The Internal Revenue Service has allowed itself to be used by embezzlers, vengeance-seekers and others to wreck innocent small businesses and turn their owners' lives upside down, a group of such victims told a Senate panel Wednesday.
An Oklahoma tax-return preparer, a Texas oilman and a Virginia restaurateur described how raiding parties of armed agents from the IRS Criminal Investigation Division barged into their homes or offices, frightened their employees and families _ and ultimately came up empty-handed.
Two of the men later found former employees had precipitated the raids, and the IRS had done little or no checking on its informers' credibility. The third witness said he never could find the reason he was pinpointed.
"Wow," said Sen. Daniel Patrick Moynihan, D-N.Y., after hearing their stories. "We have to be much concerned about the paramilitary performance of the IRS. . . . It's government violence directed against citizens."
IRS Commissioner Charles O. Rossotti said the allegations were serious: "Should even one of these allegations prove true, it's one too many, and I won't tolerate it."
The testimony came in the second of four days of hearings by the Finance Committee into allegations of IRS abuse of taxpayers and its own employees.
Wednesday's testimony had the added element of guns and threats of violence.
Richard Gardner, whose company prepares 4,500 to 6,000 tax returns each year, recalled that one morning in 1995, he found 15 IRS agents and a half-dozen U.S. marshals in his lobby.
They seized client records, computers, personal papers and other files, and held them for two years. Gardner bought new computers and continued in business, but the damage to his business was extensive.
Ultimately, the IRS dropped the case.
W.A. "Tex" Moncrief Jr. suffered an even more fierce raid on his family-run oil company in Fort Worth, Texas, in 1994:
"My employees heard the agents shout, "IRS! This business is under criminal investigation! Remove your hands from the keyboards and back away from the computers. And remember, we're armed!' "
It turned out that a former accountant, fired for incompetence, had gone to the IRS, Moncrief said.
The IRS offered to settle, first for $300-million, then for $100-million, then for $24-million, then for $23-million. Moncrief agreed to pay, having spent $5.5-million on his defense and seeing his business ruined by the publicity.
"I didn't like this arrangement, but it was clear to me that the IRS would investigate our family business to its demise and me to my grave," he said.
John Colaprete, owner of the Jewish Mother restaurant in Virginia Beach, was raided after a bookkeeper, whom he had discovered embezzling, went to the IRS and told agents a lurid tale of drug dealing and gun running.
He said, "The system does not work for the American taxpayer."