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Group Says IRS Employees Improperly Bought Land : Accusations: A watchdog group charges that the workers used their position as auditors to gain an advantage.

October 25, 1989|JONATHAN PETERSON | TIMES STAFF WRITER

A watchdog group charged Tuesday that the Internal Revenue Service's top criminal investigator in Los Angeles and several colleagues improperly bought property from an El Monte firm that was being audited by the IRS and then used it for their own tax benefit.

"Had anything like the El Monte situation occurred in the district I was working in, the officials certainly would have been fired," said Paul J. DesFosses, a retired IRS agent and president of the National Coalition of IRS Whistleblowers, a loosely knit network of current and former IRS employees.

Shortly after the 1981 property transfer, the taxpayer's IRS troubles apparently ended: The government terminated the audit and found that the taxpayer, Elco Manufacturing Co., did not owe more money, the watchdog group said Tuesday, based on records that it obtained through the Freedom of Information Act.

"They obviously used their position for some advantage," DesFosses claimed of the IRS officials in an interview. "Clearly, the taxpayer was under some pressure."

The controversy centers on Elco, a window maker, and El Monte Industrial Properties, a limited partnership whose investors included eight IRS criminal investigations officials, public records show.

Among the limited partners were Ronald Saranow, then head of IRS criminal investigations in Los Angeles and now a financial investigator in Orange County; Wayne McEwan, then a Washington IRS official and currently head of criminal investigations for the IRS in Laguna Niguel; Howard Emirhanian, then an IRS employee under Saranow and currently a partner in his firm, and the late Richard Wassenaar, then the IRS's national head of criminal investigations.

(Wassenaar's stake of $5,000 to $15,000 in El Monte was revealed only in a financial disclosure form he had to file as a senior IRS official; it did not appear on the county records obtained by the whistleblowers group.)

El Monte's general partners were Thomas M. Hollingsworth and Donald P. Arnett, real estate investors based in Cerritos.

In January, 1981, El Monte bought adjacent parcels of land from Elco, valued in the range of $1 million, according to county property records. The amount of money actually paid is unclear, DesFosses said, because of a separate arrangement in which Elco leased a building from Hollingsworth and Arnett, and because of a $250,000 loan Elco made to El Monte, county records show.

Although Elco's audit troubles apparently ended after the sale, it remained the subject of government interest. The FBI investigated the firm for bank fraud from 1982 to 1986, but the matter ultimately was dropped for lack of evidence, said Fred Reagan, an FBI spokesman.

The president of the now-defunct Elco could not be reached for comment Tuesday.

Saranow's attorney, Richard Trattner, declined to comment on the charges Tuesday. Asked about McEwan, an IRS spokeswoman in Laguna Niguel also declined to comment.

A different IRS official, without responding to the specific charges, said the IRS code requires employees to keep personal and official business strictly separate.

"According to the code of conduct under which all IRS employees have to operate, when you're (officially) involved with a taxpayer in any capacity, you're not allowed to conduct any personal business with the taxpayer," said Jan Gribbon, an IRS spokeswoman in Los Angeles.

DesFosses, whose documentation is based on a variety of public records and inside assistance from sympathetic IRS employees, Tuesday called on Congress to investigate the 1981 deal.

"This information, coming on the heels of the Guess?-Jordache Jeans scandal, would shatter the faith of any IRS employee or taxpayer in the integrity of the top managers in the IRS," declared DesFosses, who retired after 19 years with the agency in 1984 and runs a private accounting business in Pocatello, Ida.

Last July, a House subcommittee held a series of hearings into charges of abuse by IRS officials. Among the subjects debated was whether Saranow had improperly used IRS power during an internal struggle for control of Guess?, a clothing manufacturer based in Beverly Hills.

"The committee is going to look at it," said a staff investigator with the House panel.

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