IRS Role Model Dies at Age 94

I’m going to warn you: if you are prone to crying during movies like Forrest Gump or Old Yeller, you may want to skip this blog post.  If you don’t believe me, read on.  Read all the links too and you’ll probably agree that this story is up around 8 or 9 on the “feel-good” scale.

We lost a good man this week, and he used to work for the IRS.  I know, that sounds like an oxymoron these days.  Johnnie M. Walters, former IRS commissioner during Watergate, died on Tuesday at the age of 94.  In 1971 Nixon needed a “yes man” to fill the top post at the IRS, and after he fired the previous commissioner, Nixon made this statement about his replacement (recorded on White House tapes):

I want to be sure he is a ruthless son of a bitch, that he will do what he’s told, that every income-tax return I want to see I see, that he will go after our enemies and not go after our friends.

How easy it would be to find this kind of guy in 2014!  But in the early 1970s I guess there were people in positions of power who didn’t let it get to their heads.  There was still a little integrity and courage in the White House.  Needless to say, Walters did not measure up to Nixon’s prerequisites; not even close.  He refused to take action on Nixon’s “enemies list,” instead locking it up in a safe.

The story gets even a little sappier if you go back to Walters’ early years.  He grew up in humble circumstances on a farm in South Carolina.  He put himself through law school, served in the military and earned a Purple Heart.  He was married for 66 years to his wife and they had 4 children.  He seems like the kind of guy that everyone admired.  Walters wrote a memoir in 2011 called “Our Journey.”  Maybe this should be required reading for IRS employees

Too Broke to Pay Taxes

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As much as I can, I try to read the classic literature that somehow eluded me while in high school.  I have been reading The Grapes of Wrath, by John Steinbeck and thinking about the migrant farm workers picking fruit and cotton in California during the Great Depression.  Did any of these people pay income taxes?  I’m confident the answer is “NO.”

The Grapes of Wrath, although a book of fiction, is historically very accurate, right down to the wage rates.  Cotton farmers paid about $1.00 per 100lbs of cotton picked, and wages dropped as the number of unemployed workers multiplied and as the country moved deeper into depression.  A healthy male picker could make up to $3.00 per day.  Almost everything they made was spent on food, and it was barely enough to survive.

I found some scholarly writings from the University of California stating that a vast majority of the farm owners at the time were deeply in debt and way behind on their taxes, so there is little doubt whether the laborers were paying taxes if the owners weren’t.  Furthermore, the migrant workers had no permanent homes; it would have been difficult for the government to track them down.

Many families find themselves in similar circumstances today: making barely enough to get by even on their pre-tax income and desperately seeking tax relief in one form or another for debts that are already on the books.

MLK’s Tax Case

Some people and organizations in positions of power tried to debunk the efforts and mission of Martin Luther King, Jr. with false accusations. Even some state and local governments wanted to silence him. For example, did you know that King was indicted for income tax fraud in February 1960? These tax problems eventually led him to court.

The state of Alabama had charged King with signing fraudulent 1956 and 1958 tax returns. Specifically he was charged with failing to report income from the Montgomery Improvement Association (MIA) and the Southern Christian Leadership Conference (SCLC), that his actual income was up around $45,000 in 1958, and that he owed the state more than $1,700.

King’s attorneys characterized the state’s position as a “gross misrepresentation of fact.” They argued that the money received from SCLC was expense reimbursement, not income, and thus not taxable. The all-white jury deliberated nearly four hours before returning a ‘‘not guilty’’ verdict.

Multiple-filers and the Martinsburg Monster

Before the IRS went into full automation mode and before the IRS used computers in any meaningful way, there were the “multiple-filers.” This was the illegal practice of filing false returns (with phony names, wages, and social security numbers) claiming refunds — usually several returns claiming modest refunds so as to not draw too much attention. And it worked. Many refunds were paid out in error this way. But the multiple-filers would get caught sometimes too (the IRS would probably say “most of the time”).

The term “multiple-filing” doesn’t appear anywhere on the IRS website. Today it is more commonly referred to as “refund fraud.”

In the early 1960′s the IRS housed its computers in a single location in Martinsburg, West Virginia. That first IRS computer center began busting multiple-filers and other tax cheats with a computer system known as the “Martinsburg Monster.”

Check out the April 12, 1963 Life magazine story discussing several successful multiple-filer busts by IRS Intelligence Division head, H. Alan Long and his agents.

Leona Helmsley

On this day in 1989, a federal jury in New York found “hotel queen” Leona Helmsley guilty of income tax evasion.  Helmsley is known for her sharp tongue, difficult personality, and her famous declaration: “only the little people pay taxes.”

Direct Taxation: We Have Come a Long Way

As you can probably tell, I find the historical stuff very interesting. But I know that most people don’t share this sentiment, so I will get back to my tax relief posts soon (after this one).

It is evident from the state of the country, from the habits of the people, from the experience we have had on the point itself, that it is impracticable to raise any very considerable sums by direct taxation. Tax laws have in vain been multiplied; new methods to enforce the collection have in vain been tried; the public expectation has been uniformly disappointed, and the treasuries of the States have remained empty. The popular system of administration inherent in the nature of popular government, coinciding with the real scarcity of money incident to a languid and mutilated state of trade, has hitherto defeated every experiment for extensive collections, and has at length taught the different legislatures the folly of attempting them.

27 November 1787
Federalist No. 12: The Utility of the Union In Respect to Revenue
Alexander Hamilton

The Capone Investigation

Everybody knows the most infamous tax evader of all time: Alphonse “Scarface” Capone, the Chicago gangster with  all the highly lucrative and illegal business. But did you know that some of the internal IRS correspondence from the Al Capone investigation are available online? What follows is a sample taken from a 1931 letter written by IRS agents Hodgins, Westrich, and Clagett. Note the sarcastic tone of the letter (it helps if you read it out loud and with a Chicago accent):

Al Capone, a punk hoodlum, came to Chicago from New York about 1920, as a protegé of John Torrio, who, at the time was a lieutenant of Jim Colisimo. The first heard of Capone was as a bouncer in a notoriously tough joint called the “Four Deuces”. In the course of time, Colisimo, following the path of all good gangsters, was “bumped off” and Torrio took control. True to tradition, the guns again began to blaze, but this time the person behind the gun evidently had poor eyesight, and Torrio, instead of going to the cemetery, took a vacation in the hospital.

Normally records such as these would not be available to the public, but the Capone records were released because they have such extraordinary historical significance. According to the IRS, “No other IRS records meet the unique set of circumstances that make the Capone records publicly available.”

For tax relief that doesn’t involve “bumping off” the collector, contact Montgomery & Wetenkamp.

Who Was Daniel C. Roper?

Daniel Calhoun Roper served as Commissioner of the Internal Revenue from 1917 to 1920.

Selection from The Washington Times, March 10, 1919:

Robert J. Ouddihy, of the Literary Digest, gave a luncheon for Daniel C. Roper, Commissioner of Internal Revenue, and invited editors of newspapers and magazines, to hear Mr. Roper concerning the income tax. Mr. Roper’s task, not easy or pleasant, but the most important in the country at this moment, is to collect for the Government SIX BILLIONS OF DOLLARS from those able to pay, in order that the Government may pay its bills, and “settle” for the victory and armistice which were so ardently celebrated last November. 

Mr. Roper, the great collector for Uncle Sam, is an old fashioned type of citizen. His photograph would make a good illustration for a history of the United States in the early days. It is a thin, earnest, clean-cut, strong face, with bushy dark eyebrows, piercing eyes, that seem to look into the national pocketbook, a convincing tone to make profiteer say, “I might as well pay now, and avoid trouble.” 

The commissioner covered the whole wide field of income tax. He began with the comforting statement that the tax was to have been eight billions and is reduced to six billions because the war has ended. He defined three important points of the tax law as follows: First – A proper law. Second – An intelligent co-operative attitude by the officials that administer the law. Third – An intelligent, co-operative attitude on the part of the public to the Government.

Full article here.

When Taxes Were Simple

Excerpts from the March 1, 1919 edition of THE MOHAVE COUNTY MINER AND OUR MINERAL WEALTH. Daniel C. Roper, Commissioner of Internal Revenue at the time, basically describes the whole tax code in a couple paragraphs:

The normal rate of tax under the new act is 6 per cent of the first $4,000 of net income above the exemptions, and 12 per cent of the net income in excess of $4,000. Incomes in excess of $5,000 are subject also to a surtax ranging from 1 per cent of the amount of the net income between $5,000 and $6,000 to 5 per cent of the net income above $1,000,000.

In addition to the $1,000 and $2,000 personal exemptions, taxpayers are allowed an exemption of $200 for each person dependent upon them for chief support if such person is under eighteen years of age and incapable of self-support. Under the 1917 act, this exemption was allowed only for each dependent “child.” The head of a family who supports one or more persons closely connected with him by blood relationship, relationship by marriage, or by adoption is entitled to all exemptions allowed a married person.

Payment of the tax may be made in full at the time of filing return or in four installments, on or before March 15, on or before June 15, on or before September 15, and on or before December 15. Revenue officers will visit every county in the United States to aid taxpayers in making out their returns. The date of their arrival and the location of their offices may be ascertained by inquiring at offices of collectors of internal revenue, post-offices and banks. Failure to see these officers, however, does not remove the taxpayer of his obligation to file his return and pay his tax within the time specified by law. In this case taxpayers must seek the government, not the government the taxpayer.

Then he describes what the penalties were for failing to pay:

Any person who deliberately conceals tax liability, or who falsified a return in order to reduce or evade any internal revenue tax, or who deliberately abets such concealment or fraud finds arrayed against him the entire strength of this bureau, pressing for the full civil and criminal penalties. That is the attitude toward the tax-evader, expressed in one sentence. Whether he is a moonshiner, a stealthy trafficker in habit-forming drugs, a juggler of income figures, a delinquent in making the sworn return the law requires, or a revenue violator of any kind, the bureau is charged with the duty of hunting him out and exacting the full punishment provided in the law.

Here is what will happen to them if they don’t for failure to file a return on time, a fine of not more than $1,000 and an additional assessment of 25 per cent of the amount of tax due. For “willfully refusing” to make a return on time, a fine not exceeding $10,000, or not exceeding one year’s imprisonment, or both. For making a false or fraudulent return, a fine of not more than $10,000, or imprisonment for not more than one year, or both, together with an additional assessment of 50 per cent of the amount of tax evaded. For failure to pay the tax on time, a fine of not more than $1,000 and an additional assessment of 5 per cent of the amount of tax unpaid, plus 1 per cent interest for each full month during which it remains unpaid.

See the full article here.


On this day in 1981 IBM introduced its first personal computer, the model 5150. Five years later Van Halen released its first album recorded with Sammy Hagar, also called “5150″ but in no way a reference to the computer.

This fun fact has been brought to you by Montgomery & Wetenkamp.