Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: THURSDAY, May 10, 1990                   TAG: 9005100632
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A/8   EDITION: EVENING 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

IRS ADMITS ITS STING OPERATION HAD PROBLEMS

"I'm not sure we have a different side," IRS Commissioner Fred Goldberg began when asked for his side of the story. Some aspects of the gambling operation "were inadequate. Period. No minced words," he admitted.

That Las Vegas operation, known as Project Layoff, was an effort by the agency to track down those who evade federal gaming taxes and income taxes on their winnings.

After 11 months of poor recordkeeping and difficulty collecting from losers, the "sting" was shut down in 1985 after the lives of IRS agents were threatened by illegal bookmakers.

"Any businessman in Las Vegas would be thrown in jail if his books looked like Project Layoff's," Sen. Richard Bryan, D-Nev., complained Wednesday to the House Government Operations consumer subcommittee.

"The IRS would audit this firm and slap it with so many penalties and so much interest that your hair would stand on end," said Sen. Harry Reid, D-Nev.

Reid said the project cost taxpayers $600,000 and resulted in only two prosecutions on minor charges. More important, he said, conduct of the sting gave rise to speculation that IRS workers could have skimmed some of the $22 million of bets that passed through the operation.

"How many illegal bookmaking operations that did business with the IRS [sting] were closed as a result?" asked Rep. Doug Barnard, D-Ga., chairman of the subcommittee.

"To my knowledge, there were none," said Inar Morics, assistant IRS commissioner for criminal investigations.

Goldberg said IRS planning, control and recordkeeping of the operation, which ended four years before he took office, were inadequate. Although he had little praise for the project, he said the IRS will continue undercover operations, including an occasional sting, as part of its fight against drugs, money laundering and tax evasion.

"If we are going to do it, we've got to do it right," Goldberg said. He acknowledged that would include seeking cooperation from the FBI, as was done in the Project Layoff case, and from local gaming authorities, which was not done.

"If we submitted Project Layoff as a TV script, it would be rejected on the grounds that it is too unbelievable," Bryan said.

"It was a complete fiasco," said Rep. James Bilbray, D-Nev. "No target was arrested." He said the IRS should get out of the sting business.

Some Republicans on the subcommittee said they were concerned that failure of the Las Vegas project might slow the IRS fight against drug dealers and organized crime.

"I hope there is no political pressure for you to lay off," said Rep. Chuck Douglas, R-N.H.

The House subcommittee investigated the project as part of a long-term probe of misconduct among high-level IRS officials.

Goldberg said the IRS erred in failing to conduct a timely background check of a woman hired and later promoted in the criminal-investigation division of the Milwaukee office. The woman acknowledged later that she had been involved in illegal gambling.

"The controls which could have prevented the promotion from occurring failed to operate effectively in this case," Goldberg said.

He said the IRS is investigating allegations that some IRS employees in the Albany office have been the subject of retaliation from superiors because the workers cooperated with subcommittee investigators.

"We take these charges most seriously," Goldberg said. "We cannot and will not tolerate harassment and retaliation within our agency."