MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
Identification and Personal Background
My name is Robert Edwin Davis. I am an attorney, and I have practiced
law in Dallas, Texas for almost 40 years. During most of those years, the
greatest part of my practice has been devoted to representing taxpayers
in civil and criminal tax litigation and controversies with the Internal
Revenue Service (IRS) and the Department of Justice. During the years 1982
and 1983, however, I served as Deputy Assistant Attorney General in the
Tax Division of the Department of Justice in Washington, D.C. I was then
responsible for overseeing the functions of the Criminal Section and Review
Section (large civil case settlements) of the Tax Division. I think it
would be fair to say that there are few attorneys in the United States
who have handled more civil and criminal tax cases on behalf of taxpayers
than I have since 1960.
Description of Issues to be Discussed
Tax collecting has always been an unpopular calling. From biblical
times to the present, there have been few -- or no -- warmly regarded tax
collectors. Most of the employees in the IRS are sincere and honorable
people, going about their thankless work of administering the rules and
policies adopted by Congress, the Treasury Department and senior IRS officials.
However, my personal experience is that all is not well with our tax system,
and I believe that (1) the IRS has, to a significant extent, strayed from
its proper path; (2) there is excessive use and misuse of intrusive and
even oppressive investigative techniques within the Criminal Investigation
Division (IRS CID); and (3) there are sometimes serious integrity issues
within the agency, but that the IRS Inspection Service (IRS-Inspection)
is simply not up to the task of investigating and correcting IRS agent
misconduct when it does occur. I would like to present my views on these
subjects to the Committee over the next several minutes, and in a supplemental
Excessive Use and Misuse of Intrusive Investigative Techniques
by the IRS CID
Fifteen years ago, when I was the Criminal Deputy in the Tax Division,
criminal tax enforcement practices were almost totally different from those
which are encountered today.
- "Undercover" investigative techniques were almost entirely unknown in criminal tax matters;
- Search warrants were used in criminal tax cases only a dozen times in an entire calendar year;
- Grand jury investigations were rare exception, and administrative investigations were the rule.
Today that is dramatically changed, and the use of these much more intimidating
and intrusive techniques is commonly encountered. For example, search warrants
are executed in criminal tax investigations today some twenty times
as frequently as they were then.
It is not surprising that these changes have occurred. As the IRS
CID has been increasingly used in the suppression of drug and organized
criminal activity, its special agents have learned the investigative techniques
which are employed by the DEA, the FBI and local law enforcement to deal
with violent and dangerous criminals. These investigative strategies are
then "borrowed" and used by IRS CID in routine criminal tax investigations
of taxpayers who are neither dangerous nor violent. Many of us believe
that this is a very bad tax enforcement policy. Today, we see too many
"cowboy" agents, as they are called, who are undisciplined and
inadequately controlled, and who think that the end (putting away the "bad
guys") justifies the means (intrusive, intimidating and oppressive
investigations). Let me give you an example of the kind of abuses which
An Example: Executing A Search Warrant to Obtain An Appraisal of
One summer morning in June of 1994, approximately ten IRS special agents
appeared at a private residence at 7:30 a.m. They knocked on the door,
which roused the only resident of the home from her bath. This resident,
"Sally," was a 45-year old woman who was living in a home which
had formerly been owned by her grandmother. She put on a bath robe and
responded to the knock at the door. There were approximately ten IRS special
agents in her yard and on her porch, one of whom presented a warrant to
search her house. The agents then entered her house. She was told she could
either leave or stay, but if she left she would not be permitted to return
so long as they were at the house. She elected to remain, and she was confined
to one bedroom, where she remained in the presence of a female IRS agent.
The remaining agents searched her home for about eight hours, and then
left. The only property which they "seized" and took with them
when they left were some 86 old family photographs, many of them taken
at Christmas gatherings. Sally was very upset by this forceful intrusion
into her home. She missed an entire day of work, and had no idea why the
ten agents had entered her house and taken the family photographs.
Later, Sally discovered the real reason for the invasive search.
It was not to seize contraband, weapons, drugs or evidence of any crime.
Instead, the agents had brought with them a furniture appraiser who went
from room to room valuing the beds, sofas, chairs, tables and other personal
effects which had been left in the house by her grandmother at the time
of her death two and one-half years earlier. The Internal Revenue Service
agents believed that Sally's father, the executor, had undervalued the
furniture on her grandmother's estate tax return. Sally was not a suspect
or in any way involved in the estate tax issues, and her father did not
live in the house with her. The criminal investigation of Sally's father
was later abandoned by IRS CID.
The extravagant loss of agent time in preparing for and executing
this "raid" on the home of an admittedly innocent party who was
not a suspect at all was utterly needless. A simple telephone call to Sally
would have resulted in consent for the IRS appraiser to inspect and appraise
the furniture. Intimidating and intrusive "searches and seizures"
are wholly unnecessary to develop valuation cases involving household furnishings.
That was, in my opinion, one "search and seizure operation" which
should never have been authorized or executed.
Several years later, after I demanded their return, the IRS belatedly
gave back the 86 family photographs.
Intrusive Investigative Techniques Should Not Be Used in Routine
Criminal Tax Investigations.
I believe, as do many others, that kicking down doors, wearing body
armor, carrying automatic weapons and bursting into people's homes with
large raiding parties are techniques which should -- if used at all --
be reserved for investigations of dangerous and violent criminals. IRS
CID should do what it was created to do: pursue the enforcement of the
internal revenue laws, and it should leave violent and dangerous criminals
to the DEA, FBI and local law enforcement authorities. The exceptions to
this rule should be very limited.
I would also like to speak briefly on the subject of undercover operations.
Some of us also believe that the deceit and misrepresentation which are
inherent in undercover investigations and "sting" operations
have no proper place in routine criminal tax investigations. Successful
criminal tax prosecutions have long been made in this country without them.
The IRS does serious and needless damage to its image and relationship
with the public -- and government as a whole -- when it lies to and deceives
taxpayers in routine criminal tax investigations.
One Final Appeal: Simplify Our Tax Laws
There is a pervasive national frustration with our federal income tax
system, which is far too complex and unintelligible to be fairly and uniformly
administered by the IRS. Further, our tax laws cannot be understood or
complied with by the great majority of our taxpayers. Indeed, it is my
observation that even well-trained tax professionals frequently cannot
comprehend and work competently with the Internal Revenue Code. I would
respectfully urge that it is time for a major simplification, or some other
fundamental change in our income tax laws.
Statement before the
Senate Committee on Finance
By Robert Edwin Davis
of Dallas, Texas
April 28, 1998
MR. CHAIRMAN AND MEMBERS OF THE COMMITTEE:
I would like to submit for the consideration of the Committee and
its staff some additional information which it is hoped may be useful in
your deliberations regarding IRS integrity and conduct issues. In this
supplement to my oral statement, I will briefly describe some actual matters
which have been presented in my practice. They are described in a way which
deletes any reference to the names of either individual taxpayers or IRS
The IRS Inspection Service (IRS-Inspection) and the Office of
Inspector General of the Treasury (OIG-Treasury) Should Not Have Exclusive
Authority Over IRS Agent Misconduct Issues
My professional experience has taught me to be seriously skeptical
about the capacity and resolve of the IRS-Inspection to identify, investigate
and fairly evaluate claims made by taxpayers and their representatives
regarding IRS agent misconduct and abuse. I will acknowledge at the outset
that many taxpayer complaints about IRS agent misconduct are unfounded,
or at best, are only partly justified. I am personally satisfied, however,
that serious agent misconduct has occurred and does occur today. I am also
fully satisfied that IRS-Inspection is not the place to repose the exclusive
power and responsibility to investigate and resolve these issues.
It is my opinion that IRS-Inspection investigators are often too
close to the very personnel and offices which they are assigned to investigate.
Further, some IRS-Inspection investigators seem to feel that their own
agency suffers a "black eye" when agent misconduct is identified
or confirmed. As a result, they often cannot and do not view taxpayer reports
of agent misconduct with objectivity, and do not pursue them with appropriate
zeal. I believe that is especially true regarding allegations of misconduct
by IRS CID personnel.
Our national experience with police departments across the nation
confirms one conclusion: the public does not have confidence that police
investigators will objectively investigate allegations of misconduct by
their own fellow officers. That public skepticism is justified. Similarly,
"letting the IRS investigate its own" has not worked satisfactorily
in the past, and it should not be relied upon in the future. I would like
to provide the Committee with an example.
IRS-Inspection Punishes Taxpayer Complainant
Several years ago, I represented a taxpayer in a criminal tax case
whom I shall call "Joe Smith". Mr. Smith and two of his employees
provided me with affidavits asserting serious misconduct on the part of
two IRS special agents, including perjury. Because I was skeptical about
these claims, I asked these three witnesses whether they would agree to
submit to a polygraph examination. Thereafter, Mr. Smith and the two employees
individually passed separate polygraph examinations administered by a highly-skilled
polygraph operator. I was assured by the polygraph operator that, in his
professional opinion, my client and his two employees were telling the
truth. The client and I believed that this serious agent misconduct should
be presented to the IRS-Inspection. Because a criminal indictment of Mr.
Smith was then pending, we negotiated a direct and explicit agreement with
the IRS-Inspection: that it would consider the taxpayer's complaint, including
photographs, affidavits of Mr. Smith and his staff, as well as the results
of three polygraph examinations, but that none of these materials would
be disclosed either to the special agents or the Office of the United States
Attorney prosecuting the case until after the criminal case was concluded.
Not only did the IRS-Inspection accept that information, they also interviewed
Mr. Smith and asked for other information as well. All information the
IRS-Inspection requested was provided.
Notwithstanding the direct and explicit agreement that the materials
provided by Mr. Smith would remain confidential until after the trial,
investigators for the IRS-Inspection very promptly violated that agreement,
and delivered over all of these materials they had obtained from Mr. Smith
to the prosecutors and the special agents in order to aid them in prosecuting
Mr. Smith. Thus, the IRS-Inspection served as a conduit of information
harmful to the complainant in violation of its clear promise that it would
not do so.
That same special agent misconduct was a major issue in the criminal
trial of Mr. Smith. Fortunately, the jury correctly assessed the evidence,
and found the testimony of Mr. Smith and his two employees was truthful.
As a result, Mr. Smith and his co-defendant were found to be innocent of
the tax crimes charged after less than one hour of jury deliberation.
Both the jury and the polygraph operator believed Mr. Smith and his
two employees when they accused the two agents of perjury and other wrongful
conduct, yet it is evident that no thorough investigative effort was ever
pursued by IRS-Inspection, and apparently no corrective action was ever
taken with respect to the two agents. Furthermore, no disciplinary action
was taken to punish the IRS-Inspection investigators who promised that
the information given to IRS-Inspection would not be given to the special
agents and prosecutors until after the trial, and then consciously and
deliberately violated that promise. OIG-Treasury also later reviewed the
case and met with Mr. Smith. No corrective action was ever taken by OIG-Treasury.