An independent counsel has found no basis for prosecuting former assistant attorney general W. Lawrence Wallace, who was under investigation for failing to file two years of personal income-tax returns, according to sources familiar with the sealed report filed Thursday.
The independent counsel, Atlanta tax lawyer James Harper, said yesterday that Wallace, who was in charge of the Justice Department's management in 1985 and 1986, committed a "technical violation" of the law that makes it a misdemeanor to fail to file federal income tax returns.
However, Harper said, his investigation determined that Wallace filed the returns after being informed they were due and was owed a refund for those years. "No damage has been incurred by the government," Harper said. "In fact, his refund was delayed."
Harper said Wallace was initially investigated for failing to file tax returns for three years, but it was later determined that he had submitted a return for one of those years. Harper declined to specify which years were involved but said they were during Wallace's tenure at the Justice Department.
Wallace, 38, joined the Justice Department as a career attorney in 1979 and left in December 1986 to specialize in environmental law at the Washington office of Drinker, Biddle & Reath.
His lawyer, Fred Joseph, declined to comment on Harper's report. "At this point, I cannot go into specifics, but . . .I am hopeful that in the near future he will get to tell his side of everything that took place."
The investigation of Wallace was delayed for nearly five months when the original independent counsel, Carl Rauh, resigned after the Justice Department asserted that the counsels are special employes of the department and therefore covered by federal conflict of interest rules.
Sources said Rauh resigned last March 30 and that Harper did not take over the case until Aug. 17.
Joseph said the yearlong probe "has been an agonizing period of time for Wallace and his family." Wallace was given the unusual status of "interim" partner at his law firm pending the outcome of the probe.
Wallace became acting assistant attorney general for management in February 1985, shortly before Meese took office. Meese made the appointment permanent in August 1985. Wallace supervised the department's administrative services, the budget process, finances and computer systems.