April 15,2002

Grassley Investigates IRS Employees’ Pursuit of Bogus Tax Credit

WASHINGTON – Sen. Chuck Grassley, ranking member of the Committee on Finance, isasking the Internal Revenue Service to account for IRS employees’ pursuit of a non-existent taxcredit for slave reparations.

According to agency and media reports, the IRS erroneously paid out more $30 million in2000 and 2001 for the non-existent credit. One IRS employee is said to be under investigation forallegedly helping to approve tax returns claiming the credit, while at least 12 current and former IRSemployees, all low-level workers, are said to have applied to receive such a credit.

Grassley has written to Internal Revenue Commissioner Charles Rossotti and David Williams,Inspector General at the Treasury Inspector General for Tax Administration, requesting informationon the status of the IRS employees who applied for the credit. The Finance Committee has beenfocusing on the tens of billions of dollars lost to tax scams.

The text of Grassley’s letter follows.

April 12, 2002
The Honorable Charles Rossotti
Internal Revenue Service
Washington, D.C. 20224
The Honorable David C. Williams
Inspector General
Treasury Inspector General for Tax Administration
Washington, D.C. 20005

Dear Sirs:

I want to thank you for your informed testimony yesterday at the Senate Finance Committee’shearing on tax schemes, scams and cons. Unfortunately, time did not allow me to ask each of youa question of interest.

On March 28, 2002, the Treasury Inspector General for Tax Administration (TIGTA)completed a report on the slave reparations tax scam. According to the TIGTA report, this scam hasencouraged thousands of taxpayers to file specious tax claims encouraging them to claim a creditpayable to the descendants of slaves. The scam states that the credit is for the cash equivalent of 40acres and a mule (approximately ($42,200).

The TIGTA report highlighted that one current Internal Revenue Service (IRS) employee hadclaimed this credit on his or her tax return. In addition, another IRS employee may have knowinglyhonored a claim made by another taxpayer for the slave reparation credit. Finally, eight former IRSemployees also applied for this credit.

Disappointing as this news is, I was stunned to learn that in discussions with my FinanceCommittee staff, TIGTA stated that the findings have been updated and that three additional IRSemployees for a total of four IRS employees have apparently filed tax returns claiming the slavereparation credit (although none actually received the credit). Yesterday’s hearing highlighted themagnitude of the tax scheme problem overall – with a variety of different scams and cons. The factthat today we learn that we have IRS employees also engaged in tax scams as well shows howwidespread it is.

I ask that you please provide the Committee with the current status of these four employees(setting aside the one employee cited for possibly honoring the claim of a taxpayer) – if they are stillworking at IRS, on paid administrative leave, unpaid leave or have been terminated. IRS must leadby example and show that zero tolerance for these tax schemes starts at home.

It would appear that the conduct by the four employees who filed for the credit, would invokeSection 1203(b)(9) of the IRS Restructuring and Reform Act of 1998, which requires terminationafter a final administrative or judicial determination when an employee “willfully understate[s] federaltax liability, unless such understatement is due to reasonable cause and not willful neglect.” Irecognize that the TIGTA report has been referred to TIGTA Office of Investigations for furtherreview – I would appreciate confirmation that such a review is being done; the expected time of thecompletion of the review; and whether the actions of these employees, as stated by the TIGTA report,comes under 1203(b)(9).

Mr. Commissioner, I appreciate your quick response to my letter regarding paidadministrative leave as well as your commitment to making policy changes in this area. I don’t knowif these four IRS employees are on paid administrative leave. However, if they are, I believe this maybe a useful test of your new policy. As you know, I have previously expressed my frustration withIRS employees indicted, convicted or sentenced for significant crimes yet remaining on the federalpayroll while sitting at home. I recognize that in some cases, the IRS has sought to removeindividuals from the federal payroll but have been prevented by other factors, including the requestof a U.S. Attorney or other law enforcement official.

Thank you for your time and assistance on this matter.

Cordially yours,

Charles E. Grassley
Ranking Member

cc: Chairman Baucus