The Wall Street Journal - IRS Confidential


Most Americans know behavior that deserves to be called "poor judgment" when they see it. But at the Justice Department, the definition evidently doesn't include smearing innocent taxpayers or throwing a stink bomb in the middle of a contentious gubernatorial race.

That's the remarkable word from Justice's Office of Professional Responsibility, finally answering a complaint filed last year by the Landmark Legal Foundation. The complaint stems from an IRS dispute with the accounting firm KPMG over tax shelters the IRS says are illegal.

As part of an attempt to bully KPMG and embarrass its clients, Justice attorneys suing on behalf of the IRS last July made public the names of KPMG clients -- including Bill Simon, then in the thick of his campaign for governor of California -- who'd asked for or received information about these shelters. The leak made a big media splash, including on the front page of this paper, and tarred numerous private individuals guilty of nothing more than getting KPMG advice.

Now we learn, from an August 15 letter to Landmark from counsel H. Marshall Jarrett, that Justice investigators not only have found no evidence of professional misconduct here but that the bar at Justice and the IRS has been so lowered that even the disclosure of private information doesn't rise to poor judgment. "Accordingly," Mr. Jarrett writes, "we are taking no further action on this matter which we consider to be closed."

Remember, Mr. Simon and the others whose names surfaced in the headlines attached to these allegedly illegal tax shelters had not been accused of any wrongdoing. They were simply third parties, collateral damage if you will, of an action really aimed at KPMG. In an editorial entitled "The IRS Out of Control," we called for the "firing or sending to Siberia [of] whoever was responsible for this abuse of confidential power."

In a letter to the editor published five days later, both the chief counsel for the IRS and the assistant attorney general for the tax division of the Justice Department agreed with our concerns about taxpayers being "gratuitously humiliated" and conceded the names should not have been released. In his own letter published in the Journal that same day, David Aufhauser, chief counsel for Treasury, went even further, declaring that the lack of protections for these taxpayers was "inexcusable."

The damage, alas, had been done -- especially for Mr. Simon. At the time these KPMG clients surfaced in the headlines, the Republican challenger had cut incumbent Gray Davis's lead to only seven points in the polls. Ultimately he would lose by a mere five points to the man now facing a recall election.

Did the release of Mr. Simon's name in connection with an allegedly illegal tax "scheme" spell the difference between victory and defeat? We'll never know. But certainly Governor Davis, in the post-Enron hothouse that was the summer of 2002, recognized the potency of linking his challenger's name to the charge of business impropriety. A Davis ad shot in the immediate wake of the KPMG release ends with this voiceover: "Simon -- if we can't trust him in business, how can we trust him in the Governor's Office?"

Even without the California gubernatorial election, Justice's breach of trust here was an abuse of federal power. It may well be that not enough evidence exists for a finding of professional misconduct. But to find no one guilty of even "poor judgment"?

Attorney General John Ashcroft might consider that he'd find more support for his Patriot Act enforcement if his Department were willing to acknowledge and punish its mistakes. Justice's see-no-evil response in this case tells us that it's not only the Enrons, Tycos and WorldComs that need lessons in accountability.

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