IRS'S PROPOSED TESTIMONY ON H.R. 12039 A BILL 'TO AMEND THE PRIVACY ACT OF 1974.'

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP78M02660R000800030027-9
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 9
• Document Creation Date: December 21, 2016
• Document Release Date: August 30, 2006
• Sequence Number: 27
• Publication Date: May 6, 1976
• Content Type: MF

-.XEC-.,TIVE 7MCITE THE PRESIDENT
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WASHIh1Cr'i"OPi. D.G. 10503
May 6, 1976
LEGISLATIVE REFERRAL MEMORANDUM
Legislative Liaison Officer
Department of Justice
Department of Defense
Central Intelligence Agency
National Security Council
IRS's proposed testimony on H.R. 12039, a bill,
"To amend the Privacy Act of 1974."
The Office of Management and Budget requests the views of
your agency on the above subject before advising on its
relationship to the program of the President, in accordance
with OMB Circular A-19.
A response to this request for your views is needed
no later than c.o.b. Monday, May 10, 1976
Questions should be referred to Robert E. Carlstrom
( 395-3856 ) o=-ta-------------------------------- (--_----_-1._~
the legislative analyst in this office.
cc:
Mr. Frey Mr. Lazarus
Mr. Duval Mr. Bedell
Mr. Parsons Mr. Reeder
Mr. Tryck
Bernard H. Martin for
Assistant Director for
Legislative Reference
?v1 D!C _
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STATEMENT OF
DONALD C. ALEXANDER
COMMISSIONER OF INTERNAL REVENUE
BEFORE THE
SUBCOMMITTEE ON GOVERNMENT INFORMATION
AND INDIVIDUAL RIGHTS
OF THE
COMMITTEE ON GOVERNMENT OPERATIONS
OF THE.
Si HOUSE OF REPRESENTATIVES
MAY 11, 1976
MADAME CHAIRWOMAN AND MEMBERS OF THE COMMITTEE:
I AM PLEASED TO HAVE THIS OPPORTUNITY TO MEET WITH
YOU AND DISCUSS THE PROVISIONS OF H.R. 12039, A BILL TO
AMEND THE PRIVACY ACT OF 1974, AS THEY WOULD AFFECT THE
OPERATIONS OF THE INTERNAL REVENUE SERVICE, CERTAINLY,
ALL OF US HERE ARE MINDFUL OF THE ISSUES AND EVENTS
WHICH HAVE LED [Is. ABZUG TO INTRODUCE THE MEASURES EM-
.BODIED BY H.R. 12039, YOU CAN BE ASSURED THAT THE PRESENT
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POLICY AND PROCEDURES OF THE INTERNAL REVENUE SERVICE DO
NOT PERMIT, OR TOLERATE, THE KINDS OF PROBLEMS IDENTIFIED
IN THE PROPOSED LEGISLATION. FOR EXAMPLE, IN JUNE 1975
MANUAL INSTRUCTIONS WERE ISSUED TO ALL SERVICE EMPLOYEES,
PROVIDING GUIDELINES AND INSTRUCTIONS INSURING THAT INFOR-
MATION. COLLECTED BY SERVICE EMPLOYEES WOULD BE LIMITED TO
TAX RELATED MATERIAL.
THE BILL DOES CONTAIN, HOWEVER, SEVERAL PROVISIONS
WHICH GIVE US PROBLEMS. THE BALANCE OF MY STATEMENT WILL
BE DEVOTED TO THESE PROBLEMS.
ONE PROBLEM CONCERNS THE BILL'S PROVISIONS RELATING
TO PERSONS WITH RESPECT TO WHOM INFORMATION WAS_INCLUDED
IN THE FILES ESTABLISHED BY THE SPECIAL SERVICE STAFF,
I HAVE TWO SIGNIFICANT CONCERNS REGARDING THIS PROVISION.
FIRST, THE SERVICE DOES NOT BELIEVE IT IS APPROPRIATE OR
NECESSARY FOR THE SERVICE TO NOTIFY THE SUBJECTS OF THESE
FILES AND DOES NOT BELIEVE THAT ANY SIGNIFICANT NATIONAL
OR INDIVIDUAL BENEFIT WOULD RESULT.FROM SUCH A NOTIFICATION
PROGRAM.. As YOU KNOW, ALL OF THE ACTIVITIES OF THE SSS WERE
TERMINATED IN 1973. ITS FILES ARE INACTIVE, OUTDATED, AND
USELESS AND WOULD HAVE BEEN DESTROYED LONG AGO IF.A MORATORIUM
ON DESTRUCTION OF RECORDS HAD NOT, AT THE REQUEST OF THE
CONGRESSIONAL LEADERS, BEEN IMPOSED DURING THE PENDENCY OF
THE CONGRESSIONAL INTELLIGENCE INVESTIGATIONS.
TILE SPECIAL SERVICE STAFF HAS BEEN THOROUGHLY
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 I NVL rI X~FBr RA a1EPGRTED3IO ft BY AT 8LEAST T ?REE COMMITTEES
OF CONGRESS. THE FIRST WAS THE.SUBCOMMITTEE ON CONSTITU-
TIONAL RIGHTS OF THE COMMITTEE ON THE JUDICIARY, WHICH
ISSUED ITS 350 PAGE STAFF REPORT IN DECEMBER OF 19741 THE
SECOND WAS THE REPORT OF THE JOINT COMMITTEE ON INTERNAL
REVENUE TAXATION, WHICH ISSUED ITS 100 PAGE STAFF REPORT IN
JUNE OF 1975,1 FINALLY, AND MOST RECENTLY, THE SENATE
SELECT COMMITTEE TO STUDY GOVERNMENTAL OPERATIONS WITH
RESPECT TO INTELLIGENCE ACTIVITIES OF THE UNITED STATES
ISSUED ITS FINAL REPORT TWO WEEKS AGO, WHICH DEALS IN PART
WITH THE SPECIAL SERVICE STAFF OF THE INTERNAL REVENUE
SERVICE.2 NONE OF THESE COMMITTEES HAVE SUGGESTED THAT
THE AGENCY SHOULD BE REQUIRED TO CONTACT THE SUBJECTS OF
THESE FILES IN AN EFFORT TO CORRECT THE PREVIOUS ABUSES,
RECOMMENDATION 66 OF THE SENATE SELECT COMMITTEE'S REPORT
RECOMMENDS ONLY THAT INFORMATION GAINED BY INTELLIGENCE
AGENCIES BE SEALED OR PURGED AS SOON AS PRACTICAL AND THEN
ONLY IF THE INFORMATION WAS OBTAINED THROUGH ILLEGAL TECHNIQUES,
IAN EARLIER REPORT OF THE JOINT COMMITTEE, ENTITLED
"INVESTIGATION INTO CERTAIN CHARGES OF THE USE OF THE
INTERNAL REVENUE SERVICE FOR POLITICAL PURPOSES" DECEMBER 1973,
ALSO CONTAINED SOME PRELIMINARY MATERIAL OF THE SPECIAL SERVICE
STAFF.
2T E SSS WAS ALSO THE SUBJECT OF DISCUSSION AND QUESTIONS
T THE FRIVATE FOUNDATION HEARINGS BEFORE THE SUBCOMMITTEE ON
tOUNDATIONS OF THE SENATE COMMITTEE ON FINANCE IN MAY AND
JUNE 1974, BUT NO REPORT WAS ISSUED, IT WAS ALSO THE SUBJECT
OF HEARINGS BEFORE THE OVERSIGHT SUBCOMMITTEE OF THE HOUSE
WAYS AND MEANS COMMITTEE IN JUNE 1975,
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THE JOINT COMMITTEE DETERMINED THAT REFERRALS WERE
MADE TO THE FIELD ONLY AFTER ANALYSIS BY THE STAFF LED TO
THE CONCLUSION THAT THERE WAS SOME REASON TO BELIEVE THAT
THERE MIGHT BE A FAILURE TO COMPLY WITH THE TAX LAWS, IN
THE GREAT MAJORITY OF CASES, NO ACTION WAS TAKEN BY THE
SERVICE BEYOND THE ACCUMULATION OF INFORMATION IN THE
FILES. OF THE APPROXIMATELY 11,OOO FILES WHICH THE FORMER
SPECIAL SERVICE STAFF HAD ESTABLISHED ON INDIVIDUALS AND
ORGANIZATIONS,.REFERRALS TO THE FIELD FOR AUDIT OR
COLLECTION ACTIVITY WERE MADE IN NOT MORE THAN 800 SITU-
ATIONS,
THE ACTIONS TAKEN BY THE SERVICE WITH RESPECT TO THE
SSS FILES WERE FOR THE PURPOSE OF CARRYING OUT THE SPECIFIC
STATUTORY RESPONSIBILITY OF THE SERVICE TO ENFORCE AND
ADMINISTER THE REVENUE LAWS. IN VIEW OF THIS, THE SERVICE
SERIOUSLY QUESTIONS WHAT BENEFIT WOULD BE GAINED FROM
INCURRING THE SUBSTANTIAL COSTS WHICH WOULD BE REQUIRED
TO INFORM PERSONS THAT THEY WERE THE SUBJECTS OF SPECIAL
SERVICE STAFF FILES, IN ADDITION, I BELIEVE THAT THERE
WOULD BE A POTENTIAL HARM FROM THE NOTIFICATION PROGRAM,
SINCE IT WOULD INEVITARLY RESULT IN IDENTIFYING THESE
INDIVIDUALS ONCE AGAIN AS "SPECIAL" TAXPAYERS DESERVING
OF "SPECIAL" TREATMENT. Tms COULD BE HARMFUL TO THE TAX-
PAYER INVOLVED AND `WOULD BE HARMFUL TO THE TAX SYSTEM.
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THIS BRINGS ME TO MY SECOND POINT. IF THE SERVICE
WERE CHARGED WITH THE RESPONSIBILITY OF INDIVIDUALLY
NOTIFYING THE SUBJECTS OF THE THOUSANDS OF SSS FILES, THE
ADMINISTRATIVE BURDEN WOULD BE SIGNIFICANT. MOST OF THE
SSS FILES DO NOT CONTAIN ADDRESSES OR OTHER MEANS OF
LOCATION WHICH WOULD BE SUFFICIENTLY RELIABLE FOR PURPOSES
OF ATTEMPTING PERSONAL NOTIFICATION. IT WOULD THUS BE A
VERY SIZEABLE ADMINISTRATIVE TASK FOR THE SERVICE TO PINPOINT
RELIABLE MEANS OF PERSONALLY NOTIFYING THE MORE THAN 11,000
INDIVIDUALS AND ORGANIZATIONS WHICH WERE THE SUBJECT OF SSS
FILES. IN MORE THAN ONE-THIRD OF THE SSS FILES THE SEARCH
FOR A RELIABLE MEANS OF NOTIFYING TAXPAYERS WOULD NECESSITATE
A SEARCH OF THE MICROFILM FILES OF EACH OF THE 58 DISTRICTS.
OUR ESTIMATE IS THAT THE DIRECT COSTS ASSOCIATED WITH MAIL
NOTIFICATION WOULD BE AT LEAST $200,000. OUR, TASK IS
COMPLICATED BY THE FACT THAT SOME OF THE INDIVIDUALS MAY
BE DECEASED AND MANY OF THE ORGANIZATIONS MAY NO LONGER
EXIST. OUR ESTIMATE OF COSTS DOES NOT TAKE INTO CONSIDERATION
THE SIGNIFICANT COSTS WHICH WOULD BE ASSOCIATED WITH
PROCESSING RESPONSES TO THE NOTIFICATION PROCEDURE AND
PREPARING, BY DELETING ALL THIRD PARTY CONFIDENTIAL TAX
RETURN INFORMATION, THESE NOW TOTALLY INACTIVE AND USELESS
FILES FOR EXAMINATION,
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I WOULD ALSO LIKE TO POINT OUT THAT THE INTERNAL
REVENUE SERVICE HAS NOT ATTEMPTED TO CLAIM, EXCEPT WHERE
CONFIDENTIAL SOURCES OR THIRD PARTY PRIVACY ARE INVOLVED,
THE INVESTIGATIVE FILES EXEMPTION REGARDING FREEDOM OF
INFORMATION ACT REQUESTS BY INDIVIDUALS OR ORGANIZATIONS,
RELATING TO THE SPECIAL SERVICE STAFF FILES. THE JUNE 1975
REPORT OF THE STAFF OF THE JOINT COMMITTEE ON INTERNAL
REVENUE TAXATION CORRECTLY NOTED THAT THE IRS WILL INFORM
A PERSON CON THEIR REQUEST) WHETHER THE SSS MAINTAINED A
FILE ON THE REQUESTING INDIVIUDAL OR ORGANIZATION, AND WILL
ALSO INFORM THE REQUESTER OF THE CONTENTS OF THAT FILE.
THE IRS HAS TESTIFIED TO THIS,AND WE BELIEVE THAT IT HAS
BEEN ADEQUATELY PUBLICIZED.
THE BEST POSSIBLE WAY TO ENSURE, ABSOLUTELY, THAT THE
INFORMATION CONTAINED IN THE SSS FILES IS NOT MISUSED, OR
THAT IT IS NOT SUBSEQUENTLY USED AS A BASIS FOR FIELD ACTION,
IS TO PROVIDE FOR THE DESTRUCTION OF THE MATERIAL. DESTRUCTION
OF THE FILE IS AN OPTION WHICH H.R. 12039 WOULD GIVE TO THE
PERSON NOTIFIED. IN ACCORDANCE WITH THE SPIRIT OF THIS
PROPOSAL, THE SERVICE INTENDS TO DESTROY THE FILES AT THE
EARLIEST AVAILABLE OPPORTUNITY. THIS SEEMS TO BE THE BEST
WAY TO ACCOMPLISH THE COMMITTEE'S OBJECTIVE---RATHER THAN
PROVIDE FOR A COSTLY AND CUMBERSOME NOTIFICATION PROCEDURE
WHICH VESTS THE TAXPAYER WITH THE OPTION OF REQUESTING
DESTRUCTION OF THE iZECORDS. IT WOULD, IN OUR VIEW, BE FAR
BETTER TO SIMPLY MANDATE THE DESTRUCTION OF THESE FILES. IN
THE CASE OF IRS, THIS WOULD BE UNNECESSARY BECAUSE WE INTEND"
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I WANT NOW TO TURN TO THAT PORTION OF THE BILL WHICH
REQUIRES AGENCIES TO NOTIFY PERSONS CONCERNING UNCONSENTED,
OR WARRANTLESS, INTERCEPTIONS OR EXAMINATIONS OF COMMUNICA-
TIONS OR SEARCHES. THE BILL PROVIDES THAT PERSONS SUBJECT
TO SUCH ACTIONS BY AN AGENCY MUST BE NOTIFIED OF THIS FACT,
FURNISHED WITH A CLEAR AND CONCISE STATEMENT OF THEIR RIGHTS
UNDER THE PRIVACY ACT AND FREEDOM OF INFORMATION ACT, AND
GIVEN THE RIGHT TO REQUIRE THAT ALL COPIES OF THE INFOR-
MATION INCLUDED IN THE FILES BE DESTROYED. I UNDERSTAND
THAT THE SUBCOMMITTEE HAS RECEIVED A SOMEWHAT DETAILED
ANALYSIS OF THIS PROVISION OF H,R, 12039 FROM THE
DEPARTMENT OF JUSTICE, I .WILL NOT TAKE THE TIME TO
REITERATE THAT GENERAL ANALYSIS, LET ME SAY, HOWEVER,
THAT THE PROVISION HAS AN UNUSUALLY BROAD EFFECT UPON THE
OPERATIONS OF THE INTERNAL REVENUE SERVICE, THE IRS
OBTAINS A GOOD DEAL OF THE INFORMATION WHICH IT USES
FOR PURPOSES OF AUDITING TAX RETURNS AS A RESULT OF ITS
USE OF THE ADMINISTRATIVE SUMMONS SPECIFICALLY PROVIDED
FOR BY THE INTERNAL REVENUE CODE, DESPITE THE FACT THAT
ITS USE OF THIS PREROGATIVE IS BOTH JUDICIOUS.AND CON-
TROLLED, INFORMATION THUS OBTAINED IS NOT OBTAINED
PURSUANT TO SEARCH WARRANT. THE ADMINISTRATIVE SUMMONS
PROCESS IS CURRENTLY UNDERGOING EXAMINATION BY THE
CONGRESS AS PART OF ITS CONSIDERATION OF THE TAX REFORM
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ACT OF 1975 (H.R, 10612). THIS BILL, WHICH HAS ALREADY
PASSED THE HOUSE AND WHICH IS CURRENTLY BEING CONSIDERED
BY THE SENATE FINANCE COMMITTEE, GENERALLY PROVIDES THAT
WHEN A SUMMONS IS BEING SERVED UPON A THIRD PARTY RECORD
KEEPER, SUCH AS A BANK, NOTICE OF THE SUMMONS IS TO BE
GIVEN BY THE SERVICE TO THE PERSONS WHO ARE IDENTIFIED
IN THE SUMMONS AS THE PERSONS TO WHOM THE RECORDS RELATE.
THE PURPOSE OF THIS NOTICE IS TO GIVE SUCH PERSONS AN
OPPORTUNITY TO STAY COMPLIANCE WITH THE SUMMONS AND TO
INTERVENE IN ANY JUDICIAL PROCEEDING WHICH MAY BE
BROUGHT FOR THE ENFORCEMENT OF THE SUMMONS.
IT SEEMS MORE APPROPRIATE FOR CONCERNS WHICH ARE
RELATED TO THE ISSUANCE OF ADMINISTRATIVE SUMMONSES, AND
TO THE MANNER IN WHICH THE SERVICE OBTAINS ITS INFORMATION
GENERALLY, TO BE CONSIDERED AGAINST THE BACKGROUND OF THE
SPECIFIC NEEDS AND RESPONSIBILITIES OF THE IRS. THE
PENDING TAX REFORM ACT, WHICH CONTAINS PROVISIONS
RELATING TO THE SERVICE'S USE OF THE ADMINISTRATIVE
SUMMONS, AND OTHER MATTERS RELATING TO TAX ADMINISTRATION,
APPEARS TO BE THE MOST APPROPRIATE VEHICLE FOR CONGRESS
TO CONSIDER THESE IMPORTANT MATTERS,
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