Most of the information requested in the May 21 letter was provided. One of the requests was for ". a summary of the kinds of information contained in those files." It may perhaps be said that respondents provided the requested "summary." However, the descriptions of the files were so sketchy that no reader of the response could gain an impression of the true nature of them. As mentioned above, the information finally submitted to the subcommittee was in response to a followup inquiry, and further requests for information have been made. III. Comments A. Statutory Authority 26 U.S.C. 7601 generally authorizes the Secretary of the Treasury to take actions necessary to ascertain information concerning persons who may be liable to pay internal revenue tax. 26 U.S.C. 7602 authorizes the examination of books, papers, records, and other data relating to inquiry into internal revenue tax liability. Thus, there is statutory authority for programs that aid in the discovery of tax liability and enforcement of Title 26. The categorization of the Special Service data bank must depend upon the extent to which political extremism implies a probability of tax evasion. If the IRS is justified in its conclusion that extremists are tax evaders, then implied statutory authority is perhaps available. However, if there is little or no correlation between political extremism and tax evasion, there is no statutory authority whatsoever for this data bank. B. Subject Notification and Review The matter of subject notification and access to files by subject individuals was not treated in the response. Information as to the manner in which files are updated was also omitted. C. Access by Other Agencies "The Special Service Staff does not disseminate information from its files to any other agency or organization. . . ." This does not preclude, however, other agencies that desire, and are authorized to obtain, information relative to certain tax returns or field investigations from making proper requests through official channels, observing all the disclosure laws, regulations and procedures. No specific laws, regulations, or procedures were cited. D. Public Access The response states that information in the files ". cannot be made public." E. Security Precautions "[F]iles are stored in a walk-in vault and only authorized personnel, on a need-to-know basis, have access to information contained in the files." The response refers to Section 7213 of the Internal Revenue Code which prohibits the unauthorized disclosure of information; the criminal statute enhances file security. F. Sources of Information According to the response, information is derived from public hearings held by Congressional committees, the FBI, from IRS reports of tax filing and payment history, and from newspaper and magazine clippings. IV. Evaluation It is fair to say that data banks on the order of this one provided the original motivation for the subcommittee's inquiry into data banks, privacy, and constitutional rights. Even though the original motivation for the implementation of the Special Service Staff may have been perfectly legitimate, the practice of singling out individuals for special tax scrutiny because of their "rightist" or "leftist" leanings operates as an overt form of political persecution. As suggested in III-A. above, it seems highly unlikely that the intention of the Congress in authorizing programs for the enforcement of the Internal Revenue laws was to provide for the gathering of information on those deemed to be ". extremist on the right or ." Statutory authority for this data bank must be said to be weak at best. Agency Response On May 21, 1973 the subcommittee requested information concerning the IRS Special Service Staff Files. The Internal Revenue Service responded on June 28, 1973. Both letters are printed below. Mr. SAMUEL R. PIERCE, Jr., U.S. SENATE, COMMITTEE ON THE JUDICIARY, SUBCOMMITTEE ON CONSTITUTIONAL RIGHTS, The General Counsel of the Treasury, Department of the Treasury, Washington, D.C. Washington, D.C., May 21, 1973. DEAR MR. PIERCE: I have your May 8, 1973, response to my letter of October 15, 1971, directed to former Secretary Connally. My staff and I have not yet completed studying your very voluminous response on behalf of the Department of the Treasury. However, a matter has come to my attention which I felt warrants further inquiry at this time. I have been informed that within the Internal Revenue Service there is a "Special Services Staff" which collects, analyzes and disseminates information on non-violent individuals and groups promoting what the Internal Revenue Service considers to be extremists' views or philosophies. I would appreciate your providing me with an account of the duties of this Special Services Staff, the number (by employment status) of its employees, and any statutory or regulatory authority for such activities. Please include any Special Services Staff manuals which may exist and, if possible, all memoranda_regarding the establishment of this group, which I understand occurred in 1969. In addition, please furnish me with the number of individuals and the number of groups on which the Special Services Staff keeps files, together with a summary of the kinds of information contained in those files. I would also like to see the list of agencies and organizations to whom information from the Special Services Staff files is available. If there are any measures or guidelines regarding file security or confidentiality of information, please include these also. I trust that this request will receive a prompt response, either from you or from the Special Services Staff itself. With kindest wishes, Sincerely yours, SAM J. ERVIN, Jr., Chairman. Hon. SAM J. ERVIN, Jr., DEPARTMENT OF THE TREASURY, COMMISSIONER, INTERNAL REVENUE SERVICE, Chairman, Subcommittee on Constitutional Rights, Committee on the Judiciary, DEAR MR. CHAIRMAN: Your letter of May 21, 1973, concerning the Internal Revenue Service's "Special Service Staff" has been referred to me by the General Counsel of the Department of the Treasury. The Special Service Staff was established as a result of information developed during hearings held in August 1969 by the Senate Committee on Government Operations. Those hearings indicated that various organizations, described as extremist on the right or left, were not in compliance with Federal tax laws. There were further indications that, although these organizations were receiving financial support from various sources, some of the leaders were filing tax returns reflecting little or no income, or did not file at all, while obviously expending substantial amounts of money. A special group representing Audit, Intelligence, Collection, and Alcohol, Tobacco & Firearms was established under the Assistant Commissioner (Compliance) to accumulate information on such groups to ensure that they and their leaders were complying with the Federal tax laws. After a period of experience, we found that the majority of the cases which required further action involved indications or evidence of failure to file Federal tax returns. Accordingly, we determined, in early 1972, that the group should be formally established as a staff component of the Collection Division under the Assistant Commissioner, Accounts, Collection, and Taxpayer Service (ACTS). At the same time, the interest of the Staff was more clearly focused upon groups and individuals, actively urging noncompliance with the tax laws. Since that time, there has been a noticeable growth in the number of individuals and organizations identified with announced programs dedicated to resisting the Federal tax laws. As a consequence, the Staff became especially alert to indications of noncompliance among those who advocate, or who have aligned themselves with those who advocate, the impairment or destruction of our Federal tax system by illegal means. As the Staff receives data from within and outside the Service about organizations and individuals advocating noncompliance with the tax laws, it causes a check to be made to see whether or not the individual or organization has filed appropriate tax returns and paid any taxes found to be due. As warranted, social security checks are also made for possible unreported sources of wages and earnings. If the review and evaluation so warrant, pertinent financial and tax filing history data is transmitted to the District Field Audit or Collections Divisions. In addition, information and trends concerning tax strike and tax resistance movements are forwarded to Districts Offices which may be affected. As another major part of the activities of the Special Service Staff, files are reviewed and information furnished to appropriate components of IRS about organizations and their principals that have requested exemption from Federal taxation. This procedure helps to guard against the issuance of rulings which may be erroneous because all the available information relating to a particular situation might not be readily accessible to the branch of the Service responsible for issuing the ruling. The Special Service Staff currently has files covering approximately 3,000 organizations and 8,000 individuals. The source data contained in the Staff files consists of excerpts from public hearings held by three Congressional Committees, the Senate Permanent Subcommittee on Investigations of the Committee on Government Operations, Senate Subcommittee to Investigate the Administration of the Internal Security Act and other Internal Security Laws of the Committee on the Judiciary, and the House Committee on Internal Security. The files also contain reports from the Federal Bureau of Investigation. These excerpts and reports describe individuals, organizations and activities of concern to the Staff. The files also contain reports showing the tax return filing and payment history of the subject and newspaper and magazine clippings containing materials relevant to the Staff's areas of responsibility. All Special Service Staff files are stored in a walk-in vault and only authorized personnel, on a need-to-know basis, have access to information contained in the files. Section 7213 of the Internal Revenue Code prohibits the unauthorized disclosure of information obtained from tax returns; therefore, this type of information cannot be made public. The Special Service Staff does not disseminate information from its files to any other agency or organization. The information contained in the files is used solely within the Internal Revenue Service to obtain better compliance with applicable provisions of the Internal Revenue Code. This does not preclude, however, other agencies that desire, and are authorized to obtain, information relative to certain tax returns or field investigations from making proper requests through official channels, observing all the disclosure laws, regulations and procedures. consolidating data and making appropriate dissemination of information relevant to tax enforcement. In carrying out this basic responsibility the following functions are performed: 1 The Staff accumulates information which involves indications that these organizations (and their principals) may ignore or willfully violate Federal tax statutes. It also gathers, through various sources of information, financial data relative to the funding of certain activities and by analyzing the available data recommends field actions needed to review the tax filing and paying requirements of organizations and individuals involved in such activities. 2 To serve as a focal point for information relating to these organizations and individuals, the Staff has established liaison with Federal investigative and law enforcement agencies and with Senate and House Investigating Committees which are involved in investigations of these organizations and related individuals. The Staff also secures information from other reliable outside sources, as well as from components within the Internal Revenue Service. 3 Information received is reviewed for indications of noncompliance such as unreported income, erroneous exemptions or deductions, contributions to unqualified organizations, the channeling of funds by exempt organizations to nonexempt organizations, operations outside its charter by a tax exempt organization, and the failure to file and/or pay income, gift, and employment taxes. Where possible, file searches are initiated to determine if returns are filed and taxes paid. In appropriate cases, checks are made with Social Security for possible unreported sources of wages and earnings. SECTION 3.-NATIONAL OFFICE OPERATING PROCEDURES .01 If the review and evaluation of information so warrants, pertinent financial, tax or other data is transmitted to the appropriate District Audit, Collection and Taxpayer Service, or Intelligence Division. In the National Office appropriate dissemination as needed is made to Technical, Intelligence, Disclosure Staff (Compliance), Protective Program Branch of Facilities Management, and Inspection Service. A liaison officer, appointed by the Director, Intelligence Division, will work with the Staff in screening all items having criminal potential prior to dissemination to the field. .02 Decisions to refer data to the field are made taking into consideration maximum usage of information with a minimum usage of field resources. Most referrals will generally fall within the Audit and Collection areas. Intelligence may receive items directly from the Staff or through the established Audit or Collection referral procedures. .03 Since much of the information is classified, it cannot be reproduced or transmitted in the form received, and, of necessity, must be excerpted and capsulized. These referrals may relate to specific individuals, organizations, or group of individuals. In most cases, although a suggested approach may be included in the transmittal, the field office must evaluate the information transmitted and decide what investigative techniques should be used. .04 The Staff prepares and forwards to district offices, attention Collection unction, résumés of information consolidated on individuals and organizations where determinations have been made that federal tax filing and paying requirements under the jurisdiction of the Collection Division have not been met. Such transmittals will be made over the signature of the Assistant Commissioner (ACTS) and forwarded by memorandum over the signature of the Director, Collection Division, to the appropriate District Director and a courtesy copy to the Assistant Regional Commissioner (ACTS). .05 The Staff prepares and forwards to district offices, attention Audit function, résumés of information on individuals and organizations, together with recommendations that field examinations be conducted when Special Service Staff file analysis indicates a material difference exists between the tax listed on a filed return and the correct liability. Such data may also be that relating to contributions made to tax exempt organizations where possible tax evasion schemes may be employed by donors and donees funneling such contributions to nonexempt organizations. Audit transmittals will be made over the signature of the Assistant Commissioner (Compliance) and forwarded by memorandum over the signature of the Director, Audit Division, to the appropriate District Director and a courtesy copy to the Assistant Regional Commissioner (Audit). 20-550-74-pt. 5-18 ATTACHMENT A EXCERPT FROM INTERNAL REVENUE MANUAL, DATED APRIL 14, 1972 As a staff activity, assists the Director, Collection Division in conducting the overall mission of the Collection Division by serving as a central information gathering facility consolidating data and making appropriate dissemination of information relevant to tax enforcement. In carrying out this basic responsibility the following functions are performed: Accumulates information which involves indications that organizations (and their principals) may ignore or willfully violate tax or firearms statutes. Determines, through various sources of information, financial data relative to the funding of certain activities and by analyzing the available data recommends field actions needed to review the tax filing and paying requirements of organizations and individuals involved in such activities. Prepares and forwards to district offices, attention Collection function, résumés of information consolidated on individuals and organizations where determinations have been made that federal tax filing and paying requirements under the jurisdiction of the Collection Division has not been met. Refers to Director, Audit Division, résumés of information on individuals and organizations, together with recommendations that field examinations be conducted, when Special Service Staff file analysis indicates a material difference exists between the tax listed on a field return and the correct liability. Accumulates and analyzes data relating to contributions made to tax exempt organizations where possible tax evasion schemes may be employed by donors and donees funneling such contributions to non-exempt organizations. Initiates appropriate field actions on such matters when appropriate. Monitors and coordinates field assignments initiated by the Special Service Staff and evaluates the effectiveness of compliance actions taken. Initiates follow-up actions when necessary. Maintains liaison with Assistant Commissioner (Technical) reviewing files and providing supplemental information to Exempt Organizations Branch, Technical, on various organizations which have exempt status actions under consideration. Conducts day-to-day liaison with other Internal Revenue Service components forwarding and receiving information pertinent to tax and firearms statutes enforcement actions, or any other information associated with tax administration. Maintains day-to-day liaison with other federal investigative and law enforcement agencies and Congressional investigative committees. * * * * ATTACHMENT B MANUAL SUPPLEMENT.-DEPARTMENT OF THE TREASURY, INTERNAL REVENUE SERVICE SPECIAL SERVICE STAFF ACTIVITIES SECTION 1.-PURPOSE April 12, 1973 Purpose of this Manual Supplement is to acquaint you with the Special Service Staff operation and mission and to assure that field offices give sufficient attention to information furnished them by the Staff. SECTION 2.-BACKGROUND AND SCOPE .01 The Special Service Staff is organized under the Assistant Commissioner (ACTS) and its functional statement appears in IRM 1113.654. .02 The Staff serves as the focal point for information relating to organizations (or related individuals) involved in tax strike, tax resister, tax protester activities, |