HEARINGS

BEFORE A

SUBCOMMITTEE OF THE
COMMITTEE ON APPROPRIATIONS
HOUSE OF REPRESENTATIVES

NINETIETH CONGRESS

FIRST SESSION

SUBCOMMITTEE ON DEPARTMENTS OF TREASURY AND POST OFFICE AND
EXECUTIVE OFFICE APPROPRIATIONS
TOM STEED, Oklahoma, Chairman

COMMITTEE ON APPROPRIATIONS

GEORGE H. MAHON, Texas, Chairman

KENNETH SPRANKLE, Clerk and Staff Director PAUL M. WILSON, Assistant Clerk and Staff Director

INTERNAL REVENUE SERVICE

CHARGES OF ABUSES BY INTERNAL REVENUE SERVICE

AGENTS

THURSDAY, AUGUST 10, 1967

WITNESSES

SHELDON S. COHEN, COMMISSIONER

WILLIAM H. SMITH, DEPUTY COMMISSIONER

DONALD W. BACON, ASSISTANT COMMISSIONER (COMPLIANCE) JOSEPH ROSAPEPE, DIRECTOR, PUBLIC INFORMATION DIVISION JAMES MILLER, LEGAL ADVISER TO COMMISSIONER

NORMAN SIMS, DEPUTY DIRECTOR, OFFICE OF BUDGET AND FINANCE, OFFICE OF THE SECRETARY

Mr. STEED. The committee will be in order.

The committee is convening this morning to discuss some problems with the Commissioner of Internal Revenue and his staff. As you know, Mr. Commissioner, the current issue of the national magazine Reader's Digest carried an article written by Mr. John Barron entitled "Tyranny in the Internal Revenue Service" in which a considerable number of case histories are reported which could give the average reader the impression that the great tax collecting agency which you head is going beyond its authorities and good judgment in carrying out its work.

As you know, it has been the policy of this subcommittee not only to go into great detail in the budgets that we supervise, but from time to time to sit in conference with those agencies to keep up with current activities, problems, and changes in programs. So we are very concerned about this article, its authenticity, and what needs to be put on the record to place all the facts in proper focus. We are not here to prosecute or defend. We are, as you know, interested only in the factual situation.

We know, of course, that collecting taxes is not one of the most popular and pleasant functions of Government, but it is probably one of the most important and necessary. I recall that in all of your appearances before this committee you have in the record discussed in great detail your appreciation of the fact that the American people have always taxed themselves under our code in a way that no people in all history have done, and that the overwhelming majority of people have been honest and forthright in their dealings with their Government. You have also stated that you think it is of the utmost importance for this public confidence to be maintained at all costs. I have always agreed with that.

We realize there are always those who want to cheat and evade, and applying the law to that type of people is not the most pleasant task. We know that in an organization involving as many human beings as yours does, it is possible that now and then some agent can exceed his authority or engage in activities that good judgment would not uphold. We are not inclined to get too excited at some mishap on occasion, but when the charge is made that this is widespread and by inference, at least, has the acquiescence of management, I think that poses a question that is very serious. I am sure you feel the same way. Our associations with you and your people have been to the contrary of those charges. I know you have introduced some innovations in the agency since you have been the head of it that make it more palatable to the taxpayer to do business with the agency. I recall earlier this year you made available some articles from a New York newspaper in which they had interviewed people who had been called to face your revenue agents on their tax returns, and almost without exception they were high in their praise of the treatment they received at the hands of the Internal Revenue Service. I thought the efforts you have made to improve the relations between the agents of the Internal Revenue Service and the taxpayers were bearing fruit, and that is why it was disturbing to me to see this article.

First, you have read this article, have you not?

Mr. COHEN. Yes, I have; with great distress, I might add.

Mr. STEED. I think first we would like to have any general statement you might want to make in response to this, and then we will have questions we would like to propound and go on with the review of the whole problem.

Mr. COHEN. Thank you, Mr. Chairman. I do appreciate the opportunity to meet with you and discuss in this way the very disturbing article. It is disturbing to me because, as you well pointed out, the efforts, not only during my administration but for a good long time in the Internal Revenue Service, have been in trying to modernize procedures to make them more humane and accessible to people and to eliminate all possible disputes. To that end we have made great progress, which I think has been recognized in many places independent of the administration or the particular agency involved.

So a broad accusation of a breakdown in the system I believe is uncalled for. In an agency with 60,000 people making independent judgments we do not claim infallibility. There are occasions when errors are made. But I think there are enough checks and balances in the system that each time a judgment is made there are checks made of it so that no one judgment goes off on a tangent very far before it is brought back. This is the majesty of the system.

I would like to run through a quick overview of the system, the things we have done and why we think general charges are uncalled for, and then handle a few specific instances that were brought up. Then I will be glad to answer any questions you might have.

I think, if the chairman does not mind, the way to start off is to read a letter I received yesterday afternoon. My secretary brought it to me at 5 o'clock yesterday. It is a carbon copy of a letter sent to a Congressman. It is from a taxpayer I never heard of and our people

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:)

Hon. CHARLES W. WHALEN, Jr.,
Congressman, Third District, Ohio,
Washington, D.C.

HUGHES WHITE TRUCK SALES Co.,

Dayton, Ohio, August 7, 1967.

DEAR CHUCK: Have you read the article by John Barron in the August issue of Reader's Digest, entitled "Tyranny in the Internal 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. Barron's report of certain instances is basically factual, I feel he is completely unjustified in trying to infer that these are representative of the general policy or practice of the Internal Revenue Service.

In his peroration, Mr. Barron writes: "Let your Congressman know what you think of IRS abuses." Herewith I am following his suggestion, except for omission of his last word "abuses." As head of two small corporations, The Hughes White Truck Sales Co. and The Hughes Investment Co., I have had many contacts with IRS regarding Income Tax, Withholding Tax, Highway Use Tax, etc., and without exception its representatives have been well trained and fair minded. These contacts, over a period of nearly forty-seven years, have made me a sincere admirer of IRS and its personnel.

Finally, Mr. Barron writes: "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 unfair tactics that we need be afraid of it. If the law now has objectionable features, it is the function of Congress to correct them. As an average "honest American taxpayer" (Mr. Barron's words), I have every confidence that 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. He 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 sometimes he has come out on top and sometimes at the bottom, but never was he treated unfairly.

years

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 that 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 by 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 Serv