Mr. ALEXANDER. I do want to state, sir, that we at Internal Revenue do not want to characterize Congress as spendthrifts or anything else. We love, respect, and admire Congress.

Mr. DANIELSON. Look, I have skin that thick [indicating]. You could not bother me at all. But I am always accused of being a spendthrift. So I just accept that. It is easier than arguing about it.

Thank you, sir.

Mr. ALEXANDER. One thing that you can reassure your constituents about is that we have an obligation to maintain the privacy of the material that we obtain.

Mr. DANIELSON. You do?

Mr. ALEXANDER. We intend to fulfill that obligation.

Mr. DANIELSON. You did. We noticed that in the impeachment hearings. We hope you keep it up.

Mr. ALEXANDER. We hope to do a better job. In this respect, we need a tighter law. Under the law as we find it, we hope we can do a better job, and we are trying to do it.

Mr. DANIELSON. Thank you.

Mr. KASTENMEIER. The gentleman from Massachusetts.

Mr. DRINAN. Thank you. It is nice to have you here, you and your associates.

In all candor, if a vote were taken right now on this subcommittee, as I read the tea leaves, your position would not prevail.

Let me tell you some of the reasons why, frankly, I could not vote for your position at this time. I do not know how often this occurs, this administrative summons. You say that a year from now you will be able to tell us exactly how many, but you admit that you do not know. On page 5 of your statement, you say that IRS puts these administrative summons out by the thousands each year.

In the next paragraph, you say there are several thousand but that they may-that is "may"-represent less than a fraction of 1 percent. Well, I do not know how many there are. Several thousand could be like 100,000 or it could be 4,000. You do not know and I am not pressing you on it, but you recognize the danger in these things.

I am certain that if the average American recognized that most banks, virtually all banks, allow IRS to come in and look at what IRS wants to look at, they would be really demanding that their banks say no to the IRS. You admit the problem, and you say now that higher approval will be necessary. I do not know how high they have to go, but I would assume, there is no evidence of it, that the number, which is several thousand, is going down. But you do not tell us that. So I have no facts to go on.

Right now I would have to say, we will let IRS live with this for a time. We will put through this law and let the consent of the individual depositor be required, or at least give notice to him. Maybe he would never consent. He would be reluctant: at least give him notice. It seems to me that is required just in basic fairness to the individual, and that every American thinks his bank account is protected and IRS is not going to look at it, at least not without my knowledge.

That is the question as I see it. I have some other questions, but did you want to react to those comments?

Mr. ALEXANDER. We do not know how many summons are issued. We have done our best to try to obtain figures for you. We do not have good figures. I do not want to give you bad figures. So we do not know. This concerns us.

We believe that the number is going down, and we are convinced that the requirements that we have discussed with you will further decrease it. Why? Because advance managerial approval is required. Human as we all are, the chances of an action being taken when two have to concur before the action can be taken are less than if one person makes the decision. We will have figures for you. We do not have them now.

I can understand your concern about our inability to supply you with the dimensions of this problem.

Mr. DRINAN. As a result, Commissioner, I find that you have not proven your main proposition on page 1, where you state that one provision of this bill "would severely restrict our current tax law enforcement activities and ultimately would seriously threaten the Service's ability to mount an equitable, professional compliance program."

I do not think you have proved that.

Mr. ALEXANDER. I can understand your views, Father Drinan.
Mr. DRINAN. All right.

Mr. ALEXANDER. We believe that the Chief Justice's statement is applicable.

Mr. DRINAN. That the which?

Mr. ALEXANDER. The Chief Justice's statement.

Mr. DRINAN. In the Bisceglia case?

Mr. ALEXANDER. Yes. in Bisceglia, however one may pronounce it. You have heard three different pronunciations from this side of the table, which shows that we do not march in lockstep.

Mr. DRINAN. There are also three different opinions. I tend to think that with Stewart and Douglas dissenting, also Blackmun and Powell concurring, I would think some points must be raised. But I have another difficulty: Right now banks, if they so decide, can simply say no to IRS.

Well, I find it difficult to reconcile this because the chap who is lucky enough to go to a bank that takes this position has all types of rights that his brother down the street might not have.

It seems to me that IRS is perpetuating something that is inequitable and, if you want to insist that this is essential to IRS, why do you not say that a bank must comply.

Mr. ALEXANDER. With giving notice?

Mr. DRINAN. No; must comply with IRS, without giving notice. In other words, you cannot have it both ways. You are saying that we do not want them to be precluded from our inspection, but you are not taking the hard line and saying that we want a law that will require the banks to let us look at a depositor's account without his knowledge or consent.

Mr. ALEXANDER. Whenever we ask, for whatever we ask, for whatever reason we ask, of course we do not want that right and we should not have that right. Certainly there should be limitations upon the right of this agency, as well as other agencies, to inquire. Certainly

we must inquire only in good faith and not for purposes of harassment. Certainly we should require that which is relevant and not that which is irrelevant.

Mr. DRINAN. I agree that it has to be reasonable and relevant. But I think the difficulty that all the members of the panel have had here is that this is done without the knowledge or consent of the individual depositor. That is the violation of privacy, it seems to me and to other members of the panel. You concede in essence that it is a violation of privacy and yet you say, well, this is necessary.

Well, if it is necessary, then the banks should be uniform and IRS should say, Mr. Banker, we want to make it a law that you must collaborate with us, without the knowledge or consent of the depositor. That would be a more logical and acceptable position than the present position saying we hope, banks, that you voluntarily collaborate with us. Because that brings up a very severe discrimination against the man who is unlucky enough to get a bank that likes to collaborate with the IRS.

Mr. ALEXANDER. We are concerned, Father Drinan, about this problem of different treatment of taxpayers depending upon whether the bank gives the taxpayer notice or whether it does not.

One of the problems that we have addressed this morning is the question of uniform treatment of taxpayers. Uniformity, of course, can be achieved in two directions: One by an absolute requirement and the other by the imposition of uniform and comprehensive and broadgage standards of reasonableness. We prefer the latter course. Mr. DRINAN. All right.

Thank you very much, Commissioner.

I yield back the balance of my time.
Mr. KASTENMEIER. Thank you.

I just have one or two questions left.

One of the difficulties in analyzing the problem is that there are, as I gather, a number of purposes and processes by which the Internal Revenue Service makes inquiries of the bank with reference to a depositor. I take it there is a class of case where the Internal Revenue Service is primarily interested for purposes of intelligence; then there is a case where the IRS is interested because it has reason to believe the taxpayer has made a mistake or has underpaid in the nature of a civil violation rather than criminal fraud.

The third case might well be where it is reasonable to believe that a criminal fraud has been committed or, fourth, you may want to proceed against the taxpayer to levy on his funds.

All these may involve somewhat different administrative or civil or criminal processes. We have to, I suppose, analyze each one separately in terms of what it means as far as privacy, what is a reasonable requirement, both for you to get your job done and to protect the privacy of the individual. So we are not talking just about one question, whether a warrant should issue, particularly if it is for a noncriminal purpose.

This will require some analysis on the part of the committee. What is further complicating is what the gentleman from Massachusetts suggests; there is not necessarily uniformity on the part of the third party-the bank, the financial institution-to comply. I do not know

whether there is any difference between, let's say, a California State Bank and a Federal Reserve Bank elsewhere in the country, in terms of the nature of the institution, or whether certain State laws would seem to abet a course of action with reference to cooperation on the part of the banks different from banks in other States.

Could you give me a general comment on the latter in terms of uniformity? Does the character of the financial institution determine in any wise its policy toward IRS in terms of compliance with IRS processor requests?

Mr. ALEXANDER. I will ask Mr. Wolfe to amplify this, with respect

to the character of the institution.

With respect to the geographic locality of the institution, we have found that in certain areas, particularly in the far West, banks were somewhat quicker to assert the right and somewhat slower to comply than other areas. To some extent it depends upon the group to which the banks belong, such as the California Banker Association, which tested the constitutionality of the 1970 act.

Mr. Wolfe, in your experience, do you know whether there is any variation other than those described?

Mr. WOLFE. Mr. Commissioner, I know of no other variations as to the type of financial organization, no.

Mr. KASTEN MEIER. I would also observe that as banks, for example in California, tend to emphasize different interests, perhaps on the part of their depositors, complaints, customers, and other banks, particularly through the American Banking Association, tend to be moving in the direction of uniformity, I take it you have sort of mixed directions at the present time. There are many bankers who would seek uniformity on the part of bankers with respect to cooperation or to responding to legal processes, in terms of IRS or any other appropriate Government agency.

I assume that there is a major body pressing in that direction, is there not?

Mr. ALEXANDER. I think so, if I fully understand your question, Mr. Chairman I should point out that in our collection process, where we know the identity of the taxpayer, where we know the taxpayer owes his tax and we know the taxpayer has not paid the tax and what we are seeking to do is to collect the tax by finding sources of funds and then by using our statutory power of levy with respect to those funds we do find considerably varying degrees of cooperation. Now Mr. Robert Terry, our Assistant Commissioner for Accounts, Collections, and Taxpayer Service, is here.

Do you have anything to say to amplify my statement, Mr. Terry? Mr. TERRY. I think that the relationship that might exist between the local bank managers and the revenue officers in some cases might make a difference in their willingness to honor the summons and to proceed with the disclosure of information, but I do not have anything beyond that.

Mr. KASTENMEIER. In terms of collection, I do not think the committee is interested particularly in that aspect for the reason that I assume the Internal Revenue Service is not that differently placed from others who, learning where assets are, attempt to garnishee, or through garnishment or other process to collect assets from an individ

ual. That does not seem to involve a breach of privacy unless through that process one gains intelligence and information concerning others. Sometimes banks, as you indicate, are concerned about that. So we would be interested really in the other three purposes.

I am wondering, as a matter of practice, do you distinguish between the intelligence and information-gathering, investigative process, as apart from the process used for purposes of where you have reason to believe a mistake has been made, even though the process may be civil in character; is there any distinction between the procedure that the IRS uses with respect to a taxpayer, a depositor, who has made a mistake or where he is being audited for criminal investigative purposes? Mr. ALEXANDER. Oh, yes, there is a distinction. And part of this distinction in the narrow sense of the inquiry that you are making, is reflected in the difference in treatment between the John Doe summons, where we do not know the identity of the taxpayer, and the ordinary administrative summons, where we do.

More basic, however, are the limitations that the Service is imposing upon its information-gathering activities. We have discussed these activities with Father Drinan and others on Chairman Rosenthal's committee, and we have recently instituted new and strict procedures under which we make it clear that when we are engaged in informationgathering as contrasted with working cases, that we gather only that which is directly related to our job of administering and enforcing the tax laws, and we have greatly curtailed the amount of money that we spend in this exercise.

In 1973 our Intelligence Division spent almost $12 million in information- or intelligence-gathering; that had been reduced in the most recent fiscal year 1975 to $4.3 million. We think that reduction is sound in connection with tax enforcement and in connection with proper utilization of resources.

Mr. KASTEN MEIER. Thank you, Mr. Commissioner.

This will conclude this morning's hearing.

Mr. DRINAN. Mr. Chairman, one last question, if I may.
Mr. KASTENMEIER. The gentleman from Massachusetts.

Mr. DRINAN. Commissioner, in the Bisceglia case I was interested in learning what statutory power, if any, the Federal Reserve System had to report to the IRS.

You will recall that there was an unusual collection of decrepit $100 bills which added up to $20,000, and in accord with regular Federal Reserve procedures the U.S. Supreme Court says in its majority view the Cincinnati branch of the Federal Reserve reported these facts to the IRS. That obviously began the whole case.

Is that pursuant to some statute?

Mr. ALEXANDER. I think so. I think again, Father Drinan, and we are talking about a statute implemented by regulation, I would like to inquire further into this and supply you the exact wording of the regulations and the statute for the record.

Mr. DRINAN. Does the Federal Reserve do this often?

What kind of information comes into IRS from the Federal Reserve on a regular basis?

Mr. ALEXANDER. Mr. Wolfe, can you answer this question?