A Secret History of IRS Tax Cops

Donald K. Vogel, chief of the IRS Intelligence Unit that changed its name to Criminal Investigations Unit, boasts that these tax detectives grew from a mere six special agents in 1919 to more than 3,200 today. "We follow the money that ultimately leads to the criminal," Vogel writes in the secret files.

The document is divided into three segments. The first consists of profiles and photographs of the heads of the Criminal Investigations Unit from Elmer L. Irey (1919-1943) to Vogel. The second section is a reprint of a rare document prepared in the mid-1930s that relates the history of the Intelligence Unit from 1919 to 1936. The third section covers 1936 to 1994 with organizational and operational highlights.

History buffs likely will get a kick out of reading the 99 pages of follies involving the early Intelligence Unit. Its foreword was written by Irey, a former postal inspector who became the head of IRS Intelligence in 1937. He served as chief coordinator of all Treasury law-enforcement agencies, including the Secret Service, Customs Service, Foreign Funds Control, Narcotics, Alcohol Tax and Intelligence. While Irey notes "tax dodgers are found in all walks of life bankers, racketeers, bootleggers ... tax accountants and lawyers," he concludes that the "vast majority of taxpayers are honest."

Irey details how the IRS has aided U.S. war efforts. He says that by April 6,1917, it had become apparent that the country needed to assist other countries financially and would need to raise enormous war-fighting revenue. As a result, income-tax rates were increased and an excess-profits tax was added by the Revenue Act of 1917. It imposed the highest taxation rate ever seen in the United States. The surtax rate of 1 percent on incomes of more than $20,000 was increased to 1 percent on net incomes of $5,000 up to a maximum rate of 63 percent. Revenues increased from $3.4 million for 1913 to $5.4 million in 1920. As a result of this change the Intelligence Unit was created to catch tax cheats.

The duty of the unit was not only to catch those attempting to defraud the government, but to investigate charges against employees of the IRS involving extortion, solicitation, embezzlement, aiding in the prosecution of a claim against the government and official and moral misconduct.

Between 1919 and 1936, the secret IRS records show, a total of 9,109 tax-fraud cases were investigated and convictions were obtained in 92 percent of the cases. It was estimated that for every $2 the IRS spent, it collected more then $100 in taxes. One of those caught was Capone. Such mobsters, the report claims, were so difficult to catch because they often bribed and used corrupt political influence to escape charges, as well as intimidated prosecution witnesses. That's when the IRS Intelligence Unit stepped in, the secret file says.

Historian Davis recalls being asked by reporters about Capone many times, but regularly was told by superiors that the subject was off-limits. "One of the most popular IRS recruiting posters features a close-up of Al Capone's mug under the tag line, `Only the IRS could get Al Capone'," she says. "But when I checked with the IRS attorneys about how to answer these questions [on Capone] they advised me that I would be violating the law if I even told someone that Al Capone went to prison for failure to file his tax returns."