(Exhibit No. 10) Department of the Treasury Internal Revenue Service / Washington, D.C. 20224 Commissioner Mr. John M. Rector Subcommittee to Investigate Juvenile Delinquency Room A-504, Senate Annex II Washington, D. C. 20510 Dear Mr. Rector: August 9, 1976 This is to provide you with information concerning the budget for the Internal Revenue Service's Intelligence program. The following table shows staffing and related dollars at the various levels of budget review for fiscal year 1976, the transition quarter, and fiscal year 1977. IRS BUDGET REQUESTS FOR INTELLIGENCE (dollars in thousands) NOTE: "Other" category includes supervisory, clerical support and temporary personnel. There were no transition quarter estimates in the request to Treasury. Dollar amounts enacted by Congress in FY 1976 exceed those originally submitted due to pay increase. I hope that this information will at least in part meet your request. I will, of course, be happy to provide you with whatever additional data we have on this subject. With kind regards, Sincerely, Thoma Wynn Thomas V. Glynn Assistant to the Commissioner Senator BAYH. Can you tell me how many people you now have working in this area, earmarked or not earmarked? Mr. CLANCY. I don't have the time. When we merged the program Mr. CLANCY. At the end of fiscal 1975. NTTP MERGED WITH REGULAR SPECIAL ENFORCEMENT Mr. CLANCY. Because we felt that the program probably could be just as well operated in our regular special enforcement program utilizing the strike force concept in some of these cases during the regular program. These cases that may have been fit for the strike force were not placed under the strike force. We have an ongoing strike force of some 17 Senator BAYH. Well, do you still have the same criteria for the cases? Mr. CLANCY. We have our special enforcement criteria, sir, and I would be happy to submit that for the record. [Subsequent to the hearing the following information was received.] [EXHIBIT No. 11] Question 3. Senator Bayh: “*** do you still have the same criteria for the cases?" Mr. Clancy: "We have our special enforcement criteria, sir, and I would be happy to submit that for the record." Response. Special Enforcement Program criteria are defined in IRM 9411.2, a copy of which is attached. 9400 Special Enforcement Procedures [Amended and Supplemented by MS 94G-56] 9410 Special Enforcement Program (SEP) 9411 Special Enforcement Program Defined 9411.1 SEP Objectives (1) The primary objectives of SEP are to identify and investigate persons who receive income from illegal activities and to recommend prosecution of such persons, when warranted, for criminal violations of the Internal Revenue Code or other related statutes when committed in contravention of Internal Revenue laws. (2) Another important objective of this program is participation in the Federal effort against widespread organized criminal acivities by coordinating our enforcement efforts with those of other Federal law enforcement agencies. 9411.2 SEP Categories (1) SEP-1 includes all persons who are reasonably believed to be: (a) engaged in organized criminal activities; (b) notorious or powerful with respect to local criminal activities; (c) receiving substantial income from illegal activities as a principal, major subordinate, or important aider or abettor; or (d) infiltrating legitimate business through illegal means; or infiltrating legitimate business through loaning or investing therein the proceeds from illegal activities. (2) SEP-2 includes all taxpayers engaged in occupations requiring the purchase of coin-operated gaming device stamps. (3) SEP-3a includes all taxpayers designated as Strike Force case subjects under the IRS Strike Force Program. Most of the subjects in this category will also meet the criteria of the SEP-1 category. (4) SEP-3b includes taxpayers (not designated as Strike Force subjects) in whom the Organized Crime an Racketeering Section of the Department of Justice has formally expressed an interest and requested disclosure privileges by letter to the Commissioner from the Attorney General or an Assistant Attorney General, and the Assistant Commissioner (Compliance) has concurred in the Department of Justice request and agree to provide copies of returns, reports or other information to Justice. A formal written request originating with the OC&R Section to review a proposed nonprosecution case prior to closing will meet the criteria for a "case of interest." Investigations of interest to other segments of the Department of Justice will be classified as general program cases. 9412 SEP Responsibilities and Security Guidelines (1) The Assistant Commissioner (Compliance), through the Directors, Audit an Intelligence Divisions, is responsible for establishing the overall objectives and guidelines for the Special Enforcement Program and for the coordination of the Program on a nationwide basis. (2) The Regional Commissioner, through the ARC's (Audit and Intelligence), is responsible for the following : (a) assisting and advising in the overall planning and coordination of the Special Enforcement Program within the region; (b) coordinating and cooperating with other regions, the National Office, assigned Department of Justice attorneys, and Strike Force representatives; (c) keeping the Director, Intelligence Division, informed of the activities of special enforcement subjects; (d) evaluating the effectiveness of the Special Enforcement Program; and (e) determining and providing for manpower and equipment needs. (3) A Special Enforcement Program Analyst (Operations and Technical), hereinafter referred to as a Special Enforcement Assistant, will be designated by each ARC (Intelligence) to fulfill the responsibilities outlined (2) above. (4) The District Director, through the Chiefs, Audit and Intelligence Divisions, is responsible for the following: (a) planning, implementing, and administering the Special Enforcement Program within the distret ; and (b) determining manpower needs and allocation priorities. (5) The District Director, through the Chief, Intelligence Division, is responsible for the following: (a) gathering, assembling, evaluating, and disseminating SEP information; (b) identifying SEP subjects; and (c) maintaining liaison with other IRS divisions, the ARC (Intelligence), and other law enforcement officials concerned with SEP matters. (6) All employees engaged in SEP activities or who have access to documents and information relating thereto will be responsible for security measures contained in IRM 9720 and IRM 9387.3. 9413 Special Enforcement Files 9413.1 Subjects of Special Enforcement Files The Intelligence Division will maintain a Special Enforcement File for each taxpayer meeting the criteria of the SEP-1 category. Taxpayers in SEP-2 and SEP-3 categories will not be subjects of Special Enforcement Files unless they also meet SEP-1 criteria. Senator BAYH. You know, I am the last person in the world who wants to sit up here and tell you how many people ought to be in given areas. I don't know how I can remain silent, however, if we all agree that it is a very sophisticated problem requiring intense activity. Mr. ALEXANDER. Mr. Chairman, our resources have been cut, and there are many pressures on the Internal Revenue to put everything first, and one cannot put everything first. We have some other very tough responsibilities. One of them is dealing with tax evasion by major corporations, and these cases are hard to work and time consuming to work. Mr. WOLFE. For example, Mr. Chairman, we were cut about 200 special agents in our fiscal year 1977 budget. Our staff of 2,650 that we have to do all of these criminal cases was cut by 201 staff years. Mr. ALEXANDER. So when we are told to take our investigative resources and assign a certain number of them to one particular program, we need to be told also what we should take them away from. Should we stop trying to prosecute major corporate tax evaders? Should we stop trying to put corrupt politicians in jail? Tell us now, because there are only so many people. We would like to have more. We don't have more. But if we are told that we must allocate in a particular way, then tell us where we take them away from. Senator BAYH. Without trying to suggest that you do less in these other areas, I assumed that-especially when we had these special earmarked funds-Congress felt that special emphasis ought to be placed in this narcotics area. Mr. ALEXANDER. Mr. Clancy's resources were cut. Mr. Clancy sustained almost a 10-percent cut. That is a very serious thing for us to take. Where do we take people away from? Senator BAYH. Would you support a specific earmarking in this area? Mr. ALEXANDER. If we get additional people. If we are given additional people. If Congress gives us additional people, additional money, and tells us to work these high-level narcotics traffickers, of course, we will. Senator BAYH. I would like you to submit-so that we could look at it here, I want to study it and put it in the record for the others— what the force levels and the appropriations levels were in 1971, 1972, 1973, possibly 1974 when you had that earmarking, compared to what the force levels are right now. Mr. ALEXANDER. All right. [Subsequent to the hearing the following information was received:] [EXHIBIT No. 12] Question 4. Senator Bayh: "I would like you to submit so that we could look at it here I want to study it and put it in the record for the others—what the force levels and the appropriations levels were in '71, '72, '73, possibly '74 when you had that earmarking, compared to what the force levels are right now." Response. In accordance with Presidential initiative, the Narcotics Traffickers Program was established by the Treasury Department in July 1971 (the beginning of FY 1972). During FY 1972, Congress authorized a supplemental increase to the Service's appropriation of $7.5 million (250 average positions) in support of the program's implementation in that year. The following year, in the Service's FY 1973 budget, Congress authorized an additional $6.9 million (291 average positions) to provide for the full year effect of the prior year's authorization, resulting in a total |