeq uate enforcement of the Int ern al Revenue laws of this country . . .”
INTERNAL REVENUE SERVICE 49

This is quite a change of a ttitude over the span of two centuries. I should like, 

this evening, to try to suggest why this change has come about and what, if anything, the Inte rna l Revenue Service has had to do with it.

I realiz e th at there are many improvements which can still be made to our 

system, but th is is a minor problem. T here are very few voices he ard today which 

seriously contest our basic system. There are those few who would, for example, 

amend the Constitution to do away with the income tax altogether. Those who 

advocate this course do not make clear where the money would come from to 

operate the Government and finance our national security. On the more serious 

side, though, one does hear a more provocative objection to the income tax and 

th at is th at it te nds to sap initiati ve—presumably, initiative to earn more money.

It appears, however, th at this is ano ther one of those easy assum ptions tha t is 

not borne out by actu al research.

Only last month, for example, the Brookings Institution reported on a study of 

liigh-income Americans in a book entitle d “Economic Behav iour of the Affluent.” 

Their findings pret ty well shatter the belief that the progressive^- steeper ra tes of 

the income tax inhibit the wealthy and the talented. Seven out of eight highincome Americans said explicitly th at they would not curta il work because of 

taxes. The Brookings I nst itution concluded th a t:

“The ann ual loss of output due to the effect of taxes on work incentive, 

con trary to popular opinion, a ppe ars very small . . . probably less tha n onehalf of one p ercent.”

So I thin k one may reasonably say that this country has managed to raise the 

large sums necessary to meet its obligations with out stultifyin g the urge of 

Americans to work hard and to excel. Indeed, I think a case can be made for a 

more positive statem en t: th at high taxes a ctually encourage risk taking.

Nor has the income tax, as is sometimes alleged, turn ed us into a nation of tax 

cheats. In an essay a few months ago on “Larceny in Everyday Life,” TIME

Magazine had this to say :

“Everybody is supposedly eager to cheat the Government on his tax re turn . 

That impression is reinforced by the occasionally epic search of U.S. business 

tax loopholes—which may be ethically debatable but are, by definition, not 

illegal. In fact, the American is a model taxp ayer, and was so even before 

Intern al Revenue installed its formidable autom ated data processing system 

known as ‘the Machine.’ The Government las t year indicted fewer than 2.000 

out of 102.5 million taxpayers for fraud. Even the most pessim istic estim ate 

of unreported income . . . suggests that more than 95% of all income was 

reported.”

In fact about 37% of all aud its result in no change. This is in spite of the fac t 

that the reason these return s were audited in the first place was that something 

appeared to merit attention.

What are the reasons for the American tax system being perh aps the most 

efficient and widely supported the world has ever known? Why are we called 

upon to expo rt our tax know-how to Latin America, India, Turkey, Vietnam, and 

other parts of the world? I submit th at wh at makes our tax structur e a success 

and a national asset is the confidence of the American people in its adm inistration 

and the ir faith in the democratic tradition . Our people believe that the tax laws 

are reasonably fair and are being adm inistered honestly and evenhandedly, so 

they in turn report their income and pay taxes honestly.

We tend to take this compliance for granted, but it is really quite remarkable. 

Very few countries, including those in the Western family of nations, can 

successfully ad min ister a mass income tax. As one reporter wro te:

“Most nations do not even atte mpt the self-assessed income tax re tu rn ; 

people would not have enough confidence in each other, or in their Government, to try it. The idea would seem preposterous.”

It is a historical coincidence tha t the income ta x, the backbone of the American 

tax system, was recommended by President Lincoln and enacted into law- by 

Congress to finance the Civil War. And it was ano ther war. World War II. that 

ushered in the self-assessment tax system we have today. World War II changed 

a lot of things permanently, but nothing more fundame ntally than the income 

tax. It converted the income tax from a narrowly-based tax affecting some 8 

million in dividual taxpay ers to a broadly-baf

sed one now affecting ne arly 70 million 

taxpayers.

Before World War II. the tax system was so designed that Inter nal Revenue 

could audit virtua lly all the ret urn s t ha t a tax ad minis trator might w ant to audit. 

As the tax base mushroomed, t his became impossible. The altern ative th e Government faced was eith er to increase the number of auditors to permit the same
50 INTERNAL REVENUE SERVICE

blanket aud it coverage, or face up to the fac t that the gre at mass of taxpay ers 

would have to compute the ir tax themselves and ,seud in the ir return s with 

payment.

It is fortun ate for the country that the latte r approach was adopted. It is, I 

think, not only more in keeping with the American concept of the role of Government hut it also capitalizes on the strength of the American character.

Two other national cha racteristic s helped the tax collector: American inventiveness and genius for organizatio n. These led to development of the jsteps t ha t 

were essential to a tax system comprising 70 million taxpay ers tiling over 100 

million returns.

The majo r events that have shaped the modern Internal Revenue Service are 

the development of the standard deduction and the per capita exem ption which 

made possible the short Form 1040; withholding at the source, which applied the 

pay-as-you-go principle to tax collecting; the Reorganization of the Int ern al 

Revenue Service in 1051 and 1052; the conversion to automatic data processing

in 1050; and the recent flowering of th at conversion, legislation fo r direct filing of 

tax returns at Service Centers, passed this year. These developments are the 

pillars of modern tax adm inistration. They enable us to run the system effectively 

and economically—that is, with a work force which is proportionately one of 

the world’s smallest and a t a cost of less tha n h alf a cent for every dollar collected.

Let us a t this point take a quick look at the n ation’s ta x collecting agency.

The Int ern al Revenue Service ran ks in size with the 100 large st United States 

corporations. We employ about 65,000 people, including over 15,000 accou ntants, 

600 lawyers, and 10,000 o ther professionals. Ours is a decentralized organization 

for we have long believed that the citizen should be able to settle his tax affa irs 

locally, without the need for decisions to be referred to Washington.

We have 58 Distric t Offices, at leas t one in each state, and about 900 local 

offices, placed for the convenience of tax payers. Jo ined to th ese are seven regional 

offices performing intermediate supervision and certain operating functions and 

seven service centers set up under our auto matic data processing network.

All of our people are in the civil service, which means that the sole qualification for recruiting and promoting employees is merit and fitness. In the 

Federal family, we are perh aps distinguished for the vigor and scope of our 

executive selection and development efforts and for the independence and professionalism of our intern al audit and intern al secu rity operations. This last 

emphasis seems only fitting. Since we expect so much from the American tax pay er 

it behooves us to be above suspicion ourselves.

The Int ern al Revenue Service ente red the 1960’s well organized and well 

equipped to adm inister a tax law that reaches into the lives of virtually all 

adult Americans. The time was ripe, with the ferm ent and creativ ity of a new 

Administration, for articu lating a new philosophy th at would reflect the fun damental changes th at had taken place in our tax system in the post-war years. 

This was to have a profound effect on the thru st of future Service policies and 

programs.

Since it has grown, step-by-step, this philosophy has not been as clearly 

recognized—inside or outside the Service—as would be desirable. It is time 

we took account of it.

Recent Commissioners have become increasingly aware th at the gre at strength 

of the American tax system is its self-assessm ent nature and have launc hed 

programs designed to nurtu re and support the self-assessm ent system. My immediate predecessor, Mortimer Caplin, was especially noteworthy in arti culating 

the need for following, and indeed accelerating, this trend.

He and top Service officials concluded that in subtle but significant ways 

the Service had falle n into the habit of looking primarily at the enforcement 

side of the Service’s activities. This created a climate in which an adversary 

spirit could grow between our people and taxpay ers—a feeling th at Intern al 

Revenue’s job is to “protect the re v e n u e a n d it ’s the tax payer’s job to protect 

himself.

In contrast, we concluded that we should focus on the hundred billion in 

Fed eral tax revenue that comes in thro ugh voluntarily as opposed to the $3 

billion or so th at comes in through direct enforcement efforts. This idea was 

even tually embodied in a new stateme nt of our mission, which read as follow s: 

“The mission of the Service is to encourage a nd achieve the highest ixcssible 

degree of voluntary compliance with the tax laws and regulations and to 

maintain the highest degree of public confidence in the integrity and effi-
INTERNAL REVENUE SERVICE 51

ciency of the Service. This includes communicating the requ irem ents of the 

law to the public, determining the extent of compliance and causes of noncompliance. and doing all things needful to a projier enforcement of the law.” 

As a corollary to this, the Service also developed in 1964 a Stateme nt of 

Principles which laid gre at stress on the need for objectivity and inte grity in 

the inte rpretation of the tax statute s. I myself as Chief Counsel, dra fted tha t 

Stateme nt which developed out of an Order earlie r that year to the 600 lawyers 

in the Chief Counsel's office. This Order called for an approach to litigation that 

would foster orderly and reasonable development of the Intern al Revenue Code 

as opposed to an approach th at would bring in maximum revenue. Th at Order 

said in p a rt:

“It is easy . . . in handling a particu lar case, to focus solely on th e money 

at issue and to ignore or underestim ate the broade r effect of the case. Yet 

it is ju st th at broad effect of the case which must govern our litigation 

attitud e.

“The position taken must represent the interp retation the Service wants 

because it is the best and most reasonable, the interp retation which makes 

the maximum contribution to a sound, wise ta x system, not only immediately, 

but over the long run.”

This Chief Counsel’s Order and the new Stateme nt of Principle s exemplified 

the new spirit at work in the Revenue Service. As a result, over the last several 

years, tax adm inistra tion policies in the Service have been directed toward three 

main go als:

(1) Seeking more reasonable, responsive interp retation of the tax laws;

(2) Providing better service to American taxp ay ers; and

(3) Continuing a vigorous enforcement program to discourage and deter 

tax abuses.

These goals are not only institu tio na l: they sum up my own philosophy about 

the direction in which th e Service should be heading. They also received important 

supp ort from another quarter.

As a Presidential appointee, one of my goals is to give effect to the aspirations 

of the President. We are partic ularly fortun ate that Mr. Johnson has taken a 

keen interest in the Intern al Revenue Service.

The President really only gave me two instruction s on taking this job. One 

was to continue to safeguard the inte grity of the Service. The President is fully 

aware that the Int ern al Revenue Service must be as incorruptible a s any human 

institu tion can possibly be if it is to continue to deserve and mainta in the confidence of the people. Secondly—and this shows the P resident is as human as the 

rest of us—he asked me to try to do something about the tax forms.

Beyond these two specifics, the I’resid ent has also shown a continuing dete rmination to make the activity of the Federal Government more meaningful to 

American citizens. He ha s therefore spoken to us in Revenue on several occasions 

about remaining a lert to ways to improve our programs and our services to taxpayers. The thrust of the President’s guidance to me, therefore, has been to reinforce the new philosophy at work in the Revenue Service.

I should like to give you an idea of some of the things we a re doing to carry 

out our new philosophy, fulfill the President’s wishes, and make things a little 

easiei’ for taxpayers. We have first of all recognized that taxpay ers canno t comply with the law if they don’t know what the ir responsibilities are. This may 

surpris e you but 40 million taxpay ers have no contact of any kind with the 

Revenue Service except for receipts of the tax package every year. These people 

can only learn about the ir tax responsibilities through the educational process 

and through the mass media.

We have in recent years, therefore, given increased sta tur e and modest staff 

increases to our public information activity as our liaison with the mass media 

and our vehicle for reach ing this gre at taxpay er audience. We have stepped up 

our production of television and radio spots, films, news releases, and pamphlets 

and booklets as pa rt of this expanded information program.

In short, we are trying to give out more information, better understood information. more easily accessible information.

We are also e xpanding our program of ta xpa yer assistance, partic ula rly during 

the filing period. We have created new taxpay er assisto r positions in our field 

offices whose main purpose is to answer tax pay ers’ questions accurately and 

pleasantly. New a ssistors are selected on t he ir ability to meet and deal with the 

public and get a special training course in what they need to know to handle the 

26 million inquiries we receive each year. Today we have over 900 permanent full-
52 INTERNAL REVENUE SERVICE

time assistors, about half in metropolitan are as and the o ther half in 400 cities 

and towns throughout the rest of the nation. During the tiling period, we supplement this force with about 450 specially trained temp orary employees.

Next to accuracy in determining a taxpay er’s co rrect tax, we emphasize courtesy and service to taxpayers. To begin with, we select for public-contact positions only those indiv iduals who possess the personal qualifications and characte ristics needed to meet and deal with the public effectively.

After these individuals are hired, we convey to them through our training 

programs the im portance of courteous behavior to all taxpayers. This has ranged 

from training in simple telephone techniques to training in the more sophisticated and sensitive are as of tax administration. We emphasize these points 

during classroom training for new employees and continue to stre ss the subject 

during on-the-job training.

To ensure that the ideas thus implanted do not lose impetus, we stre ss the 

importance of similar training in refresher courses conducted for experienced 

Revenue Service personnel.

I also made a film stressing the need for courtesy and we have shown this to 

our employees throughout the United States. We recently developed a special 

award for employees who have demonstrated outstan ding ability to serve the 

public. Since our whole philosophy is based on the tax payer helping himself, we 

feel we have a special responsibility to provide good service where and when the 

tax pay er needs it.

We have also launched a major effort to simplify the content and improve the 

appearance of our tax forms and form letters. As you may know, we brought in 

an industrial design firm to help us improve the typography and appeara nce of 

the 1040 and its sister forms. We have also been pushing the development of 

tables, such as the sales tax and gasoline tax tables, to make the taxpay ers’ 

computations easier.

We brought in a special group to help us with our form letters. We recently 

created a special section to work on improving the clarity and tone of these 

letters and we are in the process of bringing in a con sultant to help us finish the 

job.

I recently approved a new in-Service training program aimed at improving the skills of our people who write and review letters. All of this is, 

of course, an enormous task , but we made a good beginning and we are pushing 

forward.

This filing period, in the southwestern pa rt of the country, we are testing a 

radically new test form called the 1O4OQ. This is a tax return in the form of 

a questionnaire which interwea ves instructions right along with the tax questions so that the tax pay er need not consult any other sources as he works and 

answ ers the questions. We have reason to believe that taxpay ers will find the 

question naire easier to work with than the 1040, bu t the 60,000 ta xpa yers who 

make up the sample will have the final say.

For a number of years we have had a Teaching Taxes program in the nation ’s high schools which shows some thre e and one-half million stud ents in 

23.000 schools how to fill out and understand a tax return. Forty million stu ­

dents have completed this course to date with commensurate aid and benefit 

to their parents. As this proceeds, we expect to see new generations of taxpayers who will have overcome their feeling of desp air at encountering the 

1040.

We are also training about 20,000 adu lts a yea r in how to make out tax 

retur ns under adu lt education program. We are experimenting in one of our 

regions with a special task force for high school commercial and business 

stud ents designed to acquain t them with the tax responsibilities of small businessmen. About 3,000 students in 50 high schools in five states are receiving th is 

training.

We have ano ther experiment going training returns-preparers in how to 

make out tax ret urn s for others. If this proves successful, it might be the first 

step toward assurin g a minimum competence for tax prac tioners not professionallv train ed. .

In all these matters, we are not flying blind. We are und erta king a special 

study of our whole complex of tax pay er assistance programs, on which we 

are spending some 5,700 man years and $60 million this fiscal year. This special 

study will not only evaluate existing programs for possible improvements, but 

will also consider other ways of strengthening our services to taxp ayers.
INTERNAL REVENUE SERVICE 53

Because of the complexity of business operation s and the need for certainty in tax affairs, a number of Internal Revenue’s programs are of direct 

and special benefit to businessmen. A case in point is the are a of advanced 

tax rulings on proposed tran sactions. About 30,000 rulings are issued every 

year, two-thirds at the request of business organizatio ns. Ours is the only 

Government in the world th at issues income tax rulings prior to consummation of the tax tran saction . We a re trying to improve our service in this area 

as well. We are about to announce a new program for bringing up to date old rul ­

ings we have published since 1919. This will save taxpay ers many hours of research. will reduce the possibility of their arr iving at erroneous decisions, and 

will help the Service as it converts its legal interp retative ac tivities to automaticdata processing. Early this year we also entered into an experiment with leading practitioner 

organizations' whereby they could subm it suggested revenue rulings. If this 

proves to be successful, we will expan d the program as an additional means of 

getting timely suggestions from the business community.

In the compliance area , we are constantly striving to move our procedures 

closer to the g rass roots. We have, for example, decentralized closing agreement 

autho rity and we have recently put our intern ationa l field audit group under 

local supervision. Similarly, we are trying to speed up and improve the resolution of tax cases. This involves reducing the number of old cases in inventory, 

streamlining the management of larg e refu nd cases, perfectin g our aud it procedures as they affect larg e corporations, and strengthening district conference 

procedures. This audience in pa rticular will be inte rested in our prog ram to modernize 

audits of larg e corporations. For a number of years, we’ve been aware th at our 

approach to aud itin g larg e corporations was lagging seriously behind the tremendous changes in the str ucture, composition, and size of United Sta tes business. 

Our tra dit ion al “one man, one case” approach often resulte d in serious delays in 

auditing corporation retu rns, and, in some cases, in rather superficial audits.

Our new approach has three elem ents: pre-identification of large corporate 

taxp ayers, coordinated control to assure prompt audit resu lts, and use of teams 

to conduct the audits. We thin k this new method of managing larg e cases 

will result in faster, more curre nt, and more uniform audits. This, too, will make 

a contribution to enhance voluntary compliance.

In sum, there has been a perceptive shi ft of philosophy in the Service from a 

protecting-the-revenue approach to one th at is more taxpay er oriented, more 

balanced, more reasonable, and more humane. Protecting-the-revenue in a narrow 

sense is no longer the shibboleth it once was. It has been replaced by a new and 

broader concern for orderly development of the law and reasonable tax administratio n. It h as become increasingly clear in recent y ears th at t he stab ility of the free 

world depends on the good health of our economic system and the soundness of 

our currency. This country must have a productive and viable economy th at is 

strong enough to enable us to meet our commitments at home and around the 

world. Ability to do this rests in larg e measure on the capacity of our tax 

system to produce the revenues we need to meet the cost of world responsibility 

and domestic progress.

This places a heavy responsibility on the Int ern al Revenue Service and as I 

nea r the end of my second year in office I can say we are meeting th at responsibility. In the time ahead, with the cooperation of the American taxpay er, we 

intend to continue along this new path of strengthening our voluntary compliance tax system.

T o: All Regional Commissioners and Distr ict Directors.

Fr om : Director, Public Inform ation Division National Office.

Subject: Taxpa yer Info rmation Material (1967) (IRM 1(19)51.2) Speech Mater ial —“Settling Disputes With IRS ” (S-67-4).

The atta ched tex t of remarks made by Commissioner Cohen before the Executives Club of Chicago on March 17, discusses various aspects of tax adminis tration with emphasis on the right of taxpay ers to have a fa ir and imp artial 

hearing in disputes with IRS.

This speech is par ticula rly timely now that the 1967 filing period is past and 

the concern of many taxpay ers and practit ioners turns to audit and appellate 

procedures.
54 INTERNAL REVENUE SERVICE

Reg iona l Co mmiss ione rs, D is tr ic t D irec to rs a nd ot her IR S pe rson ne l who speak 

be fo re pra cti ti oner or civ ic grou ps may w an t to includ e in th eir ta lk s th e them es 

an d d ata in th is te xt .

T he tr an sc ri p t will also he he lpful in pr ov id ing ba ck gr ou nd to news me n who 

may he in te re st ed in IR S ac tivi ties in t he ens ui ng mon ths.

J os ep h S. R osapepe.

Atta ch m en t.

Sett ling Dispu te s Wit h IR S

By Sheld on S. Coh en, Co mmiss ione r of In te rn al Rev en ue

W he n peop le sto p to thin k, th ey qu ick ly become aw ar e th a t th e TRS toda y is 

us in g som e ra th e r mo dern, ad va nc ed co nc ep ts in th e ad m in is tr ati on of w hat is 

per ha ps th e mos t com plex, mos t su cc es sful re ve nu e sy ste m ev er devis ed.

W e ta lk a gre at de al ab out th e re sp on sibi lity of th e American citiz en fo r the 

w el fa re of th is co un try . The se disc us sion s ra nge from th e college ca mpu s to 

Cap ito l Hill an d all po in ts in be tw ee n. B ut th ere h as no t been mu ch dis cu ssion of 

th e re sp on sibi lity of th e co untry to its citize ns .

W e ha ve in th e go ve rnmen t th e pro ble m of se rv in g 100 million ta xp ay er s. 200 

million people, an d som e of t he tech ni qu es th a t ha ve bee n de vised in th is co un try 

are the model for elsew he re in th e w orld.

Mos t of us do no t ap pre ci at e th e tech ni ou es th a t ou r go ve rnmen t an d ou r 

people ha ve d evised. The se in clud e th e m etho ds b y which co nt ro ve rsie s w ith one’s 

go ve rn m en t are d isp osed of.

Eac h of us loo ks a t our own p art ic u la r prob lems from ou r own part ic ula r 

van ta ge po int an d we are gre at ly conc erne d w ith our in di vid ual problem s. Th e 

difficult th in g fo r go ve rnmen t, an y go ve rnmen t, w het her it be loc al or st ate or 

fe de ra l, is no t th a t p art ic u la r prob lem . It is th e ve ry dif fic ult prob lem of c op ing 

w ith an d be ing fa ir t o ev er y one a t th e same tim e you are co ping with an d be ing 

fa ir w ith indi vidu als.

Il lu st ra ti v e of th is , I su sp ec t, is an in ci de nt th a t took plac e la st Ju ly . I wa s 

briefin g P re si den t Jo hn so n on th e budget ar y si tu at io n, es pe cially ou r rece ipts.— giving him a rund ow n of t he re ce ip t side.

At th e conclus ion of th e disc us sion he loo ked a t me an d sa id , “Sh eld on, w ha t 

kind o f p roblem s do you hav e? ”

H er e w as a ch an ce to pour you r soul ou t to your boss, te ll him ho w you ar e 

m is tr ea te d an d yo u do n’t ha ve en ou gh fu nd s, an d th ere are all so rt s of difficult 

in te rp re ta ti ve prob lems in th e Re ve nu e Code— in oth er wor ds , her e is yo ur 

op po rtun ity.

I looked a t him an d I w as re ady to plea d on how I ne ed ed mor e man po wer 

an d ho w I do n’t ha ve enou gh of th is or th at. The n I th ought ki nd of se riou sly 

fo r a mo men t an d I sa id , “You know , it is a ra th e r am az in g system we ha ve . 

We ha ve 200 million people, we ha ve 100 mi llion ta xpayers wh o file ab ou t 70 

mi llion in di vi du al tax r etu rn s, —r eq uir in g th e han dl in g of 102 or 103 mi llion form s 

an d re tu rn s alt oget her an d 250 mill ion in fo rm at io n do cu men ts—$128.0 billi on 

in ta xe s. 45 mi llion re fu nds pa id la st yea r am ou nt in g to ab ou t $7.5 bil lio n. When 

yo u th in k of all th e th in gs th a t could go wrong , in a syste m like t h at, an d did n’t, 

it i s p re tt y m uch of a m irac le .”

T he qu es tio n could be ask ed: “W hy do n’t we dr op more th in gs betw een th e 

chair s? ” We do. We al l mak e mista ke s. We are hu m an being s. Ju st be ca us e one 

wor ks fo r th e go ve rnmen t, do esn’t m ak e one an y bri g h te r th an he w as b ef or e he 

wor ke d fo r th e go ve rnmen t. If I mad e m ista ke s th en . I wi ll m ak e som e now .

B u t wh en you th in k ab out t he syste m fro m th a t view po int, you ta ke a di ffer en t 

ap pr oa ch . U nf or tu na te ly , no t enough of us ha ve th e op po rtunity to th in k ab ou t 

it from th a t van ta ge po int. I th in k we wou ld ha ve bett er go ve rn m en t, we wo uld 

ha ve bett er ev er yt hi ng if all of us could oc ca sion ally w alk aw ay to th e top of 

th e m ou nt ai n an d look down . U nfo rtun at el y, mos t of us do n’t ha ve th e tim e an d 

perh ap s do n' t ha ve th e de sire. Ea ch of us is usu al ly too w ra pp ed up in his in ­

di vi du al prob lems an d dif fic ultie s to w or ry ab out w het her th e sy stem of g ov ernm en t wor ks o r n ot.

B ut he re we ar e, we colle cte d $129 bil lio n la st ye ar . Ni ne ty-se ve n pe r ce nt of 

th a t come s in th ro ug h pa ym en ts of one volu nta ry natu re or an ot he r. Thr ee pe r 

ce nt of th a t is ac co un ted fo r by our e nf or ce m en t ac tivi ty . T h a t does no t me an ou r 

en fo rc em en t ac tivity is th er ef ore uni m por ta nt. It is te rr ib ly im port an t th a t it be 

uni fo rm an d fa ir to ke ep th a t confi dence th a t we ha ve , th a t en co ur ag es th a t 97% 

of th e reve nu e to com e in th ro ug h th e volu nta ry ac ts of our citiz en s. Mos t of th e 

co un tr ie s of th e world wo uld no t even dar e tr y a syste m lik e this.
INTERNAL REVENUE SERVICE 55

Looking at this mass income tax th at we have today, you have to see it in 

perspective. In the T hirties the paying of an income tax was a privilege that we 

only gave to the wealthy. In 1938 there were eight million taxpayers and by 1945 

there were 45 million. Last yea r there were about 104, and in 1980 we will have 

135 million. This is just a measure of the growth of our economy a nd as it has 

grown, so unfortunately has the complexity of the Revenue Code.

We all wish for those dear, dista nt days of the simple past when each of us 

was infinitely worse off than we are today, but we all long for them nevertheless.

The circumstance of the complexity of the Revenue ('ode really follows from 

the complexity of the economic society we live in. One desires simplicity, but one 

is not willing to live with the arbitra ry na tur e of a simple system.

A simple system draws very straig ht lines and very straig ht lines hit people in 

very a rbitrary ways.

Rut with the growth of the Int ern al Revenue Code from a starting point of 

16 pages in 1913 to a point today where it is over 1200 pages in length, this 

brings problems.

One might expect that with a system .such as this, the courts of the United 

States would be bogged down completely with nothing but tax litig ations and 

that we would have an army of tax collectors out collecting taxes. Neither one of 

these is true. Civil tax litig ation in the United States involves less tha n a thousand cases in a year. We have 60.000 people and to most of us t ha t sounds like a 

lot of people, until we realize that the tax system of Gre at Britain—with a population about one-third the size of ours and a geographic are a that is infinitely 

smaller than ours—has a tax collection force of 60,000 people. All things are 

relative, of course.

What leads us to a system that works as well as it does here? One of those 

things is the American character. American people have an inheren t belief in 

fairness and fair play. They think the ir Congress has enacted a relatively fair 

law. We each have our gripes, but on the whole, we each thin k it is fair. We can 

each thin k of some abuse, and there are many improvements t ha t could be made, 

but I think we agre e basically, that the law is enforced with inte grity and fa irness throughout the country. Th at is the absolute essential to any system that is 

going to work on a voluntary basis.

So it is necessary th at the Revenue Service design a system to eliminate controversy at the ear liest possible moment in orde r to keep confidence, to keep this 

system moving. This is a designed system that has worked, that has proven 

itself over a long period of time. Indeed, the very first link in the chain, the 

revenue agent, is encouraged to dispose of cases at the earlie st possible moment. 

Thus we try to keep disputes from ever getting into the pipeline in the first place.

Of course, pa rt of this problem is that the courts simply are not equipped to 

handle the volume of appeals th at could arise. An interesting facet is that a 

country the size of West Germany has more tax litigation in its courts than the 

United States. Our experience has shown th at the tax litigation , tax controversies, can and are settled with due deference to the tax payer’s point of view and 

to the government’s problems.

Any appeal system that is designed to work has to really p rovide three thin gs :

First, you have to have a system that assures an equitable disposition of each 

ca se ; justice if you will. The system also has to assure uniformity, th at is, consta nt and uniform trea tment of issues and persons.

Finally, it has to be accessible in a sense of being readily available to anybody 

wherever he lives.

Justice in the field of taxatio n is determination of the correct tax th at the 

Congress intended. Th at is one of my problems. The problem is, as most people 

realize when they think about it—but they don’t really think about it—th at Congress enacted th e tax laws, not the Intern al Revenue agent who stands in fro nt of 

you and must take the abuse for enforcing it.

The view has long been held, in many circles, th at the Revenue Service is not 

so much seeking the right answ er as it is seeking the most dollars and acting 

as an advocate for the government. This is not the case. This has never been our 

jiosition and more particu larl y, is not our position today. Indeed, seve ral years 

ago, we published a statement of philosophy which states unequivocally, “The 

sole interest of the Revenue Service is in the determination of the correct tax 

and in the reasonable interp retation and development of the law, not in the pursuit of dollars.”

Many taxpay ers read th at as if it were the Magna Charta, but it is simply an 

articulation of a philosophy that has long been held. It is more partic ula rly important to one who really understands the technicalities of the tax law.
56 INTERNAL REVENUE SERVICE

It is a very complex law and a decision today that favors the government may 

cut the other way tomorrow, so t ha t even out of selfish interest you must dete rmine these things on the basis of principle and not on the basis of dollars.

The imp ortant thin g about our system that differs from many in the world is 

its completely decentralized natu re, with 58 district offices and 900 local offices 

spotted for convenience of the taxpay er throughout the country, with a system 

to keep these field people fully informed on the operatin g rules of the road. This 

is a system tha t came into existence in 1952 and i t has flowered since.

Likewise, pa rt of this situation is the righ t of the ta xpa yer to have his hearing, 

his audit, his appella te hea ring, whatever it is. relatively close to home. Years ago, 

one had to trav el to Washington for many of the deicsions, almost all of which 

are now rendered eith er by the D istrict Offices or Regional Offices spotted around 

the country. Even though these 900 offices cover most of the nation, we have 

circu it-riding people who provide service in those parts of the country where we 

do not have an office.

Basically we have two levels of appeal from a decision of the revenue agent 

th at one doesn’t like. Fir st, the agent is available or the supervisor is available 

for discussion. The agent supplies a copy of a repo rt which sets forth the positions 

th at he will take so that the taxpay er is fully inform ed of what his particular 

problem is.

The two levels are first the Distric t Conference and second the Appellate 

Division.

The Distric t Conference has been revised and modified over a period of years 

to meet the needs and desires of the tax prac titio ner, the taxpayer, and the modern 

problems as we see them. The Distric t Conference staff is completely independent 

of the revenue a gent and the revenue agent supervisor and is available particularly to the taxpa yer who has a small case generally involved in a fac tual matter. 

No form al documents are necessary to get into this cycle and it works very well.

Until now we have lim ited the informal no petition, if you will, or p rote st cases 

to about .$1,000. We a re now considering raising th at to slightly larger cases, perhaps $2,000, perhaps $2,500, in the interest of keeping the small pro se taxp aye r 

representing himself free of any red tape. And most of the cases are settled in 

this area.

One has to th ink about the fact, though, th at out of 70 million tax returns, only 

about 5% are selected for audit, and about two million involve some changes. The 

inte resting thing is that during the course of aud its last year, $278 million worth 

of refunds were made th at the tax pay er never asked for. You never heard that 

figure. I bet. Nobody ever heard of an audit where we gave money hack th at was 

not asked for, but it happens every year.

In our mathematical verification las t year, we gave back about $82 million 

where the taxpay ers did not know they made mista kes aga inst themselves. It 

cuts both ways.

Last year in the dis trict conferences for small tax payers there was a reduction of 30% in deficiencies originally proposed. And about 74% of all the cases— 

large and small—th at went through that procedure were disposed of finally to 

the satisfac tion of the taxp ayer. If he was not satisfied, he had the right to go 

either to the Appellate Division or th e court.

The Appellate Division, which is the second level of our appeal system, is designed really to handle the more complex cases, the ones involving not only complex legal questions, but also complex factual situations.

We have a sep arate line of au thority. The Appellate Division is not even under 

the Distric t Directo r’s line of authority. Their autho rity runs from the Commissioner, directly from me to them, completely independent of any of the local 

people who set up the agent’s report in the first instance. In fact, they have 

operated th at way and I think they have the respect a nd confidence of the legal 

and the accounting societies around the country.

In the cases that are docketed, the responsibility lies concurrently in our regional counsel’s offices and appellate offices to dispose of these cases. It is a difficult matter , to determine what is fair, what is just, and in addition the taxpayer has a view of what is fair and just in his case. Each of us would like to 

pay the lowest tax. In fact, if one reads the tax lite rature , partic ularly a book by 

the late Louis Einstein called “Ideologies of Tax atio n"—which is not as formidable as its title would indic ate—he would find the statem ent th at each of us 

would have our neighbor pay the tax, but each of us would find some ratio nalization why we should pay something less.
INTERNAL REVENUE SERVICE 57

I cannot say that everybody is extremely happy when they walk out of any of 

these settlement procedures, but 1 have always considered the settlements as 

fair.

There are two kinds of settlements, one where everyone walks away happy ; that 

is line, but that happens rarely. And the other one is where everyone walks away 

a little unhappy and tha t is probably usually the case and that is probably fa ir 

also. The Appellate Division has this reputation. In 1965, for example, 91% of the 

cases tha t went through the regional appellate division offices—sitting permanently in 40 cities in the United States, but riding-circuit where necessary— 

were settled to the satisfaction of the taxpayer and the government. Six per cent 

were disposed: of by default. The taxpayer appealed to the Appellate Division 

and then for some reason or other, never showed up, and 3% went to litigation— 

726 cases in the whole United States.

The taxpayers are not inhibited. If the taxpayer feels aggrieved for a very 

nominal price he can docket with the tax court, he can be heard pro se and in 

fact about a third of the tax court dockets are pro se taxpayers, tiled by himself, 

represented by himself, where he has a judge, where he has a right to a hearing, 

where the judge gives him the benefit of every doubt. That is about standard.

We have about 700 cases litigated in the U.S. Tax Court every year and about 

another 500 in the Federal District Courts around the country—less than half 

the litigation of West Germany. This system works amazingly well. So something is working.

The cases we are talking about are not the easy cases. The cases that were 

involved in the Appellate Division represent one and one-half per cent of the 

total cases examined in a given year, but they represent 50% of the deficiencies 

asserted in a given year, and yet 90% are settled to the satisfaction of both sides.

This high record, I think, reduces the potential disputes and with our new 

techniques and communications—by use of automatic data processing equipment, by the use of electronic retrieval systems—we are able to keep our field 

people in the Appellate Division, and in the regional counsels’ offices informed 

of the kind of decisions tha t are occurring all over the country so they can 

dispense justice in Chicago in the same way that our Appellate Division in 

Boston or in Miami or in San Francisco is working.

Settlement, while it is important in the over-all administration, basically 

cannot be at the expense of fairness or taxpayers will lose confidence in the 

system. So we have this basic system, this mechanized system, really, which 

is both informal and accessible. We, and I think the taxpayer.—giving due 

deference to the bar and the accounting profession, all of us professionals on 

both sides—have a strong desire to reach the proper result at the earliest possible 

moment, a t the least possible cost to the taxpayer, who, afte r all. as a partner 

of mine used to say, “Has the most expensive seat in the house.”

We have sought to put no barriers in anyone’s way but I think there are 

changes tha t can be made. We can have a better system and I, for one, would 

never believe th at we had the perfect tax system. If we had a perfect tax system 

today, it would not be perfect tomorrow. This is a rath er dynamic, changing 

world we live in and one must constantly adapt one’s self to new and changing 

conditions.

But if you think about it, we have a pretty good system. We have a will to 

make it work, and I think with the cooperation of the professional groups of 

lawyers and accountants, we can continue to make this the strongest system 

in the world, the most workable, really, the envy of the rest of the world. We 

have had people visit my office from just about every nation in the world to 

find out what makes it work. I think tha t it is this basic confidence and 

integrity. I have confidence in your integrity as taxpayers and you have confidence in mine and that is why it works.

W il l ia m C. C a pe s,

P u blic Accounta nt.

San Mateo, Calif., July 31, 1961.

M r. S he ld on S. Co h e n ,

Commissioner of Internal Revenue,

Washington, D.C.

D ear Mr. Co hen : I have, in the past, prided myself as a Reader’s Digest 

subscriber. After the August issue I don't know. How the editors could have 

passed such an infamous article on the Revenue Service is hard to understand.
58 INTERVAL REVENUE SERVICE

I am sure accountants thruou t the country share disgust with such a perverted article.

My sympathy to you and your staff.

Yours very truly,

W. C. Capes.

Westchester Travel Bureau,

White Plains, N.Y., August 2,1967.

I>istkict Director of I nternal Revenue,

New York, N.Y.

(Attention Mr. Edward Fitzgera ld.)

Dear Mr. Fitzgerald : So much has been said and written about the unethical 

methods used by Interal Revenue Service to secure tax information, especially 

the article in the current issue of “Rea der’s Digest”, th at I thought it might be 

nice to take a few minutes to describe my own experience, even though my pocketbook is depleted by something over $10,000.

I established this business in 1925 and paid my taxes w ithout any discrepancy. 

In May 1904 I sold the business to Natio nal Bank of Westchester, but was retaine d as manager. I bought it back again Sept. 1960. This caused involved tra ns ­

actions between the bank and myself.

In April of this year I received a notice from one of your field agents in White 

Plains—Donald Fe rrara of Group # 305 th at he had been assigned to examine my 

tax records for 1965. I live in Dobbs F erry but the records are all kept here. The 

appointment was made and he spent many days during a period of three months 

in going through all the records of myself and the bank. He decided to aud it the 

return s of 1966 as well as 1965. He showed every consideration and did not 

int err upt our business. Subsequently I received a notice that a tax deficiency 

for 1965 and 1966 is in excess of $10,000 which I will try to liquidate, as it is an 

honest debt.

Mr. Fe rrar a left the impression th at the I.R.S. does n ot use Gestapo methods, 

but is only doing it’s duty un der the law and if more of his type got around to more 

people, I am certain the public at larg e would change it’s opinion of I.R.S. 

Cordially,

Thos. P. Oussani,

August 4 ,1967. The Reader’s Digest,

Pleasantville, N.Y.

Gentlemen : The article “Tyra nny in the Internal Revenue Service” by John 

Barron in your August issue, in my opinion is grossly un fai r to the Intern al 

Revenue Service, is very detrimenta l to the public inte rest, lowers the prestige 

and value of your publication, and I was very surp rised indeed to read it as a 

subscriber.

It is generally known that many small businesses, professional people, and 

individuals, keep no proper records from which the ir ret urn s can be verified, and 

th at resort must be had to extraneous information such as bank stateme nts and 

cancelled checks showing deposits, purchases and expenditures, making verification by an agent a very difficult tas k especially if the taxpay er should be uncooperative.

Also it is well known t ha t sta tut ory notices must be given a taxp aye r before an 

assessment can be made, and that he may have review with in the Int ern al Revenue Service and by the U.S. Tax Court before such an assessm ent, and of course 

property cann ot be seized without assessment.

The arti cle deals very superficially with a few cases in which taxpay ers have 

had trouble, and who would be naturally hostile; and it is written from their 

standpoint. I am satisfied that if th e cases were gone into fully and fairly it would 

be revealed t ha t imp ortant fac ts have been om itted and th at the facts or inormation presented are so distorted and exagge rated as to make the article untrue.

I have been pra cticing law for many years but have never experienced any such 

trea tment as the article charges has been suffered by so many taxpay ers. The statement t hat the agents are pressured to find additional ta xes regardless of the merits 

is ce rtainly incorrect. I thin k a b ette r way to pu t it would be tha t they are pushed 

lo complete ex amin ation of as many retu rns as possible.

Very truly yours,

Albert A. J ones, Attorney.
INTERNAL REVENUE SERVICE 59

J uly 31, 1967.

To the Editor

Reader’s Digest Association, Inc.

Pleasantville, N.Y.

Dear Sir : In all histo ry the tax collector was regarded as the common enemy 

of men and our IRS is no exception. But criticism and condemnation can go 

beyond reasonable limits as I think they did in your August issue. Mr. Barron’s 

examples appear to be loosely thrown toge ther and I think I have cause to 

wonder because of my own experience. My personal and business ret urn s have 

been examined by a lot of agents over 45 years and I have never had an experience th at even remotely approaches the incidents he reveals.

I am no more, and no less, honest than any other taxpayer. I never hesitate to 

resolve borderline cases in my own favor and when the agent disagrees I always had the choice of a hearing. I have examinations that resulted in “No 

Change” and I have always had a courteous letter telling me so.

Mr. Barron leaves me the choice of believing that the agents have become a 

gang of unbridled marauders, or that the IRS has become a Mafia with the 

“burn, baby, burn,” spirit. I reject both. I reject the notion that these examples 

are typical, and urge th e opinion tha t some facts ar e missing.

I reje ct the notion that any superviso r or distric t director would toie iale 

such procedure.

Very trul y yours,

Charles B. Sackett.

El P aso. Tex.

Chie f, Bureau of I nternal Revenue,

Washington, D.C.

Notwithstanding the article which appeared in the Reade r’s Digest for the 

month of August during my annual aud it of my income tax return I found Mr. 

Charles Coffman and Mr. Richard Crandall of the El Paso office most cooperative intelligent and thorough. Please express my apprecia tion to both of them.

Col. William A. Strickland, Jr., Retired.

Nashville, Tenn., Au gu st 1, 1967.

Mr. Sheldon Cohen,

Commissioner of Internal Revenue,

Washington, D.C.

Dear Mr. Coiien : I assume in your busy life that you will never personally see 

this letter but I hope that it is placed in the stack of papers which praise the 

exam iners for th e In ter nal Revenue Service.

I recently read the article in the August issue of the Rea ders’ Digest and I 

am hopeful that those who have been tre ate d as I was treated when my income 

tax was examined will write you as a reb uttal to the information which this 

article contained.

I am not sure of the dates but I thin k in 1953 and 1954 my tax return was 

examined and I could not have been treated better tha n by Mr. Fritz Gottfried, one 

of your local examiners. At that time, I was General Agent and my Company 

reported my income and my c ashier also reported my income which made it appear th at I had ea rned twice as much as I reported.

I would say th at Mr. Gottfried and Mr. Nicholas Taylor who worked over him 

were very kind and gentle when an explanation was given.

In 1954 I believe was the date, Mr. Ben Mabry from your local office here in 

Nashville came to my office to go over my retu rn with me. I remember very well 

that he put me completely at ease by tellin g me th at he had found nothing wrong 

with the retu rn. He checked my books carefully and came to the conclusion that 

the Government owed me about $25.00 and I told him to just forget it.

I have served on the Federal Jury and I know for a fac t th at the Int ern al 

Revenue Service as fa r as my experience, go out of the ir way to give the taxpayer the benefit of every doubt as long as they believe that the tax-payer is 

honest. Neither of the above men knew’ me personally, but actu ally it seemed 

to me th at a personal friend could not have treated me nicer.

With kindest regards, I am 

Most sincerely yours,

Herschell E mery.
60 INTERNAL REVENUE SERVICE

John J. Dannin and J oseph A. Dannin,

Licensed Public Accountants,

Newport, R.I., August 7 ,1967.

Commissioner Sheldon Cohen,

Inte rnal Ren mie Service,

Washington, D.C.

My Dear Commissioner Coh en: Enclosed please find a copy of the letter dispatched this date cancelling my subscription to Read ers Digest. When a supposedly Responsible publication goes to such lengths as to slander such a hard 

working organizatio n as yours without getting all the facts it is time we reassessed t heir integrity and objectivity.

I have had the pleasure of working with IRS men for the past 40 years, and 

I sta te unequivacably that never have I received anything but courteous cooperation. Your local officials, and in fact the whole Rhode Isla nd D istr ict Office 

Staff, have assisted me on any and every occasion th at I sought help.

Mr. Commissioner, I am certain that these dedicated men in Rhode Isla nd are 

truly represen tative of your whole org anization ; and I wish there were some 

way tha t I, and my fellow tax accountants and lawyers, could bring to the attention of the whole country, how deeply we resent the shadow cas t on these honorable men such as District Director Jo hn O’Brien. Revenue Agent in charge, Newport, Jack M. M artin ; and Revenue Officer Edw ard Lea ry ; to name those with 

whom we are in almost daily communication.

I am deeply moved by this terrible, terr ible inju stice and as a citizen, I 

apologize for my fellow citizen, who has maligned you and your men. I take 

this as a personal insult just as though one of my own family had been maligned.

With Deep Respect, I am

J ohn J. Dann in.

P.S.—I can’t close without mentioning the fact th at la st year I ha d the pleasure 

of meeting Regional Commissioner All’s wife along with the wives of a number 

of the North Atlantic Region’s Asst. Commissioners and District Directors. The 

occasion was a day trip for the wives while their husbands were attending a 

Regional Conference somewhere in Connecticut. I was pleased to accompany 

the group on the ir visit to our own Touro Synagogue, A Nation al Shrine, and to 

present them to Rabbi Lewis.

The enthusiasm the women had for Newport rivaled that of Presidents Eisen ­

hower and Kennedy who spent many “Working Vacations” in our city.

Our Chamber of Commerce has writte n Commissioner All inviting him to 

schedule this year’s seminar in Newport in October, and should Mr. All see fit 

to accept the city ’s invitation I hope that it is possible for you to use this occasion to make your first to Rhode Island.

I am enclosing a brochure of Touro Synagogue which I am sure you will 

enjoy as an addition to your library .

John J. Dannin and J oseph A. Dannin,

Licensed Public Accountants,

Newport, ll.J., A ugust 7,1967.

Editor-Reader’s Digest,

Pleasantville, N.Y.:

Your outrageous maligning of our Country’s har des t working Adm inistrative 

Agency has done irrepar able damage to what is recognized world over as the 

finest ta x collecting body in world history.

I have reference to your article “Tyranny in the Int ern al Revenue Service”, 

August 1967 edition.

I have been working as a Public Accountant in Newport, R. I. for more than 

forty years. During this period of time I have represented clien ts in thousands 

of audits with Deputy Collectors, Revenue Officers and Internal Revenue Agents 

(a t least 100 different individuals) and never have I found any suggestions of 

the abuses your articles tre ats as though they were everyday events. I can 

understand that individuals have abused their power in some ins tan ces; but for 

your magazine to indict the whole IRS is irresponsible reporting and downright shameful.

These men who represent the IRS are real professionals, and I have found 

them to be competent, able to exercise the ir independent judgm ent, impartial, 

and their very inte grity bespeaks the ir loyalty and objectivity. I was partic ­

ularly incensed by the reference made to “tax payer being an adv ersary ” at no 

time have I been placed in position where I felt that my client was not getting
INTERNAL REVENUE SERVICE 61

the same consideratio n lie was e ntitled to under the law as the government was.

The local office in Newport and the Directo r’s office in Providence, have alway s 

maintain ed our ‘‘Open Door” policy when we a ccountants or lawyers found ourselves confounded by a partic ula r vexing tax problem, and have had to look for 

assistance in interpretation or procedure.

I am not alone in my deep respect for the Internal Revenue Service, and the 

individuals who striv e so hard to give full meaning to the word “service”. About 

the middle of Jun e it was learned th at Joh n J. O'Brien, who had been appointed District Director for Rhode Isla nd in May, was to make his official 

visit to Newport. The Newport County Bar Association, Certified Public Accountants. Newport County Public Accountants Society and represen tatives of 

the banking institu tions tax departm ents joined together to form a committee 

to arrang e an appropriate welcome. Under the co-chairmanship of Presiden t of 

the Newport County Bar Association and myself, representing the Accountants, 

a luncheon at our leading hotel, which was attende d by more tha n one hundred 

lawyers, acco untants and bank officials, was a tremendous success in bringing 

together the people you claim erroneously to be adversaries .

The District Director met each of us individually, and later from the podium 

spelled out in very definite term s what the goals of the Service were, and how 

he expected to att ain them in this District. He was not shy in pointing out our 

obligations as pra ctitioners; and the high quality of work he expected of us. 

The luncheon was deemed a great success by all who a tten ded (90% of Newport 

lawyers and accountants, who were available attended), and all were in agre ement that they would be able to work icith such a high type individual.

To give ta ngible evidence of the esteem in which the I nte rnal Revenue Service 

is held in Newport, and in apprecia tion of the Service rendered our community 

and its citizens, the mayor and the City Council passed a resolution proclaiming 

Jun e 30, 1907 to be known as “In ternal Revenue Day”. Mayor Shea presented 

the original resolution, appropriately formed to D irector O’Brien a t the luncheon.

Since serving as Co-chairman of the welcoming committee, I have received 

comments from fellow prac tioners and taxpay ers from all over the Eastern seaboard that commended our cooperation; and not a few noted th at “Internal 

Revenue Day” was certainly a first in the nation. I hope through my contacts 

with professional and fra ternal societies to encourage other cities and counties 

in Southern New England to demonstrate th at the IRS is not considered to be 

the monster you depic t; but truly a friend.

Please cancel my subscription. I am ashamed for you.

J o h n D a n n in .

Lim es to ne County Court, 

Ath en s, A la., A ugust 8,19 67.

Co m m is si o n er of I nte rnal R ev en ue,

W as hing ton, D.C.

Dear Sir : The recent article in the “Readers Digest” purporting that m any in 

the Department of Inte rna l Revenue are Devils, makes me want to give even the 

“Devil” his dues.

My dealings w ith the Intern al Revenue Service have alwa ys been most plea sant 

and, if anything, he lpful; frankly, my only contacts have been mainly when I 

would wish information from the source or “Fountain of Wisdom” about some 

tax ma tter that I was unfam ilia r with and I would alwa ys get a prom pt reply, 

usually giving me sound and often tax-saving advice.

On Ju ly 4, 1965 my father died, leaving an est ate subject to estate tax. I had 

never prep ared such and knew nothing about such, and when I wrote to the 

Intern al Revenue Office in Birmingham I received much helpful advice from a 

gentleman in th at office, Mr. Arthu r F. Lovell, Jr., who seemed to go out of his 

way to help me in this unknown field and even to save the estate money.

After the estate return was filed, in due course an Estat e Tax Examiner from 

the Birmingham office, Mr. Irving W. Buchalte r, came to Athens to contact me 

about the retu rn, details, valuations, etc., and I could not have had dealings with 

a more p leasant, efficient and conscientious person.

True, he made me pay about $250.00 more tax. and he was correct in such, but 

he also called to my atte ntion th at I had paid the estate tax which amounted to 

about $18,500.00, in cash, whereas I could have paid it w ith U.S. 21

/

£% Tre asury 

Bonds of 1967-72 a t par value (the y were selling at only a little over 88tf on the 

dollar on the open m arket) and he helped me prepa re a petition to the Tre asury 

Departm ent to redeem the amount of bonds equal to the ta x at par and in t urn be
62 INTERNAL REVENUE SERVICE

reimbursed by the Internal Revenue Service after the Tre asury Department remitted to them, which gave the estate back several times the additional tax he 

had us pay. I told several attorneys h ere about this, and without exception they 

stated the ir dealings with represen tatives of the Inter nal Revenue Service had 

been courteous and pleasant.

Therefore, while the few7

 “Devils” in the Int ern al Revenue Service are “catching Hell”, let me say these words of praise abont these two “Saints” in the 

Service! I hope tha t you promote each of them to Top Sergeant.

With all good wishes,

Cordially,

D. L. Rosenau, Jr.

Mr. Steed. Mr. Comm issioner, in conclusion I wou ld like to say th at 

per son ally I hav e enjo yed the man y years th at I have ha d the oppo rtun ity to be associated with the In tern al Revenue Serv ice and espec ially wi th you and your c urrent staff. I have ha d many op po rtu nitie s to know your employees out in the field, throug h their org aniza ­

tio ns and as ind ividuals , and I have alw ays fou nd them to be people 

I was hap py to know and people I adm ired fo r th ei r ded ication to the ir 

pub lic service and to their jobs. I have h ad occasion to see at the very 

grassroots, so to spea k, your employees in acti on, and I rub elbows 

all the time wi th people who pay taxes and do busin ess with them . I 

agree with you the re is more to be surp rised about in the great volum e 

of honesty and integrity and good service t hat exists ra th er t ha n to be 

ala rmed abou t the very small number of t hing s th at do happen when 

huma n beings are inv olved but which ha ve no thing to do wi th int ent or 

aims or policies. I wa nt you to know th at in nowise does th is article 

inveigh a gains t th e h igh opinion I h ave o f yo u and the Service. I have 

been concerned, tho ugh, about the way in which it was written, and 

since I have had some experience in w ritin g my self, and because of my 

trai ning , I think I know a lit tle bit abo ut the ar t of innuen do and 

prop aganda. I am more impressed by the ar tist ry th at wen t into thi s 

art icl e tha n I am with the facts . I can see where it could very un justl y 

cause a g reat deal of unfa ir tr ouble b oth in the fun ctions of your impo rtan t agency and the w ay the people themselves react.

To me the ov ershad owing cloud he re is tha t motives have been under 

att ack, eit her by dire ct c har ge or innuendo. To use th e wor d “t yr an ny ” 

is a ve ry serio us thing . T would have to say that this, by any s tand ard, 

is a very severe and I might say deliberate e ffort, at least by innuendo, 

to create an infe rence th at facts do not justi fy. A nd since your motives 

hav e been thus p ut u nd er attack, I think the integr ity of the publication its elf a nd o f those who prepared t he article might be looked into 

by the same sta nd ard.

Since this m agazine is a busin ess c orp oration and I presum e at some 

sta ge has to live up to its tax resp ons ibilities, and since the au thor 

of t he art icl e is pa id and has his tax responsibilitie s, is there any in ­

form ati on you could give us th at wou ld b ear on the reason why such an 

art icl e has been wr itten —whet her i t is ju st a leg itimate eff ort to brin g 

fac ts to th e attentio n of the pub lic, or wh eth er there m igh t be gro unds 

to ouestion th ei r motives?

Mr. Coh en. As the cha irm an knows, the Revenue Code forbid s us 

to discuss the tax affairs of any ind ividual or corpo ration , and therefor e wh ate ver knowledge we mi gh t have of the tax affairs of these 

people is not releva nt, in my opinion . I won 't say there is or I won't 

say there isn 't a motive, but the sexy stories sell magazines or n ewspap ers. If you wr ite som ething nice about the In tern al Revenue
INTERNAL REVENUE SERVICE 63

Service you can’t advertise it by sending press releases, which obviously were sent to every radio and television station as well as to 

Members of Congress and to newspapers, because reporters have 

shown them to me. We were surprised at the peppering of selfadulation tha t occurred here, but tha t is the publication’s right.

The Government should be open to criticism, hopefully to constructive criticism. Our job is to be sensitive enough to recognize tha t which 

is valid and tha t which is not. I hope our employees are sensitive to 

the fact tha t the American taxpayer has done a magnificent job and 

deserves a fair shake, and from my point of view I have been proud 

to be the Commissioner of the Internal Revenue Service lie cause our 

agents have been sensitive, when they find a mistake has been made, 

in finding a way to correct it if at all possible. They are sensitive to the 

problems of the taxpayer and if they make a mistake they do the best 

they can to correct it.

Mr. Steed. Perhaps I can get you to agree with me on this general 

academic statement. When someone institutes an action, in this case 

a magazine article, which raises a question about the motives of someone, is it not fair tha t in return people who read the article might 

have a question about the motive of the person who writes it in the 

first place?

Mr. Cohen. I don’t know that I had better answer that, Mr. Chairman. I have never met Mr. Barron.

Mr. Steed. Does it not generate a reaction of that sort ?

Mr. Cohen. Some people might think that but I prefer not to question their motives. I think the motive is to sell magazines.

Mr. Steed. But when it impinges on a function of Government I 

think it concerns us.

Mr. Cohen. I th ink the people in the press have a duty to the public 

to take into account what effect it might have. When you are dealing 

with the confidence the American people have in their tax system, one 

ought to be very careful that one make just criticism. This is the only 

thing I can criticize in this respect. I th ink the criticism is overdrawn.

Mr. Steed. In the case of the Senate committee where a relentless 

effort was made to get at the facts about charges against the Internal 

Revenue Service, Senator Long and others, as the facts unfolded, 

were not hesitant to pay compliments to the Service.

Mr. Cohen. They do compliment us and they criticize where they 

question our actions, which is their right.

Mr. Steed. Any questions, Mr. Passman ?

Mr. P assman. I am afraid mv defense is better than yours. I either 

represent the best people or you have the best agents in my congressional district or both. This is more than criticism: “Today, evidence 

from all over the country discloses that the IRS has bullied, degraded 

and crushed innocent citizens in the name of collecting taxes.”

That is not criticism, that is a very derogatory charge, and I admire 

you very much for taking this and not going further than you have 

in defense of your agency. This is a rather serious indictment so far 

as I am personally concerned. As a matter of fact, were it not for the 

reputation of the Reader’s Digest and this author, one might think 

they had an ax to grind stemming from their own tax difficulties. I 

have nothing to gain and certainly nothing to lose, and if the oppor-
64 INTERNAL REVENUE SERVICE

tunity presents itself I will have excerpts made from this hearing, 

but I have nothing but praise for the way you operate.

Mr. Cohen. Thank you.

Mr. Steed. One other point before we conclude. In the area of an 

individual taxpayer’s resentment or displeasure with your actions, 

there inevitably comes this situation where an individual, for reasons 

best known to himself, brings to you a complaint that someone else 

is not playing fair with the Government. They make charges and 

even may provide you with some material evidence that somebody 

is trying to beat his taxes. Now, when you get such information— 

and knowing the American people as I do I am sure you do get some— 

would you be derelict in your duty if you ignored it ?

Mr. Cohen. It is absolutely necessary tha t any law-enforcement 

agency that receives information about a violation of the law investigate it. We are sensitive, of course, to the fact that all information one 

receives is not accurate, and therefore we have skilled people review’ 

any material that we might receive in such a way to determine whether 

or not there is any reasonable basis for such an accusation. If there is 

a reasonable basis for such an accusation after a preliminary investigation that does not involve going outside, hopefully, the secrecy problem, then we have to investigate it.

Mr. Steed. Because this in individual instances can be a source of 

irritatio n to some of the victims.

Mr. Coiien. I suspect that is true. If you happen to be the fellow’ 

investigated because you apparently have made an error or committed 

a violation of one sort or another, you get irritated if somebody comes 

after you, to say the least.

Mr. Steed. Mr. Commissioner, there is another thing that I would 

like to have you make whatever comment you feel tha t you can on. 

This is this matter of campaign contributions, testimonial dinners, this 

sort of thing. Tha t poses some problems. W hat is the current attitude 

of the IRS in regard to this sort of thing ?

Mr. Cohen. There are published revenue rulings which indicate that 

campaign contributions received as such will not lie included in the income of the recipient, but should there be any diversion of those campaign contributions from strict political purposes to personal purposes, 

then income will result.

There are tw o circuit court cases, O'*Dreyer and Jett. We can get you 

the citations fo r the two cases which sustain that position. I think it is 

fair to say th at our presumption is th at any gift given to a political 

figure as a political figure is presumed to be for political purposes unless it can be shown clearly otherwise.

(The citations referred to follow:)

O'D wyer v. Comm ission er; 28 T.C. 698 (1957) aff'd 266 Fed (2d) 575 (C.A. 

1959) cer t. den. 361 U.S. 862.

U.S. v. Les lie E. J ett ; 352 F. 2d 179 (CA 6,1965) affirming an u nreported d ist ric t 

co ur t opinion.

Mr. Steed. Would tha t include the receipts from a testimonial 

dinner?

Mr. Cohen. I do not w’ant to get into a discussion of th at particular 

problem since there is a particular case involved. I do not want to prejudge anything.
INTERNAL REVENUE SERVICE 65

Mr. Steed. Commissioner, on behalf of the committee I want to 

express our real and deep appreciation to you and your colleagues for 

coming here today and providing us this information.

We appreciate the candid and complete way you have responded 

to the questions and the information tha t you have made available. 

We hope that out of this will come some clarification of the facts m 

the minds of the people who are interested, both in and out of the 

Government.

The probable bad result from such an attack made on the Service 

has been minimized, we hope. We think th at you are doing a good job 

and will continue to do so and assure you th at this committee will continue to cooperate with you.

Mr. Cohen. Thank you very much, sir.

Mr. Steed. The committee stands recessed.

o
r> 17 TH J A Z ’-U TZ?

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