carefully thought out fraud schemes. The political contribution cases, most kickback cases, and far too many other cases involve situations which have gone on for years in spite of prior audits. The nationwide dearth of fraud referrals among GS-12 and GS-13 revenue agents adds to our conviction that sophisticated fraud is not being uncovered within the time and with the Audiť techniques which are now applied to cases. As one final point, we might look at the experience which occurred in Montreal, Canada, on October 6, 1969, and gain some insight into the nature of "voluntary" compliance. The Montreal police had gone out on strike. And that day one of the most civilized cities in the world found what it was like to be without police protection during one day and night. Before the ordeal known as "Black Tuesday" was over, two men were slain, 48 wounded or injured in rioting, 7 bank holdups (1/10 of all holdups for a full year) were committed along with 17 other robberies at gunpoint and 196 burglaries. More important for our purposes, hundreds of ordinarily disciplined and peace loving citizens went wild, smashing 1,000 plate glass windows in the heart of the city and looting stores. The losses and damages exceeded one million dollars. The statistics alone are not too meaningful. It was the social and psychological phenomenon which gave the story its real horror. The resulting message was about the "thin blue line" that separates civilization from chaos and anarchy. There were riffraff out that night. But it was the behavior of ordinary people that caused the most perplexity and anxiety. Men and women of every kind and variety flocked into the street to abandon their inhibitions. ORGANIZING FOR LAW ENFORCEMENT Modern management theory holds that an organization should be structured to accomplish its objectives. For a law enforcement organization, this means the ability to detect, investigate and prosecute violators of the laws over which it has jurisdiction. Therefore, it becomes necessary to example the character of the crime problem in the United States with particular emphasis on those areas over which the Internal Revenue Service has responsibility. The "local" crime problem in the United States is being viewed increasingly as an area or regional problem rather than the exclusive responsibility of any particular political subdivision. More and more, cities, counties and states are joining together in the regional approach to solution of crime. Considerable emphasis is placed on the regional planning approach to law enforcement in the Law Enforcement Assistance Act of 1968. Underlying this philosophy is a recognition that, in today's complicated society the highly mobile criminal does not respect political boundaries. The same considerations exist in meeting the crime problem at the federal level. Many federal criminal statutes are constitutionally based on an interstate element. Militant organizations and civil disobedience groups operate on a national scale. Organized criminal groups generally operate over a regional area covering several political divisions. Wagering tax violations usually have interstate implications. The traffic in firearms generally extends between different states. Large scale tax fraud ordinarily has ramifications in more than one state and even international aspects. Illicit liquor violations may extend between states and sometimes between regions. Legal liquor violations frequently have national implications. In other words, a large part of the criminal activity investigated by the Internal Revenue Service is either interstate, national or international in scope. Centralization v. Decentralization If we were less than clear on this issue in our original report, it was not deliberate. Our definition and concepts were necessarily a bit obscure due to the focus of the overall organizational study. An added dilemma was the practical realization that criminal law enforcement would not determine the ultimate shape of the Service. In other words, if the final structure was a two tier organization, there was little value in a three tier perspective for criminal enforcement activities. Conversely, there were no compelling reasons to rule out a three tier alternative if a newly designed three tier structure overcame the fragmentation which exists in the current 58 district alignment. We should perhaps begin a reexamination of the centralization vs. decentralization question with the following categorical statement. We do not favor nor to our knowledge do any other responsible criminal enforcement officials favor a structure which directly or indirectly resembles the F.B.I. Since our initial charter called for an examination of alternatives, we attempted to use the extremes (Alternatives I am VI) as points of references for the advantages and disadvantages and as a means to avoid reflecting our personal preference. We believe that the most effective way in which the Internal Revenue Service can respond to criminal activity is through a greater geographic centralization of law enforcement operations. This approach would eliminate many of the problems associated with internal jurisdictional boundaries, provide flexibility in the allocation of resources and permit a rapid response to critical crime problems. The Service can also more effectively organize for the seventies through centralization or merger of its criminal enforcement function under distinct leadership at the Assistant Commissioner level. This would provide an independent forum for establishing criminal enforcement priorities which are now obscured in the compliance monolith and permit improved utilization of manpower, equipment and other resources. It would facilitate cross-training and broaden career opportunities. A unified command would also inevitably lead to increased emphasis on collection and dissemination of the type of intelligence which is becoming the life blood of successful law enforcement organizations. Most important, however, would be the direct and indirect benefits which would flow from having a fully supported and distinguishable criminal enforcement function with a well-defined mission common to all its members. Next, the effective organization of the criminal enforcement function should include both a centralization and a decentralization of authority. The National Office official responsible for law enforcement should have sufficient authority to assist in the formulation of Service policy, to represent the Service on law enforcement matters and evaluate the effectiveness of field operations. The official responsible for regional field operations should have sufficient authority to make operational decisions, represent the Service in regional law enforcement matters and allocate resources within his jurisdictional area. In many areas Service tax policy is inextricably interwoven with the criminal enforcement function. As a result the function must remain responsive to the overall Service policy and objectives. In other words, while we do not believe the Internal Revenue Service dog should ignore its law enforcement tail, neither do we believe that the tail should wag the dog. We frankly believe that the proposed criminal law enforcement design, with some greater freedom, higher priority and an integrated organizational structure could add greatly to a more socially oriented Internal Revenue Service. This doesn't mean throwing the book and all controls away or ignoring developments which occurred in Newark and New York. However, these recent developments demonstrate two salient facts. First, a highly decentralized criminal law enforcement organization offers no guarantee of integrity or operational effectiveness. Second, we perhaps have already relied too much on controls, paper work, chain of command, and legalistic niceties which steal untold time away from managerial and supervisory personnel. If a supervisor lacks the time or the sense of responsibility to get involved with case and personnel management, the key link is broken. Furthermore, our current structure seriously dilutes direct responsibility for overall criminal law enforcement activities. This condition leaves us vulnerable to breakdowns and often helpless to nail down the cause. Summary The foregoing organizational concepts offer a positive response to the changing needs of criminal enforcement and meet such conditions as outlined below which now impair the effectiveness of our enforcement efforts : A Chief, Intelligence with three working special agents is an anachronism in a modern well-managed organization. In fact the condition reminds us of the popular musical, "Call Me Madam", which appeared on Broadway some years ago. The Control Group may recall that the play featured a woman ambassador to the Grand Duchy of Liechtenstein with its population of 15,700. International politics may force us to have ambassadors to Liechtenstein and state politics may force us to maintain Chiefs, Intelligence in South Dakota but the absurdity is difficult to ignore in any study of organization. The criminal law enforcement function of the early 1950's cannot effectively carry out the criminal law enforcement function of the socially unbalanced 1970's. There is too much evidence of highly routine criminal cases being worked expeditiously in some areas while major noncompliance problems collect cobwebs due to lack of resources in other areas. This condition has far more to do with the fundamental difficulty in and organizational barriers to short-term shifts of manpower rather than in long-term allocation of resources. The Southeast Region recently shifted seven special agents to the Birmingham District to cope with a politically hot and corrupt practice. Although the realignment was accomplished due to the fine cooperation of all districts, the negotiation process required days instead of hours to accomplish. The present structure does not adequately mesh the Service's total criminal law enforcement function. The system now forces far too many decisions to the highest levels of the Service and relieves the criminal law enforcement officials from true accountability for their actions and effectiveness. Too often National Office decision making is regarded at the field level as lack of confidence and poor substitute for holding top field officials accountable. Society and the federal courts are making criminal law enforcement a goldfish bowl. As a consequence no field manager (if given more latitude) could long survive bad judgment nor find it desirable to step far outside Service policies. Interstate crime, subsidiary operations, international transactions, and a highly mobile society have outdistanced the Service's present structure of criminal law enforcement. Our highly decentralized organization fragments and obstructs an aggressive and effective response to well insulated fraud and other criminal transactions. The Service seems to have no alternative except to plan for the worst in today's times. Since society is demanding and getting an unprecedented emphasis on law enforcement, we can ill afford to remain aloof and detached from social trends. If the Internal Revenue Service is to offer a serious challenge to much of the younger generation, the challenge will not lie in fast audits and technical games. The criminal law enforcement function is far more likely to appeal to a large segment of the new generation. White collar crimes, organized crime, police corruption, gun control, illicit alcohol, numbers and other gambling operations among low economic levels, and other criminal enforcement activities have significance. Each of these areas have strong social implications, bear on the quality of life in the United States and rank high in the value system of this nation's well-educated youth. The increasing pressures, sensitivity and importance of the criminal law enforcement function demand some form of full-time representation at the Assistant Commissioner level. We can add very little more to an examination of centralization vs. decentralization. Suffice it to say that many dissatisfactions can be detected in the present way of doing things. Our view is that most are legitimate complaints of well motivated people who seek to do a better job. If what they are saying cuts no ice in the final decision-making, the structure will not disintegrate. They will continue to work and make the best of things. Thus our fear is not the physical departure of people. Our greater concern is the gradual decay of their spirit and creative processes. D. IRS AND DEA POLICY DEPARTMENT OF JUSTICE-INTERNAL REVENUE SERVICE GUIDELINES I. General Purposes and Objectives REGARDING January 8, 1976. Department of Justice The Attorney General is designated to facilitate and coordinate the criminal law enforcement activities of the federal government. In accordance with that responsibility, the Internal Revenue Service has consistently cooperated with the Department of Justice in criminal investigations and prosecutions involving civil or criminal tax consequences. The Attorney General has determined that priority must be given to the investigation and prosecution of organized criminal activity, corruption in government, narcotics trafficking, and all forms of white-collar crime. Such crimes can be efficiently and effectively investigated and prosecuted by Department of Justice attorneys and IRS agents working together in a spirit of cooperation toward the same goal-the vigorous and impartial enforcement of the law. Such cooperation is often essential to detect and to prosecute those persons involved in such activity. Internal Revenue Service-The mission of the Internal Revenue Service is the fair and effective administration and enforcement of the tax laws of the United States. This process must be carried on in a way which most effectively utilizes the resources of the Internal Revenue Service and which does not imperil its reputation for fair and impartial administration of those laws. An important part of this responsibility for tax administration is the vigorous enforcement of the criminal sanctions within its jurisdiction. To encourage compliance with the tax laws, the criminal enforcement program should be equitably applied and characterized by broad occupational and geographical coverage. The Department of Justice shall continue to assist in the achievement of this mission by prosecuting those criminal tax cases referred to it by the Internal Revenue Service which the Department of Justice determines in the exercise of its discretion are appropriate for prosecution. As part of the tax law enforcement responsibility of the Internal Revenue Service, special agents and revenue agents, possessing a special expertise in the investigation of crimes with financial aspects, will cooperate with United States attorneys and Department of Justice attorneys in developing cases concerning tax violations which are within the enforcement jurisdiction of the Service. This cooperation, which shall be consistent with the compliance objectives of the Internal Revenue Service, entails the commitment of intelligence and audit manpower to the investigation and prosecution of tax offenses related to organized criminal activities, corruption in government, narcotics trafficking, and whitecollar crime. II. Operational and Control Aspects of Investigations With U.S. Attorneys and Department of Justice Attorneys A. Supervision of IRS Agents The investigative activities of IRS agents working on a joint investigation with the Department of Justice will be coordinated by the United States attorney or Department of Justice attorney in charge of the case. IRS is to participate in the planning and contribute to group strategy and operations through investigations conducted in its specialized area of responsibility. IRS agents will be assigned by IRS supervisors and the IRS will retain complete control over its own operations. B. Selection of Cases for Investigation Consistent with its compliance goals and criteria, the Internal Revenue Service will cooperate fully with United States attorneys and Department of Justice attorneys in criminal tax investigations where there exists potenial criminal or civil tax violations. In selecting cases for investigation and possible prosecution, DOJ and IRS will: (1) Recognize that appropriate priority be given to investigations involving organized crime, major narcotics trafficking; public corruption and white-collar crimes; (2) Consider the limitations upon their resources including the availability of personnel; and (3) Recognize the IRS's policy of a balanced program of tax enforcement and administration. C. Conduct of Investigations The Internal Revenue Service and the Department of Justice recognize that it is frequently impossible to determine at the outset of an investigation what types of charges, suitable for prosecution, will result from the investigation. Consequently, no premature determination regarding the eventual potential of cases under investigation shall be made by either the IRS or the Department of Justice. During the course of an investigation, it may be concluded that it is not reasonable to continue to develop either a civil or criminal tax case. If this occurs the IRS will normally withdraw its personnel from the case. In the event that an individual case presents difficulties or disagreements respecting withdrawal of IRS personnel from any particular case, the difficulties or disagreements shall be referred to the Coordinating Committee. In resolving such difficulties or disagreements the Coordinating Committee shall consider, among other things, the effect of such withdrawal upon the development of the case and the comparative manpower needs and total enforcement resources of both IRS and DOJ. D. Participation in Strike Forces The Internal Revenue Service shall assign an intelligence agent to each Strike Force to act as Strike Force representative who will coordinate Strike Force objectives with the district or districts in the cases under investigation. It will also designate for each Strike Force an IRS audit group manager to act, on an as needed basis, as policy and program adviser to the Strike Force. The Strike Force representative will remain under the supervision and control of IRS supervisors. However, their participation in Strike Force investigations will be coordinated by the Strike Force attorney who will also assist in the formulation of enforcement policies and the selection of cases for potential investigation. However, final authority concerning taxpayers to be investigated by IRS will be vested in IRS. IRS Strike Force representatives will patricipate with representatives of other agencies in the analysis and evaluation of organized crime activities, and IRS will be provided with all relevant information pertaining to potential criminal or civil tax cases. Disagreements concerning commencement of particular investigations may be referred to the Coordinating Committee. E. Prosecuting a Case Involving Tax and Non-Tax Offenses In situations in which a criminal tax case and a non-tax criminal case involving the same taxpayer, or arising out of the same set of circumstances, are referred to the Department of Justice for prosecution, the Service and the Department of Justice will make every effort to coordinate the prosecution for both the tax and non-tax criminal cases. This coordination will manifest itself in obtaining, whenever possible, simultaneous indictments and the prosecution of both types of cases with equal vigor. For example, in any situation in which an attorney of the Department of Justice or an United States Attorney agree to accept a plea, every effort will be made to insure that any such plea accepted shall involve a plea of guilty, other than a plea of nolo contendere, to at least one tax offense. III. Exchange of Information A. The Department of Justice, including the Federal Bureau of Investigation, shall supply IRS with any information that the Department obtains concerning possible tax violations. B. To the extent permitted by applicable law and regulations, the IRS shall supply the Department of Justice with any information, obtained during a tax investigation, relating to the possible commission of non-tax crimes. Normally IRS will not further develop such information except with appropriate supervisory review and where further development is necessary and this can only be accomplished by IRS personnel. IV. Coordinating Committee A six man committee is hereby established to monitor the application of these guidelines. IRS shall designate the following as members of the Committee: (a) the Commissioner or Deputy Commissioner; (b) the Chief Counsel or Deputy Chief Counsel; and (c) the Assistant Commissioner (Compliance) or Director, Intelligence Division. The Department of Justice shall designate the following as members of the Committee: (a) the Deputy Attorney General or an Associate Deputy Attorney General; (b) Assistant Attorney General for the Criminal Division or the Deputy Assistant Attorney General for the Criminal Division; (c) Assistant Attorney General for the Tax Division. The Committee, which is authorized to receive and consider communications concerning the implementation of these guidelines and to discuss and negotiate their application to particular cases, is to serve as a focal point for the discussion of the nature and extent of each agency's participation in cooperative investigative efforts and for the resolution of any other disagreements with respect to criminal investigations, indictments or prosecutions. The Committee shall have no authority to meet and transact business unless at least two of the three members of each agency's membership are in attendance. Dated: January 8, 1976. HAROLD R. TYLER, Jr., Deputy Attorney General, Department of Justice. Commissioner of Internal Revenue. |