The Internal Revenue Service is expanding dramatically its undercover operations and moving toward centralized intelligence gathering as part of a stepped-up campaign against drug trafficking and phony tax shelters.
But the new emphasis on covert activity, including use of paid informers, is fueling concerns on Capitol Hill about the growth of Abscam-like operations by federal agencies and possible threats to civil liberties. Others are criticizing what they see as misplaced priorities of the government's tax collectors.
During the mid-1970s, then-IRS Commissioner Donald Alexander halted nearly all undercover investigations amid damaging disclosures about political snooping by IRS agents in South Florida.
But now there are 50 to 60 undercover investigations under way, with the prospect for a "gradual increase," said Richard C. Wassenaar, the agency's new assistant commissioner for criminal investigations and an unabashed promoter of what he calls "aggressive law enforcement."
According to Wassenaar, agency studies show that nearly two-thirds of the cases investigated are recommended for criminal prosecution.
"It's a good tool," said Wassenaar, a 43-year-old career IRS investigator who came from the agency's San Francisco office last year. But, he said, "we're not just walking down the street using undercover techniques on every tax-paying citizen in the country . . . . "
What the IRS is doing, he said, is targeting suspected drug financiers, promoters of fraudulent tax shelters and foreign trusts, and organized crime figures, often in conjunction with other police enforcement agencies. The agency is also paying for information; it spent $171,922 on 1,234 informers in fiscal 1982.
In one successful case, IRS agents posed as potential clients of a Seattle-based tax analyst who was promoting fraudulent foreign trust accounts. In another, IRS agents posed as fish buyers in New York City's Fulton Fish Market as part of an investigation of charges that men were exacting payoffs from fishmongers who feared for their lives. The investigation by an Organized Crime Task Force headed by the U.S. attorney for the southern district of New York, has resulted in more than 40 convictions for racketeering, income tax evasion and other charges the past 18 months.
"Sometimes, with some of these slippery characters, the only way you can get them is to prove they didn't pay their income taxes," IRS spokesman Ernie Acosta said.
Under that philosophy, the IRS has just added 185 agents who will work with the Reagan administration's new regional task forces fighting drug trafficking and organized crime. But it is this kind of traditional police work that is disturbing some observers.
Former IRS commissioner for President Carter, Jerome Kurtz, contends that the agency's role should be to collect taxes, not go after "street pushers" and other "bad guys."
"I don't like this idea of saying that Mr. X is a bad guy and then trying to arrest him because he spit on the sidewalk," Kurtz said. "You can't run a tax system and spend all your resources on drug cases that have very little to do with taxes . . . . IRS criminal investigations should not be used at the direction" of the Drug Enforcement Administration.
In the case of narcotics traffickers, Wassenaar insists that IRS is not interested in going after the pushers but the behind-the-scenes financiers who are reaping millions of dollars in untaxed illegal profits. "There's a certain level that doesn't touch the hard stuff, the white powder," he said. "It's the money men."
Rep. Don Edwards (D-Calif.) said the new IRS efforts are of particular concern because of the FBI's controversial Abscam investigation, in which agents posed as representatives of a fictitious Arab sheik and offered bribes to members of Congress. Edwards said the new IRS effort may be the subject of hearings before his House Judiciary subcommittee on civil and constitutional rights.
"This raises the whole question of do you want this kind of police operation on a wholesale basis in American society," he said. "This is what our adversaries have--a secret police.
"If they the IRS are going to do it," he added, "they should be carefully supervised by the Congress and under the strictest of controls."
But Wassenaar said each operation starts with a detailed plan that is carefully reviewed and monitored by IRS regional chiefs and staff lawyers to avoid any possibility of entrapment. "You cannot operate outside of that approved plan," he said.
Wassenaar also plans to begin collecting information on complex cases in a Washington office that will soon be computerized. While the prospect of a central computer has conjured up Orwellian fears on Capitol Hill, Wassenaar said they are misplaced. It will only be used on a selective basis, he said, and "there will be no permanent storage."
The key point, he said, is that with tax cheating on the rise--annual estimates are that it will grow from $87 billion this year to $120 billion by 1985--the time has come for the IRS to get tough.
"All of law enforcement was in a passive mode during the 1970s," he said. "I think Watergate contributed to that . . . and because of that we saw an increase in non-compliance with the tax laws. So it's necessary for us to make a change."