The Internal Revenue Service is vastly expanding its intelligence and undercover activities and has created a special intelligence unit with unprecedented powers and a giant computer network, according to the National Law Journal.
In addition, it is stepping up not only "sting" operations but also the use of undercover agents posing as businessmen and the use of informants wired with hidden microphones, the Journal said.
Their mission: to hunt evidence in cases of tax fraud and evasion, the publication said.
The new unit will focus on tax abuses suspected of being nationwide in scope or importance, such as interstate fraudulent tax shelter schemes, narcotics operations, tax protesters and significant white-collar crime, according to an internal IRS memo obtained by the Journal describing the unit's structure and purpose. The objective is to collect part of the estimated $32 billion in taxes that annually goes uncollected because of inadequate enforcement, the Journal said.
The article, to appear in the Monday edition of the independent weekly newspaper, said creation of the unit is troubling some civil liberties groups, which believe there should be public congressional hearings before the IRS proceeds.
It quoted John Shattuck, national legislative director of the American Civil Liberties Union, as saying, "To the extent that the IRS is pressing into undercover operations and compiling enormous amounts of data not supplied by taxpayers directly it is a threat to individual rights."
IRS offices were closed yesterday and officials could not be reached for comment.
The Journal said the new IRS unit's activities will include:
* An "integrated intelligence network," capable of being computerized, that would sop up information from all the IRS district offices and also from such sources as Interpol, the Securities and Exchange Commission, the FBI, Drug Enforcement Administration and other federal agencies, state agencies, and possibly banks and businesses, reports on foreign bank accounts, informant reports and even newspaper articles suggesting actual or potential fraud and tax evasion.
According to the memo obtained by the Journal, information-gathering about a targeted organization would focus on determining its size and nature, its potential for tax violations and its principal members.
The article said the new national network is being created because the IRS lacks a clearinghouse approach to large-scale tax evasion schemes and has often attacked such schemes only on a district-by-district basis.
By expanding information sources and bringing all the information into one place, the article said, the IRS believes it can obtain a better picture of the full scope of a widespread fraud or evasion scheme and mount a full-scale legal assault on the real principals; the Journal quoted one source as saying the IRS has "sometimes unwittingly" prosecuted "organizational underlings who would better serve as witnesses in the prosecution of the organizational head."
* More use of undercover agents, in some cases pretending to be businessmen or posing as buyers of restaurants or shelter investors; this would help the IRS get a better picture of ongoing business and tax shelters.
* Broader and more sophisticated "sting" operations, "set up with false documentation and financed with laundered government money in an attempt to infiltrate and penetrate businesses in which large amounts of cash are exchanged . . . . One IRS region alone recently received more than five videotape setups for use in such operations, and investigative sources have said there are more than a score of such elaborate operations in progress around the United States."
* Broader use of search warrants, subpoenas and the powers of grand juries to obtain information, as well as more use of informants carrying hidden microphones.
"We're not going after mom and pop operations anymore," according to one Journal source.
Another, from the western IRS region, was quoted as saying the use of undercover insiders was being escalated and made more sophisticated. In the past, agents would attend flea markets, garage sales and other minuscule operations to see how much money was being passed, the source said. "Now we're putting agents in banks and businesses instead," the Journal quoted him as saying.
The Journal said these new efforts will focus especially on abusive tax shelters. It said IRS Commissioner Roscoe L. Egger Jr. recently indicated that 300,000 returns in which taxpayers obtained deductions as a result of participation in shelters are being examined, and that the agency's criminal investigation division already has recommended prosecution of 81 promoters or brokers of shelter schemes.