Presidents, Politics, and the IRS
The Great Depression had struck the nation. Sullen dispossessed farmers drifted off the land. Despairing unemployed workers stood in bread lines. Scattered troops of articulate, well-educated city people flirted with radical political solutions and challenged the policies of the man in the White House.
But the brickbats being thrown at President Herbert Hoover were not coming from the Left alone. In fact, one of the noisiest sources of presidential criticism was the Navy League, a powerful organization whose members included right-wing superpatriots, retired naval officers, and senior executives from the shipbuilding and munitions industries.
The reason for their anger was President Hoover’s 1931 proposal to balance the federal budget. The League members were upset by Hoover’s budget-cutting plan because it included a drastic reduction in the navy’s shipbuilding program. To make their opposition perfectly clear, the League published a sixteen-page brochure entitled “The President and the Navy.” It accused Hoover of “abysmal ignorance” about world affairs and suggested that his plan to curtail the construction of American warships was part of a secret, almost traitorous agreement with British Prime Minister Ramsey MacDonald.1
President Hoover and his immediate staff apparently were furious about the critical blast from the arms industry. Although the available records give no indication that the administration had reason to believe the League had violated any federal law, the White House ordered an investigation of the politically offensive organization. This response was not entirely out of character. Several historical studies have found evidence that the White House staff under President Hoover maintained an informal blacklist of Hoover’s critics, aggressively investigated unwanted leaks to the press, and collected derogatory information on the personal and professional lives of Democratic officials.2
The agency chosen to investigate the Navy League was the Federal Bureau of Investigation. Setting the pattern that would become his modus operandi for the next forty years, young J. Edgar Hoover was suitably sensitive to the whims of the White House. During the fall of 1931, the director of the FBI wrote President Hoover’s secretary, Lawrence Richey, a series of five confidential letters describing various aspects of the bureau’s investigation of the Navy League. The urgency of the White House interest and the desire of the FBI to please are suggested by the fact that the FBI director wrote three of the letters on a single day, October 30, one on October 31, and the last on November 2, 1931.
The job turned out to be more difficult than expected. Publicly available biographical details about the League’s principal members were rushed to the White House. So was the news that several leading American figures, such as Henry Cabot Lodge and Ogden Mills Reid, were major contributors and that the League had a total of about 4,500 members. The FBI, J. Edgar Hoover bragged, had obtained this information by undertaking a number of “pretext” interviews in which top officials of the League, including its president, William H. Gardiner, were questioned in such a manner that they were not “cognizant of the Bureau’s interest.”
Partly because the investigators had been unable to obtain a list with the names and addresses of all the League’s members, however, neither the White House nor the FBI was satisfied. In an effort to get additional intelligence, the young FBI director decided to tap the income tax records maintained by the Internal Revenue Bureau.
Income tax files were a relatively new source of information about the activities of the American people. It was only in 1913, less than twenty years before, that the constitutional amendment authorizing .the collection of a federal income tax had been approved. In fact, as far as is known, this was the first occasion that federal investigators working for an angry president had ever used the tax records for intelligence purposes.
On this occasion, however, the tax returns were not helpful. “A search of the records of the Bureau of Internal Revenue indicates that no income tax returns were filed [by the Navy League] in the Washington district during the period 1927 to date,” J. Edgar Hoover told Richey in October 1931. “Under present laws some organizations which do not operate for benefit are exempted from making income tax returns. This is accomplished by a letter addressed to them by the Bureau of Internal Revenue. No such letter was addressed to the Navy League, as far back as 1923. The search for income tax returns is being extended to all districts in the United States. So far no return has been found in any district, including New York City.”3
The surprising thing is that the FBI’s secret examination of tax information for the White House was not illegal. In fact, the confused drafting of a vaguely worded amendment added to an appropriations act in 1910 actually authorized presidents to use tax records any way they saw fit. This 1910 amendment, which remained the controlling law until after the Watergate scandals of the mid-1970s, stated that tax records were to be open for inspection “only upon the order of the President under rules and regulations to be prescribed by the Secretary of the Treasury and approved by the president.”
Partly because of the curious wording of what really was an open records law, few Americans have understood that, from 1910 until 1976, the IRS routinely made tax information available to almost any federal or state agency that requested it. “Given the prevalence of the belief that tax returns are confidential, distribution to government agencies seems anomalous. Most likely, it [the casual sharing of tax records] has been permitted because it occurred without any public debate,” one authoritative study concluded.4
Although many Americans believe that President Nixon’s White House was uniquely active in this regard, almost every administration since the end of World War I has one way or another used the selective enforcement of the tax laws and the information contained in tax records for improper political purposes. Confidential government documents prove, for example, that Franklin Delano Roosevelt and the officials around him did not hesitate to mobilize the tax agency in efforts to destroy the careers of individuals they had decided were enemies. The records even show that on one occasion an inquiry from Eleanor Roosevelt prompted Treasury Secretary Morgenthau to order a tax investigation of a conservative newspaper publisher who had become one of the Roosevelt administration’s leading critics.
Probably the single most brazen display of the Roosevelt administration’s willingness to use the tax agency for political purposes was its attack on Andrew Mellon, the millionaire capitalist who served as the Republican secretary of the treasury from 1921 to 1932. No document has yet emerged that directly links Roosevelt to the decision to go after Mellon. But Elmer L. Irey, the first director of what is now called the Criminal Investigation Division, acknowledged that Treasury Secretary Henry Morgenthau, Jr., ordered him to develop serious tax charges against Mellon even though he knew that the just-retired treasury secretary was innocent.5 It seems unlikely that Morgenthau would have mounted such a campaign without the approval of FDR.
“The Roosevelt Administration made me go after Andy Mellon,” Irey wrote in his autobiography, explaining that his marching orders had come directly from Morgenthau. The chief of criminal intelligence said that he was so uncomfortable with the order that he went directly to Morgenthau to express his objections. But Morgenthau brushed Irey’s concerns aside. “‘Irey, you can’t be 99 2/3 percent on that job. Investigate Mellon. I order it,’” the official recalled Morgenthau telling him.
In his autobiography, Irey did not say when his unusual conversation with Morgenthau actually took place, and more than fifty years after the Mellon affair the exact chronology is not clear. The available record also leaves unclear the actual criminal charges that the Roosevelt administration tried to bring against Mellon before it attempted to punish the former treasury secretary by other means.
Roosevelt had won the election in November 1932 and had taken over the reins of government on March 4, 1933. Morgenthau had assumed de facto control of Treasury on November 17, 1933, when he was named acting secretary. He succeeded to the secretaryship itself on January 1, 1934. A Justice Department memorandum written about the case in early 1934 adopts the same view as Irey: The charges that the Roosevelt administration wanted to lodge against Mellon were either invalid or could not be proved. The memo also noted, however, that Acting Secretary Morgenthau had informed Justice on December 10 of his intent to charge Mellon.6
On March 11, 1934, ignoring the expert views of Irey and the two Justice Department lawyers, the Roosevelt administration announced it would seek criminal tax evasion charges against the former secretary.7 The initiation of any kind of tax case against a person with so much power and so many lawyers is extremely rare; the lodging of criminal tax charges was then, and remains today, almost unprecedented. In the Mellon case, the department alleged that the financier owed the government additional taxes of $1,319,080.90, plus a 50 percent fraud penalty of $659,540.45. The government said the grounds for its charges were that certain transfers of his stock to a bank and to a corporation controlled by his daughter, for the purpose of establishing a loss, were not legitimate.
“Later the Bureau of Internal Revenue, bent upon what its former chief [Mellon] called ‘political prosecution,’ increased its claimed deficiency to $3,089,261.24,” a historian would write some years later.8 At the time, Mellon also denounced the charges as “impertinent, scandalous and improper.” He added that in 1931—the year covered by the government’s charges—he had actually overpaid his federal taxes.
The government immediately ran into serious trouble with its attack. First, a balky federal grand jury in Pittsburgh, Mellon’s hometown, took the highly unusual action of ignoring the recommendation of the prosecutor. It refused to indict Mellon on any charge. Some historians have speculated that the powerful millionaire secretly influenced that decision. But the social backgrounds of the jury members—five laborers, two mechanics, two farmers, two clerks, two engineers, one carpenter, one plumber, one writer, one lumber dealer, and only a single banker—argue against this proposition.
The bitter case then moved to a new battleground, the Board of Tax Appeals in Washington. At that time, the Tax Board theoretically functioned as an independent agency. But it was housed within the executive branch, a bureaucratic arrangement that tended to encourage the members to view tax cases brought by the government in a favorable light.
But even the relatively compliant Tax Board refused to accept most of the Roosevelt administration’s hoked-up charges against Mellon. After developing a hearing record of more than 10,000 pages and reading voluminous legal briefs, the board on December 7, 1937, issued a ruling that rejected the most significant aspects of the charges. Mellon’s intentions in setting up the charitable foundation, the board concluded, were truly charitable and not a tax dodge. While the former treasury secretary was found to owe $485,809—about one sixth of the government’s original claim—the board totally dismissed all the criminal and civil fraud penalties that the Roosevelt administration had brought against him.
The Mellon case was hardly the only occasion on which the Roosevelt administration mobilized the tax agency for political purposes. From his very first moments as the Democratic presidential candidate in 1931, for example, Roosevelt had understood that Huey Long, the mesmerizing Louisiana governor and senator, represented a genuine political threat.
Part of Long’s appeal lay in his populist social programs, which had brought to him the support of millions of working-class Americans who were being ravaged by the Great Depression. But Long, known as the Kingfish, was also a brilliant demagogue who would adopt any tactic to increase his power. Long’s definitive biographer, Harry Williams, emphasized this unique quality when he observed that, unlike all other American politicians’, Long’s goal was never “to contain the opposition or to impose certain conditions upon it, but to force it out of existence.”9
Long was indeed a ruthless politician. But Roosevelt too was a driven man who did not hesitate to adopt questionable tactics to maintain his power.
The administration’s deep concern about Long was translated into action exactly three days after Morgenthau became Roosevelt’s treasury secretary on January 3, 1934, when Morgenthau ordered Elmer Irey, the man he had instructed to go after Mellon, to launch a second campaign against Long.10 (Actually, Irey recalled, Herbert Hoover had also been worried about the rapidly growing power of Long and his machine. In July 1932, months before Roosevelt had entered the White House, the bureau had been encouraged to initiate an intensive investigation of the flamboyant politician. Somehow, however, Long, then a senator from Louisiana, managed to get the Hoover administration’s investigation stopped in its tracks through secret intervention by Hoover’s assistant secretary of the navy, a New Orleans businessman named Ernest L. Jahncke.11
The Roosevelt administration’s tax investigation of Long was disclosed by the senator himself. In a speech to the Senate on January 7, 1935, Long revealed that the Treasury Department had dispatched a “horde” of 250 agents to check his tax returns and the returns of his lieutenants. “They did not try to put any covering over this thing,” he informed his Senate colleagues. It was, he added, a simple drive to put Long, and all the top officials of the Long machine, in prison.
The Roosevelt administration did not publicly respond to Long’s disclosure. But a few months later, Irey sent Morgenthau an extraordinary set of confidential memos that provides a revealing glimpse of the hard-nosed tactics that the government had adopted in its investigation of Long and his machine. The memos were written by Irey and two other bureau officials. Directed to Morgenthau, they concerned the progress and tactics of one narrow aspect of the Long investigation that the treasury secretary had ordered.
The first document was a one-page memorandum from Irey dated June 14, 1935. The subject was the Jahncke Service Company of New Orleans and the three Jahncke brothers, Paul, Walter, and Ernest.12 Irey noted that Paul and Walter had been very helpful in the investigation of Long but that “Ernest has lent little or no assistance.” It was Ernest, you will recall, who had managed to stop Irey’s first investigation of Long at the very end of the Hoover administration.
Irey began his one-page memo by reminding Morgenthau that the treasury secretary had requested information about the Jahncke brothers. After stating that the two documents attached to his own would answer Morgenthau’s questions, the intelligence chief made a somewhat cryptic reference to a favor that he thought the government should bestow on the company, then controlled by Paul and Walter Jahncke. “In so far as the interests of our Service are concerned,” Irey wrote, “it would be of considerable value if something could be done to assist the Jahncke Service Company in working out their problems through the Reconstruction Finance Company [RFC].…” Irey did not explain the exact nature of the assistance he was requesting or why it would be in the service’s interest to grant it.
The second document sent to Morgenthau was a bit more forthcoming. Written by A. D. Burford, the special agent in charge of the bureau’s operations in Dallas, it too concerned the Jahncke family.
For many years, Burford explained, the Jahncke Service Company had been in the business of dredging the rivers and canals of the Mississippi and then selling the sand, gravel, and shells that it recovered to state highway contractors. The company, however, was about to collapse because the Long machine had recently started giving all its business to the Jahnckes’ competitors. It is not known whether the withdrawal of state business was related to the decision of the company’s executives to help the federal government.
Burford proposed a course of action and the reason why he was recommending it. “It is believed that it would be advisable to assist the Jahncke Service Company in working out their financial program through the Reconstruction Finance Corporation in every possible way to prevent the company’s extermination. Paul Jahncke in particular has been very helpful in a confidential way and promises more and complete cooperation.”
It appears certain that Burford was suggesting what, in the middle of the Depression, could be considered an official bribe: an RFC loan to the Jahnckes in return for their continued cooperation in the Long investigation. A third document sent to Morgenthau reinforces this interpretation. This document was a report that a special tax agent named Alf Oftedal had prepared after a three-hour interview of Paul Jahncke in January 1935. According to Oftedal’s account, Jahncke had spelled out how “Huey P. Long proposes to do what he can to ruin” the Jahncke family. Oftedal also quoted Jahncke as saying he planned to approach Secretary Morgenthau about a loan from the RFC. “He expressed the opinion, in this connection, that with a little aid from such a source that [his] corporation could eventually recover from its difficulties, provided, of course, that Senator Huey P. Long was, as he put it, placed where he belonged. He stated that unless the Federal government succeeded in prosecuting the senator and his associates for their fraudulent practices and their wilful attempts to evade and defeat the income tax, that there was no hope for Jahncke Service, Inc., or any other upright, decent and honorable business organization in the State of Louisiana.”
A massive file of dusty index cards deep in the stacks of the National Archives Building in Washington shows that the RFC did in fact provide the Jahncke company the financial assistance mentioned in the documents sent to Morgenthau. But a note typed on the bottom of one of these index cards by some long-retired clerk of the Reconstruction Finance Corporation states that for unexplained reasons the full file containing the details of this particular transaction “cannot be processed for transmittal to National Archives.” And indeed, a search of the appropriate storage box at the National Records Center in Suitland, Maryland, found no records explaining the precise nature of the assistance that the indexcard notation shows was indeed provided the Jahncke Service Company by the RFC.
The bureau’s investigation of Long, apparently enriched by information offered by the grateful Jahncke brothers, now moved into high gear. Just how important the Long case had become to the Roosevelt administration is indicated by the direct involvement of the president in an important last-minute aspect of the effort to crush Long: the selection and recruiting of a lawyer to handle the actual prosecution.
The story of FDR’s direct intervention in the case was told by Irey. Bureau agents working the Louisiana investigation, he recalled, had repeatedly picked up reports that Huey Long was not concerned because he believed that no Louisiana jury would ever convict the state’s most popular politician. To stand a chance of putting Long in jail, Irey had become convinced that the government had to recruit a special prosecutor who was fearless, honest, and, most important, a Southerner.
“I told this to Secretary Morgenthau and he said, ‘Come on with me. I want you to tell it to someone else.’ Somebody else was only across the street and I soon found myself explaining the Huey Long situation to Franklin D. Roosevelt,” Irey recalled.13 Shortly after the White House meeting, FDR personally took on the job of persuading Dan Moody, a highly respected former governor of Texas, to become the government’s special prosecutor.
The bureau’s initial target in its attack on the Long machine was Louisiana State Representative Joseph Fisher. On April 26, 1935, Fisher was found guilty of tax evasion by a federal jury in New Orleans and sentenced to eighteen months in prison. Irey was elated. The first step in the broad attack on Huey Long and his lieutenants had been successful.
But five months later, a brilliant young physician named Carl Austin Weiss gunned down Long in the marble hallways of the Louisiana capitol. He was a passionate liberal, and his motive was probably political. Long was rushed to a nearby hospital, where surgeons attempted to repair the damage from the bullet, which had entered his stomach just under the ribs on his right side. Their efforts were not successful. Early on the morning of September 10, 1935, the Kingfish died.
Not surprisingly, the administration’s campaign against the Long machine immediately began to lose its momentum. One month after the assassination, a second Long lieutenant, Abraham Shushan, was brought to trial. He was acquitted of tax evasion charges. In May 1936, the U.S. attorney announced the dismissal of a number of other tax charges against powerful members of the Long machine. It was widely reported at the time that the cases had been dropped in return for a pledge from Long’s heirs to support Roosevelt in his bid for a second term.
There seems to be no question but that members of the Long machine were cheating on their taxes. Whether Long himself was not reporting all his income is less clear. Some experts contend that Long was only interested in the exercise of power, not in lining his pockets. Others scoff at this argument. In the case of Andrew Mellon, there appears to be clear evidence that the former treasury secretary was not guilty of criminal tax fraud.
Whatever the underlying facts in these two cases, however, there appears to be no question that the Roosevelt administration’s actions were motivated by politics rather than by recovering lost tax revenues. As in the Nixon years, this serious misuse of the tax agency’s law enforcement powers created a cynical climate that was destructive to both the agency and the attitude of all taxpayers.
Another political figure of considerable concern to the Roosevelt administration was the Reverend Charles E. Coughlin, a right wing, anti-Semitic Catholic priest who used the Radio League of the Little Flower and the Social Justice Publishing Company to spout his venom. It is worth noting that some months before Long’s assassination in 1935, the senator and the priest had met to explore a possible alliance. On September 18, 1940, the bureau sent Secretary Morgenthau a detailed report “for your information” about the tax status of Father Coughlin and his outlets.14
For the tax year 1936, the report said, Coughlin received a salary of $4,040. The next year, it dropped to $3,440. In 1938, his salary again was $4,040. In 1939, his salary dropped to $1,440. Income tax paid was $14.54 in 1936, $7.27 in 1937, $17.78 in 1938, and none in 1940.
Ted Morgan, in his 1985 biography of Roosevelt, reports that FDR directly asked Morgenthau to investigate the tax returns of Representative Hamilton Fish, a right-wing Republican whose district included Roosevelt’s Hudson River estate and who had met with several Nazi leaders in 1939. An investigation was conducted. “The worst side of [Roosevelt’s] self-righteousness, however, was not the perfectly human trait of taking credit when he had achieved so much but the habit of equating all forms of opposition with disloyalty,” Morgan concluded.15
The Revenue Bureau, Irey, and Morgenthau, however, were not only worried about the fanatic voices of the right. On June 25, 1941, Irey sent his boss a memo about Bernard Ades, a Baltimore lawyer who had become a controversial figure after a Maryland congressman demanded his removal as an auditor for the U.S. Housing Authority.16 Six years before, Irey informed Morgenthau, Ades had been denied a job in the bureau because, among other actions, “he had run as a communist for President of the Baltimore City Council.” The tax official also wrote that, because Ades had severely criticized a judge and a number of public officials while serving as a defense attorney, “the sincerity of his motives is seriously questioned by a large group of prominent business and professional men as well as high officials in the state.”
The purpose of the report on Ades is not clear. Although Irey devoted a good deal of attention to the political beliefs and actions of this insignificant leftwing lawyer, the report provided absolutely no information about whether or not Ades was paying his taxes.
A second, far more famous, target whose political persuasion was left-wing was the black singer and actor Paul Robeson. A cover note attached to the Revenue Bureau’s report on the investigation of Robeson said it had been undertaken at the request of Morgenthau. There again is no indication why the treasury secretary ordered the probe. But on August 7, 1941, Irey sent Morgenthau a thirteen-page report about Robeson’s “communist and communist-front activities, and his expressions concerning communists and Soviet Russia.” The report, by Special Agent George H. Allen, was backed up with thirty-seven separate exhibits, mostly articles about the singer that had been carefully clipped from The New York Times, the New York Herald Tribune, and the Daily Worker. Predictably, the report concluded: “It is believed that Paul Robeson is an ardent supporter of Soviet Russia and communism, and that probably he is a member of the Communist Party. His activities in or on behalf of communist and communist front activities have been so constant and widespread, and he has followed the ‘party line’ so consistently that it appears reasonable to conclude that he is attempting to fulfill the mission of the Communist Party of the United States without reservation.”17
EVEN ELEANOR
The surviving documents do not always make clear who it was that initiated the major political investigations undertaken by the Internal Revenue Bureau during the Roosevelt years. Circumstantial evidence suggests that at least in the cases of Mellon and Long it was probably the president himself who triggered the probes.
In one case, however, a clear paper trail shows how a casual inquiry from Eleanor Roosevelt prompted Morgenthau to order a tax investigation with significant political overtones. The subject of Mrs. Roosevelt’s curiosity was the conservative newspaper publisher Frank Gannett, who at the time was also the vice chairman of the Republican National Committee. The matter that had caught Mrs. Roosevelt’s eye was a report in an unpublished manuscript that Gannett had obtained indirect financial support from Cornell University in his drive to enlarge his chain of newspapers. The evidence shows that Mrs. Roosevelt was aware that the Gannett chain’s editorials had been highly critical of the Roosevelt administration.
In addition to being a leading publisher and a senior officer of the Republican party, Gannett held a third position of considerable consequence: the chairmanship of Cornell University’s Board of Governors. This last connection meant that the tax inquiry prompted by Mrs. Roosevelt’s June 7, 1944, note to Morgenthau could have had a major impact on one of the leading educational institutions in the United States, some parts of which were then regarded as important centers of conservative thought hostile to Roosevelt.
Mrs. Roosevelt’s interest in Gannett began on June 2, 1944, when Alvin W. Hofer, a New York writer, sent the first lady a typed manuscript of his unpublished book, The Fork in the Road.18 Hofer was concerned about what he believed was a fascist threat to America. One story cited to support his thesis involved an allegation that the trustees of Cornell had used $400,000 of the university’s tax-exempt endowment fund to help Gannett purchase the Binghamton Press and thus prevented the establishment of a liberal paper in the upstate New York area.
In a brief “Dear Henry” note to the treasury secretary about the manuscript, Mrs. Roosevelt said she was sending him “this voluminous bundle because it seems to be an account of something rather serious which actually happened.” She said she was unable to judge the accuracy of the allegations, but that “I thought you might know some one who would look at it and decide whether it was deserving of any attention since it deals with the experimental station at Geneva and the Cornell Agricultural College.”
Morgenthau did not waste any time. Within two weeks of receiving the manuscript, two Treasury Department staff members had read the book, undertaken a limited independent investigation, and provided the secretary with a three-page, largely critical review. While rejecting Hofer’s overall thesis, that the United States was about to be taken over by the fascists, the two reviewers appeared to accept some of his underlying research about the political activities and affiliations of Cornell University. Frank Gannett, they reported, was the chairman of the executive committee of the Board of Trustees of Cornell. On June 18, 1943, they added, Cornell had bought a building for $400,000, which it then leased to Gannett.
At the bottom of the cover note accompanying the June 16 review, Morgenthau wrote a brief note asking for further investigation and clarification of one sensitive question. “Check whether Cornell used trustee fund to buy newspaper. This if true might endanger their [unclear word] tax status.”
An investigation of whether Cornell’s activities might affect its tax situation was immediately launched. On June 29, Assistant Treasury Secretary Sullivan sent Morgenthau a note describing the transaction. “The trustees purchased the building in which the newspaper had been published. At the same time, Frank Gannett’s company purchased the stock of the Binghamton Press. Title to the building passed to Cornell and the lease of the premises by the University to the newspaper company is duly recorded. The amount of rent is not disclosed.” Sullivan concluded with his analysis that the arrangement did not “in any way affect the tax-exempt status of Cornell University.”
In the end, based on this opinion, nothing came of Morgenthau’s investigation of Gannett and Cornell. On the same day that Morgenthau received Sullivan’s assessment, he dispatched a four-page letter to Mrs. Roosevelt sharply criticizing Hofer’s analysis of the threat of fascism. Concerning the specific question of the legality of the Gannett contract with Cornell, however, he offered Mrs. Roosevelt no judgment.
WHO RUNS THE IRS?
Given the obvious fact that the IRS is an integral part of the executive branch, it is hardly surprising that over the years many of the narrowly focused political chores undertaken by the agency have been ordered by the president, the White House staff, the secretary of the treasury, and other powerful administration figures. From time to time, however, a member of Congress has gained sufficient authority to bully the IRS into serving his political needs. Such a man was Sam Rayburn, the powerful Speaker of the House of Representatives for a total of sixteen years between 1940 and 1961.
The story of how the Democrat Rayburn forced the Republican-controlled IRS to jump through his hoop was told by Tip O’Neill, the garrulous Massachusetts Democrat who was a well-connected member of the House during most of the Rayburn years. O’Neill himself later served as House Speaker.19
The year was 1955. At that time, the city of Albany, New York, was represented in the House by Leo O’Brien, a former radio talk show host. O’Brien had been sent to Washington by the Albany Democratic machine, then controlled by the O’Connell brothers. While the O’Connells were all-powerful in the precincts of Albany, they had a big problem in Washington: The IRS had serious doubts about the accuracy and completeness of their tax returns.
The O’Connells needed help, and through their front man in the House of Representatives they were granted a meeting with Rayburn. “Mr. Speaker,” Tip O’Neill would later recall one of the brothers as saying, “they’ve been holding our case up for years. My wife is in an institution, they’re driving us all nuts. We want them to make a decision: let them take it criminal or take it civil. We just want to know which way it will go so we can get this thing behind us and move on.”
Rayburn told the O’Connells to come back at five that afternoon. He then called T. Coleman Andrews, the IRS commissioner, and summoned him to the Capitol. When Andrews arrived, Rayburn told him that he wanted to talk about the O’Connell case. The commissioner said he had the matter on his desk.
“‘From what I hear,’” O’Neill remembers Rayburn saying, “‘it’s been sitting there for three years. You’re driving these people crazy. I want a decision by five o’clock tonight. Either take it criminal or take it civil. Personally, I think you should take it civil because these folks have suffered enough.’”
Like anyone holding the top job in the IRS, the commissioner was a political animal. He didn’t have to be told that a request like this from the most powerful Democrat then in office—Eisenhower was in the White House at the time—had to be given serious attention. A half hour before the deadline, the IRS called and the speaker got the word: The case was civil; the proposed fine would be $42,000.
But there was one additional twist to the story. When O’Brien brought the O’Connells back to the speaker’s office at five, Rayburn gave them the happy news. In the way of big-city politics, the brothers then promised Rayburn he could have O’Brien’s vote anytime he needed it.
“‘That’s not how I operate,’” O’Neill recalls Rayburn piously replying. “‘I’ve never done a quid pro quo in my life. I helped you because I thought the IRS was wrong in the way they treated you. But if you really want to help me out, there’s an interesting bill coming up concerning off-shore oil. Most of the northerners want those revenues to go into a special fund for a national education program. But there are many of us who think that money should go back to the states.’”
“‘No problem,’” the O’Connells said. “‘Leo will be delighted to vote with you on that one, won’t you, Leo?’”
Speaker Rayburn had used the political power of his office to muscle the Republican-controlled IRS to provide a special service to two powerful Democratic politicians. The politicians, in turn, had muscled their man in the House of Representatives to promise his vote for legislation that his constituents strongly opposed.
In spite of the considerable influence that officials at the top can wield when it comes to a specific sensitive case, a great deal of power is also exercised at the local level. This fact means that it is not only senior officials in Washington who sometimes target a political enemy. Although it clearly is not an everyday experience, IRS agents acknowledge that every one of the IRS’s seven regional commissioners and sixty-three district directors have sufficient authority to arrange for the harassment of troublesome taxpayers. But the decentralization of power within the IRS goes much further than that. Even individual tax agents have considerable discretion in the application of their enforcement powers.
Only on very few occasions in the history of the IRS has a taxpayer actually proved in a court of law that a single tax agent had initiated a serious tax case for political purposes. Partly, of course, this is because such actions are rare events. Another explanation for the rarity of such cases, however, is that very few taxpayers have the will and financial resources needed to mount a legal battle against the IRS, even when its enforcement actions are totally unjustified.
FIGHTING BACK
Reuben G. Lenske, an energetic and outspoken Oregon lawyer, waged one of those rare heroic campaigns.
The IRS first brought criminal tax charges against Lenske in 1962. The original indictment charged him with attempting to evade paying $500,000 in income taxes in 1955, 1957, and 1958 and with filing a false return in 1956. After a lengthy trial in federal district court, Lenske was convicted.
But Lenske took his case to the Ninth Circuit Court of Appeals. On October 5, 1966, a three-judge panel reversed the lawyer’s conviction on two grounds. First, the court said, the tax charges leveled against the lawyer were based on factully incorrect information. Second, the whole prosecution was legally suspect because it had been triggered for political reasons having nothing to do with violations of the tax law.
“This court will not place its stamp of approval upon a witch-hunt, a crusade to rid society of unorthodox thinkers and actors by using the federal income tax laws and the courts to put such people in the penitentiary,” the judges said.
The Court of Appeals described the IRS investigation and prosecution of Lenske as being “contrary to law,” “outrageously unfair,” speculative, and astonishingly sloppy. The court found that the IRS agent who prepared the case against Lenske; the prosecutors; and the federal trial judge all contributed to an astonishing miscarriage of justice. But the court came down the hardest on Albert DesChennes, the lead investigator for the IRS.
The crucial moment in the case, according to the court, occurred on June 13, 1961, when DesChennes handed his final investigative report to the director of the IRS office in Portland, Oregon. The report was 37 closely typed pages and was followed by an appendix of 84 pages that listed 468 exhibits and the names and addresses of 315 witnesses should their testimony ever be required.
Impressive as this bulky document seemed, it was the extraordinary political commentary in the first few pages that astonished the appeals court. After noting that Lenske had been born in Russia, the court said, DesChennes’s report observed that “representatives of the Federal Bureau of Investigation, Portland, and the Intelligence Division of the Portland Police Department stated that they have reason to believe that Mr. Lenske is a communist. In fact, they each maintain an extensive file on Mr. Lenske.”
To support this conclusion, DesChennes included a newspaper clipping of an announcement made by the lawyer and one of the lawyer’s colleagues about a forthcoming meeting to form a local chapter of the Lawyers’ Guild, a left-leaning organization. The agent noted that the clip had also said that the organizing meeting would be followed by a showing of a controversial documentary film criticizing the tactics of the House Un-American Activities Committee. Another part of the special agent’s evidence against Lenske was a letter published in a local newspaper in which the lawyer stated that some of the actions taken by the United States in its relations with Cuba, Laos, and China violated U.S. laws and treaty obligations.
As a result of an IRS appeal, the Court of Appeals issued a second opinion on August 27, 1967. The second decision again reversed Lenske’s conviction, but this time only on the grounds that the government had failed to prove that he was a tax cheat. In an additional separate opinion, however, one of the judges returned to the political aspects of the case.
“I regard what I have recited above as a scandal of the first magnitude in the administration of the tax laws of the United States. It discloses nothing less than a witch-hunt, a crusade by the key agent of the United States in this prosecution, to rid our country of unorthodox thinkers and actors by using federal income tax laws and federal courts to put them in the penitentiary. No court should become an accessory to such a project.” He added that the investigation of Lenske by Special Agent DesChennes could “only be described as grotesque.”
The stated reasons for the IRS’s investigation and prosecution of Lenske were bizarre. But according to both the first and second Court of Appeals decisions, almost as curious were the gross inaccuracies of the tax charges brought against the lawyer.
In the court’s first decision, for example, the panel observed that as a result of his two-and-a-half-year investigation DesChennes had concluded that for 1955 alone “Lenske had evaded taxes in the amount of $11,465.-74.” But during the actual trial, the district court judge determined that the agent’s accounting skills were poor and that the extra taxes owed were only $414.78.
The court was not impressed. “The special agent determined Lenske’s taxes to be 27 times as much as the court found them to be. On an examination testing his accuracy, the special agent would have scored less than 4 out of a possible 100.”
Another unusual aspect of the case cited by the appeals court concerned the government’s reaction to the testimony of an expert witness called by Lenske. The witness, the court said, had identified a large number of significant errors in the charges that the government had brought against Lenske. But instead of abandoning its prosecution, the government simply adopted all the corrections in the revised tax charts that the prosecutors subsequently submitted to the trial court.
In its second reversal of Lenske’s conviction, the court called the government’s handling of the case “outrageously unfair.” The panel added that the evidence presented by the government was so speculative and uncertain that the court could not allow the case to stand.
There is no suggestion in the IRS documents cited by the two Court of Appeals decisions that Lenske was the target of a national campaign directed by agency headquarters in Washington. What the record suggests is that DesChennes decided to initiate his tax investigation after federal and local law enforcement officials in the area decided that the lawyer was a politically suspicious person. Perhaps their suspicions were fed by Lenske’s letters to the editor and by conspiratorial whispers from the “Red squad” of the Portland Police Department and the local office of the FBI.
But Lenske himself believes that the actual trigger of the IRS investigation was his decision to represent a World War II army veteran named William Mackie. The Immigration and Naturalization Service had begun proceedings to deport Mackie on the grounds that he had been a member of the Communist party. Lenske took the Mackie case to the Supreme Court, where he lost by a five-to-four decision.
“There was another lawyer in Oregon who represented most of the Communists in those days but for one reason or another Mackie came to me. I think the fuss and bother over this case probably is what caught the eye of the IRS,” Lenske said in an interview in 1987, more than two decades after his trial.
“I was not and have never been a Communist, but I did represent a citizen who the government wanted to kick out of the United States for political reasons.”
The lawyer said that from the very beginning he was convinced he eventually would defeat the IRS. “But the Court of Appeals decision surprised me. I thought I’d have to go to the Supreme Court before my conviction would be turned around.”
Even though Lenske did not have to go as high as the Supreme Court, the lawyer’s successful battle against the IRS was extraordinarily costly. “You understand, first of all, that with my conviction I automatically lost my right to practice law. It was not until the Court of Appeals reversed my conviction four years later that I could once again earn any income as a working lawyer.”
But the loss of a regular source of income was only one part of the devastating effect of the tax prosecution on Lenske’s financial situation. He estimates that the actual cost of his defense came to about $100,000. “I was very lucky because I had some resources,” he said. “I was able to raise $20,000 to pay the lawyer who represented me at the district level. After Judge Carter sentenced me to two years in federal prison, I talked to my lawyer about an appeal. He said it would cost me another $50,000. But because the Internal Revenue Service had assessed me with $500,000 in unreported income taxes and placed liens against all my properties, I couldn’t raise any money for the appeal. I had no choice but to handle the appeal myself.”
Lenske, who said he was a strong advocate of the graduated income tax, never received any damages. In fact, partly because of the difficulty of the law, he never even sought them. “I always was more interested in the principle of this case, not the money,” he said. Albert DesChennes, now retired from the IRS, at first declined to comment on the case. He did say, however, that the agency did not reprimand him after the court decisions criticizing him.
The prosecution of Reuben Lenske is an example of how an individual agent in some special circumstances can use the powers of the IRS to bludgeon a citizen for political reasons. Often, however, the use of the IRS’s power and information for political advantage is far more subtle.
On April 11, 1970, Lawrence F. O’Brien, a former Kennedy administration official who was then chairman of the Democratic National Committee, issued a press release denouncing President Nixon for allowing one of his White House aides to obtain tax information.
“I call upon President Nixon to terminate immediately this illegal access of his personal staff to confidential tax returns of 80 million Americans,” O’Brien said. The Democratic official added that, by allowing a former newspaperman named Clark Mollenhoff to examine tax records, President Nixon had violated the federal laws and regulations protecting the privacy of all Americans.
O’Brien said his judgment about the impropriety of the Nixon program was based on a legal memorandum prepared by Mortimer M. Caplin, IRS commissioner during the Kennedy administration, and two other former agency officials.
The 1970 O’Brien denunciation of President Nixon, and Caplin’s legal analysis, however, turned out to be an embarrassment to the Democrats.
This is because almost a decade before, on May 23, 1961, Caplin, then serving as Kennedy’s brand-new IRS commissioner, had written a long memorandum explaining that a few months before he had allowed Carmine Bellino, a special consultant to President Kennedy, to inspect IRS files “without a written request.”
In an interview in the spring of 1989, Vernon (Mike) Acree, an IRS official from the early 1950s through the Nixon years, provided an interesting insight into the secret use of tax information by various presidents. During the Watergate hearings, Acree was identified by John J. Caufield, a Nixon staff member, as the source of tax information for the White House.
“Right after Kennedy was elected, I got called down to Caplin’s office,” Acree said. “He introduced me to Bellino. Caplin said Bellino was a special assistant to the president and could have anything. One of my assistants set Bellino up in a little office in the IRS headquarters building. I remember that one day during the Kennedy years that my assistant provided Bellino a stack of tax records about ten inches high that had been submitted by The New York Times. We weren’t told why the White House wanted to see the Times’s returns and didn’t ask.” (Bellino, who has retired to Florida, did not return several telephone calls to his home. James Reston, who was the Times’s Washington bureau chief during the period, said in an interview that he had never previously heard that the Kennedy aide was looking at the tax returns of the paper and that he had no idea why the investigation was conducted.)
Acree said that his point was not to criticize Bellino or Kennedy. “The tax information I made available to Kennedy and Nixon was not unusual and did not violate the laws of the period,” he said. “Furthermore, I had provided the same service to White House people under Truman, Eisenhower, and Johnson.”
It wasn’t only President Kennedy who wanted the IRS to open its files to Bellino. In a letter dated less than a week after Kennedy assumed office, Attorney General Robert Kennedy asked Caplin to give Bellino access to federal tax information in connection with joint investigations by the IRS and the Justice Department. On February 1, Robert Kennedy got his wish.
One of the purposes for the attorney general’s request that Bellino be given total access to the nation’s tax records was Robert Kennedy’s decision to mount an intensive and coordinated attack on organized crime. The seriousness of this drive was indicated about a month after taking office, when Caplin issued an IRS-wide order on February 24, 1961, calling for the saturation treatment of the racketeers’ files and the “full use” of “available electronic equipment.” (Chapter 5 on criminal tax enforcement described additional details of this drive against organized crime.)
The hypocritical charges from O’Brien and Caplin that the Nixon administration was misusing tax records in a historically unique way enraged Senator John Williams, a tenacious Delaware Republican who had made a successful political career out of giving the IRS a hard time.
One day after the O’Brien-Caplin attack on the Nixon team, Williams went on the floor of the Senate and disclosed the existence of the Caplin order granting Bellino permission to view any kind of records held by the IRS.
Williams and his Republican colleagues in the Senate were deeply annoyed by Lawrence O’Brien and Mortimer Caplin’s pious 1970 complaints about the Nixon White House. But they would have been genuinely furious if they had known about the full range of the Kennedy administration’s political misuse of the powers of the IRS. Details of the secret Kennedy operations were to remain hidden until after the cumulative weight of the Watergate scandals drove Nixon from the White House.
Because the Kennedy campaign was aimed at smothering a fairly broad political movement, rather than a single political figure such as Secretary Mellon or Senator Long, I have chosen to describe its functioning in chapter 11.
But one interesting case showing how the Kennedys used the power of the IRS for their own political purposes will be discussed here because it involves a single fallen member of the Eisenhower team.
Tax information can be marshaled for political advantage in an almost endless number of ways. Many, of course, involve the disclosure of embarrassing tax information by formal or informal means, Conversely, even suppressing tax information has been used to political advantage. William Safire, now a conservative and witty columnist at The New York Times, told of one such incident in a 1986 column. Before joining the Times, Safire was a speechwriter in the Nixon White House and a Republican public-relations man.
The subject of Safire’s fascinating November 3, 1986, column was Sherman Adams, who had just died. Adams was the former Republican governor of New Hampshire who had become a powerful White House chief of staff during the Eisenhower administration. He had been forced to quit after congressional Democrats disclosed he had accepted the gift of a vicuña coat from an industrialist named Bernard Goldfine.
Safire reported that shortly after Kennedy took over the White House in January 1961, Sherman Adams’s landlady informed the IRS that he had not paid his taxes for a number of years. (Vernon Acree, in his 1989 interview, confirmed that the IRS had conducted an extensive tax investigation of Adams. Acree said that he knew about the investigation because he had conducted it himself. “We found that Adams was depositing large amounts of cash in accounts he maintained all over the country,” Acree said. “It seems he would often make the deposits in these banks while flying around the country with President Eisenhower.”) Safire said that the IRS investigation found hard evidence that Adams had not reported $300,000 of his income on his tax returns, and the case was then turned over to the Kennedy Justice Department for prosecution. It was a ticklish matter. After a talk with Senate Minority leader Everett Dirksen, White House political assistant Kenneth O’Donnell took the matter up with President Kennedy, who ordered him to see former President Eisenhower.
“Eisenhower thought that his former aide had suffered enough,” Safire reported. “Both John and Robert Kennedy saw a good way to get the former President and the minority leader indebted to them and (as Kenny O’Donnell later confirmed to me) the Justice Department informed the IRS that the case was too weak to prosecute.”
The Kennedy brothers had turned the decision not to enforce the law to their long-term political advantage. But Safire said the potency of the Adams information was still not spent. Shortly after Kennedy’s assassination, he reported, diehards at the IRS decided to renew their efforts to nail Adams. Eisenhower still felt his former colleague had suffered enough and he called President Johnson and complained that the IRS was harassing poor Adams. “President Johnson, too, wanted Ike in his political debt,” Safire said, and the White House ordered the IRS to cool down its aggressive tactics. “Prosecution, of course, was out.”
There are many insights to be gleaned from Safire’s story about the political usefulness of Sherman Adams’s indiscretion. One of them is how two willful and powerful presidents sought psychological advantage over a former president by persuading the IRS not to prosecute his former assistant. A second insight is how withholding official sanction sometimes can provide the withholder more clout than applying the penalty.
There were many occasions during Lyndon Johnson’s long political career in Washington when he successfully manipulated the IRS for his own purposes. But bureaucracies have a way of getting even.
In September 1965, the powerful wife of one of Washington’s most powerful men received a rude computerized notice about some money she allegedly owed the IRS. Carolyn Agger, a leading tax lawyer at the distinguished Washington law firm of Arnold & Porter, knew a great deal about taxes and she was quite positive that the IRS was wrong.
Agger is not shy and she shot off a blistering letter to IRS Commissioner Sheldon Cohen about the “congenital idiots” who had sent her the incorrect notice. Because Agger was one of the nation’s leading tax lawyers, she was reasonably confident that her letter to Cohen would not be intercepted by a secretary. But the fact that her husband was Associate Supreme Court Justice Abe Fortas, one of Lyndon Johnson’s closest and oldest friends, certainly didn’t hurt the chances that Cohen would be personally attentive.
Commissioner Cohen’s September 16, 1965, “Dear Carolyn” reply was a model of cheery diplomacy. It also was an early example of what soon would become the government’s silly all-purpose excuse for sloppy administrative work: It’s not my fault; the computer did it. “In all fairness to the ‘congenital idiots’ in Baltimore, they actually reside in Philadelphia at our Regional Service Center!” he wrote. “I realize that it is a small comfort to know that your current problem is with our data processing equipment rather than our district employees, but I do want you to understand that we are in the throes of working out the new system and are having a little trouble with some of our credit and billing cycles.”
Cohen ended the formal part of his note by expressing his apologies and asking “your indulgence while we wage our battle with the machines.” But then the IRS commissioner added a brief handwritten note: “After all we may need Abe’s vote one day.”
The postscript was a tacky reminder to Agger about who really wore the pants in the family. But it takes on a genuinely ironic undertone when one remembers that just three years later the agency that Cohen still headed would improperly disclose information about Abe Fortas that would destroy his career and reputation.
The distasteful act in the Fortas story began on an October afternoon in 1968, shortly before Lyndon Johnson left the White House, when one of the most successful investigative reporters of that period stopped by the Washington office of a middle-level official of the IRS.
“It was a casual conversation about a lot of different matters,” recalled William Lambert, then the senior reporter for Life magazine. “But all of a sudden my IRS friend said something like, ‘You ought to look into the association between Fortas and Wolfson, between Fortas and the foundation set up by Wolfson.’”
It was an extraordinary lead from the core of the IRS, the key federal agency responsible for keeping track of foundations and how they spend their money. After six months of intensive reporting, on April 30, 1969, Lambert broke the story that Supreme Court Justice Abe Fortas had accepted a $20,000 fee from the Wolfson Foundation. This connection raised serious ethical questions because Wolfson, an ambitious and flamboyant Florida millionaire, was then asking the federal appeals court to reverse his conviction for violating U.S. securities laws. It was true that Fortas had been Wolfson’s lawyer before he had joined the Supreme Court, but the arrangement for the $20,000 fee was completed while he was a member of the highest court of the land.
On May 14, just two weeks after publication of Lambert’s story and several earnest protests about the innocence of the arrangement, Fortas became the first and only Supreme Court justice ever to submit his resignation while under fire for questionable conduct. One of the Court’s most forceful and articulate liberals had been forced to step down as the result of a confidential tip from the files of the IRS. Because of the vast authority of the Court and the guaranteed tenure of its members, Fortas’s decision had great political significance. With the unrelated resignation of Chief Justice Earl Warren a few months later, Richard Nixon, who had just been elected president, was able to begin the long slow process of altering the liberal tone and direction of American law.
Almost certainly, the leak was not the result of pressure from the White House. Fortas, after all, was Johnson’s man. Almost certainly, the leak was not the result of pressure from the commissioner. Cohen was Johnson’s man. Was the middle-level official who violated the law by steering Lambert to the biggest story of his life just a dedicated worker disgusted by the smell of the transaction? Or was the official a right-wing zealot who had become enraged by the decisions of the liberal wing of the Warren court? Or was Lambert being rewarded with what turned out to be a momentous tip in return for his previous favors for the agency? As we shall see in chapter 12, this was not the first time that Lambert was leaked sensitive tax information about a powerful political figure.
Neither we nor Bill Lambert will ever be certain. But during an interview in his house in a quiet village near Philadelphia, he argued against the theories that he was given the Fortas tip as a result of a right-wing conspiracy or as a reward for previous services rendered. “This guy knew me and I think he just was offended by what he saw,” Lambert contended.
Thus did tax information that was leaked from the IRS while Lyndon Johnson was in the White House trigger an investigation that destroyed the career of one of his closest friends.
TRICKY DICK
While the question of motive remains an enigma in the Fortas case, there are few doubts about the aggressively political goals of many of the operators who took over control of the federal government when Richard Nixon became president.
Some of these activities had narrow goals such as the destruction of the presidential campaign of George Wallace, the Alabama governor, and will be told here. Other IRS activities were far more ambitious projects aimed at curbing broad social programs. They will be described in chapter 11.
On February 6, 1974, the House of Representatives approved a resolution directing the House Judiciary Committee to investigate whether sufficient grounds existed to impeach President Nixon. So many reports of abuses had appeared in the Washington Post and other newspapers that the resolution was approved by a vote of 410 to 4.
The investigative staff of the House Judiciary Committee began collecting evidence. From May 9 to June 21, 1974, the committee met in executive session to consider the evidence against President Nixon on a number of specific subjects, including the Watergate break-in and its aftermath, government favors granted ITT, the use of federal investigative agencies for questionable surveillance activities, and the abuse of the IRS.
On July 27, 29, and 30, 1974, the committee voted to approve three articles of impeachment. Article I concerned President Nixon’s illegal efforts to impede and obstruct the investigation of the break-in of the Democratic National Committee. Article III charged Nixon with the willful disobedience of subpoenas of the House for presidential papers and tape recordings.
Article II, which the committee approved by a vote of 28 to 10, charged the president with repeatedly violating the constitutional rights of the American people. The first specific charge in Article II involved the IRS.
“He has, acting personally and through his subordinates and agents, sought to obtain from the Internal Revenue Service, in violation of the constitutional rights of citizens, confidential information contained in income tax returns for purposes not authorized by law, and to cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.”20
To support its allegations against the president, the committee presented evidence concerning five separate situations, mostly involving the use or attempted use of the IRS for specific political purposes.
In the spring of 1970, for example, George Wallace of Alabama was running against Albert Brewer in the Alabama primary for the Democratic nomination for governor. Nixon political strategists believed a Wallace defeat would be helpful to the president because it would lessen Wallace’s appeal in the 1972 presidential election. According to the testimony of Herbert Kalmbach, Mr. Nixon’s personal attorney and fundraiser, $400,000 from the president’s 1968 campaign fund was secretly passed to the Brewer team.
But the White House team was still uneasy. In early 1970, H. R. Haldeman, White House chief of staff, saw a confidential report that the IRS was investigating George Wallace and his brother Gerald. Haldeman ordered Clark Mollenhoff, a former newspaper reporter who was then a special assistant to Nixon, to obtain a copy of the IRS report. On March 21, 1970, the material was delivered to Haldeman.
“Material contained in the report was later transmitted to columnist Jack Anderson. Portions of it adverse to George Wallace were published nationally on April 13, 1970, several weeks before the primary election,” the House Judiciary Committee said.
A second example of the Nixon administration’s misuse of the IRS occurred in 1972 after John Ehrlichman, then the executive director of the Domestic Council of the White House, read another confidential IRS investigative report, this one concerning Howard Hughes. The report on the eccentric industrialist caught Ehrlichman’s eye because it suggested a connection with the personal finances of Lawrence O’Brien, then chairman of the Democratic National Committee. Ehrlichman ordered Roger Barth, a Nixon political operative then working as an assistant to IRS Commissioner Johnnie Walters, to provide him with detailed information drawn from O’Brien’s tax return.
Armed with these tidbits, Ehrlichman told Treasury Secretary George Shultz that O’Brien should be interviewed by the IRS. It was then IRS policy that candidates and other leading political figures would not be audited or questioned during an election year unless the statute of limitations was about to run or there was some other compelling consideration.
Despite this policy, Shultz and IRS Commissioner Walters bent to White House pressure and O’Brien was interviewed on August 17, just eleven weeks before the 1972 election.
In his later testimony to the House Judiciary Committee, Walters said O’Brien was completely cooperative and the IRS decided there was no tax problem.
Ehrlichman was not pleased by the IRS decision. On August 29, Walters recalled in his testimony, the White House counsel expressed his disappointment. “I’m goddamn tired of your foot-dragging tactics,” Walters quoted Ehrlichman as saying.
Rejected by Shultz and Walters, Ehrlichman then telephoned Kalmbach, the Nixon associate who had assisted in the secret transfer of funds to Wallace’s opponent. “He gave Kalmbach figures on O’Brien’s allegedly unreported income and asked Kalmbach to plant the information with Las Vegas newspaperman Hank Greenspun, a friend of Kalmbach. Kalmbach refused to do so, despite subsequent requests by Ehrlichman and Mitchell,” the committee reported. John Mitchell had been Nixon’s attorney general and chairman of the Committee to Re-elect the President.
Ehrlichman failed in his attempt to force the IRS to bring politically embarrassing charges against the chairman of the opposition party. He also did not succeed in an attempt to leak the information about the investigation to the press. But he successfully undermined the agency’s somewhat shaky policy of not initiating politically sensitive investigations that could be safely postponed until after an election.
One unanticipated effect of Ehrlichman’s partial success in forcing the IRS to question O’Brien, as we have seen, was O’Brien’s counterattack on the unsavory tactics of the Nixon administration, which ultimately led to the disclosure of the Kennedy brothers’ casual way with tax returns.
The last specific situation cited by the House Judiciary Committee to support its charges that President Nixon had knowingly and improperly misused the IRS was based on a conversation he had on March 13, 1973, with John Dean, counsel to the president. The talk, which was picked up on the hidden microphones that the president had ordered for his office, concerned the “project to take the offensive” with respect to the Senate Watergate hearings that were then proceeding. The president mentioned an earlier occasion when Secretary Shultz and Commissioner Walters had resisted a White House demand that the agency investigate everyone making contributions to the campaign of the Democratic presidential candidate, George McGovern. The president then asked Dean, “Do you need any IRS [unintelligible] stuff?”
“[T]here is no need at this hour for anything from the IRS, and we have a couple of sources over there that I can go to,” Dean replied. “I don’t have to fool around with Johnnie Walters or anybody, we can get right in and get what we need.”
Dean may have been puffing a bit for his boss, but documents of the period obtained from the National Archives indicate that the White House counsel did indeed have rather casual access to theoretically confidential tax files.
On October 6, 1971, for example, Dean received a brief note from John J. Caulfield, a former New York City police detective hired by Ehrlichman to supervise White House investigations. Caulfield’s note was attached to a four-page summary memorandum from the IRS concerning the agency’s audit examinations of nine Hollywood stars “who are politically active.”
One of the entertainers on the IRS list was John Wayne, who the agency claimed owed the government $237,331 in taxes for the 1966 tax year. The list indicated that Wayne’s returns for 1967, 1968, and 1969 were still being actively audited.
Caulfield’s note to Dean suggested that the White House had requested the information about the nine Hollywood figures because John Wayne had complained to the White House that the IRS was picking on him for political reasons. “The Wayne complaint when viewed in the attached context does not appear to be strong enough to pursue,” Caulfield wrote.
AUDITING RONALD REAGAN
The special IRS list showed that Richard Boone, Sammy Davis, Jr., Jerry Lewis, Peter Lawford, Fred MacMurray, Lucille Ball, Frank Sinatra, and an undistinguished actor named Ronald W. Reagan had all been audited during the same period. The list further showed that each one had been ordered to pay additional taxes, although the individual assessments varied. Jerry Lewis had been ordered to pay an additional $142,718 in 1963 and $94,272 in 1965. But the deficiencies for most of the other actors, given the size of their incomes, were quite small. Reagan, for example, was ordered to pay an additional $3,541 in 1964 and $1,122 in 1965. The list Caulfield provided Dean indicated that Reagan’s returns from 1967 to 1970 were still being audited.
The intelligence on these tax problems must have provided Dean and his colleagues excellent material for amusing chatter at Washington’s endless dinner parties. But the IRS intelligence was useful for serious political purposes too.
Egil (Bud) Krogh was deputy assistant to the president for domestic affairs and assistant director of the White House Domestic Council. On July 20, 1971, Krogh received a brief note from John Dean. The Nixon team had picked up rumors that the Brookings Institution, a liberal Washington think tank, was planning to issue a report on Vietnam. The White House was not happy.
“I requested that Caulfield obtain the tax returns of the Brookings Institution to determine if there is anything that we might do by way of turning off money or dealing with principals of the Brookings Institution to determine what they are doing and deal with anything that might be adverse to the Administration,” Dean wrote to Krogh. “Attached are copies of these tax returns and you will note that Brookings receives a number of large government contracts.”
Seven days later, Dean sent Krogh a second note concerning Brookings. “Please note the attached memorandum on what should be done about the large number of government contracts now held by the Brookings Institution. If you want me to ‘turn the spigot off’ please let me know; otherwise, I will assume you are proceeding on this matter.”
The unsigned memo was a detailed analysis of Brookings and one of its important supporters, the Ford Foundation. “In recent years, the Institution has obtained more than $14 million in Ford subsidies, including $175,000 to produce a book called ‘Agenda for the Nation’ immediately after the 1968 Presidential election,” the analysis reported. “The Wall Street Journal called it [the book] a collection of policy papers by 18 writers who ‘comprise an honor roll of academicians of the New Frontier and Great Society.’”
The report added that it was clear that Ford and Brookings represented “formidable opposition to the best interests of this Administration. It would appear that an expeditious political response to this challenge would be the simple expedient of applying pressures to have the Internal Revenue Service strictly enforce existing statutes and promulgated regulations designed to threaten the tax exempt status enjoyed by these organizations.”
The unknown author of the White House study then complained that top officials in the IRS were not being entirely cooperative. “Commissioner Walters has not yet exercised the firm leadership expected at the time of his appointment. Additionally, there appears to be a reluctance on his part to make discreet politically oriented decisions and to effect major appointments based upon Administration loyalty considerations.”
SQUEAKY CLEAN?
There were literally dozens of different ways that the tax-collecting powers of the IRS were marshaled for political purposes during the Nixon years. With accelerating speed after the discovery of the mysterious burglary at the Watergate on June 17, 1972, evidence of the repeated abuse of the powers of government tumbled into public view. A little more than two years later the House Judiciary Committee voted to impeach Richard Nixon.
Although Nixon resigned before an impeachment trial could be scheduled in the Senate, the carefully documented charges of the House Judiciary Committee provided a powerful lesson for both the senior government officials who ran the enforcement agencies and the staffs who managed the White House under Gerald Ford and Jimmy Carter. Suddenly, much more attention was given to managing the CIA, the FBI, and the IRS in a lawful manner for lawful purposes. And Congress soon passed a law establishing for the first time the principle that tax returns must be kept secret except in certain specific circumstances.
As will be discussed in the next chapter, however, there is considerable evidence that some members of the Reagan administration forgot the painful lessons of the Nixon impeachment and the Watergate hearings and once again began to see the IRS as a useful instrument of political control.