By: A.J. Cook

The Internal Revenue Service likes to brag about its court victories because they deter would-be tax scofflaws, but an IRS press release wrecked one business executive's career.

After World War II, Elvis E. Johnson moved back home to Missouri where he sold insurance for the American National Life Insurance Company. Because he consistently sold more insurance than other employees, he rapidly moved up the corporate ladder. The company asked him to transfer to the Galveston, Tex. home office. Soon, he became director of sales worldwide, and then he became Senior Executive Vice President. This moved Johnson in line to be the next chief executive officer.

Johnson, known as Johnny to friends and acquaintances, traveled extensively, often entertaining business associates. He paid expenses with checks, credit cards and cash.

Johnson's wife, wanting to be helpful, kept the expense records, even though she didn't have any bookkeeping experience. Naively, Mrs. Johnson's only concern was that all the money spent for business be reflected somewhere. Sometimes, if she didn't know what a cash payment was for, she increased the credit card receipt: If Johnson charged $90 for a hotel room and spent $100 cash she couldn't identify, she wrote a one in front of the $90.

When the IRS audited the insurance man, it was a sure bet the discrepancies were going to bob to the surface. They did. Johnson, to protect his wife, did not reveal her role. The agent called in the IRS criminal investigators.

During the following months, Johnson agreed to pay the taxes, cooperated with the IRS and passed the two polygraph tests they asked him to take. After his wife explained her part in the questionable bookkeeping, the U.S. Attorney, realizing this damaged his criminal case against Johnson, offered to settle. Under the compromise Johnson would receive probation for a guilty plea to tax evasion, his wife would not be prosecuted and there would be no publicity. To further protect Johnson's anonymity, court documents identified him only by his birthname -- largely unknown to friends and people at American National -- and gave his address as Houston, Tex. Johnson felt this protected his career and his wife.

The dam broke on April 15. Two officers of American National told Johnson a newspaper reporter called about an IRS news release. It identified Johnson by name, nickname, job title and Galveston address. In addition, it gave incorrect information about charges against him.

A few days later, the company asked Johnson to resign.

The beleaguered executive sued the IRS, claiming the release violated their agreement and damaged his career and reputation.

As part of Johnson's testimony, he said an agent explained the IRS' need for press releases: the IRS only gets favorable publicity when a big name falls and "your name is a household word to thousands of people." In addition, the agent admitted, the government probably couldn't convict Johnson "but I can get your name in the newspaper and that will accomplish my purpose."

Clearly irritated, the judge said federal law insulates the government from liability for transgressions by IRS employees while collecting taxes, but issuing press releases is not collecting taxes so the government could be held liable. The judge added: "If the IRS continues to allow such mishaps, of the type that blighted Johnson's life, we shall conclude that this agent's attitude is typical of the spirit in which the IRS publicizes information about tax evaders . . ..

"A flourishing career was shot down over a tax deficiency of less than $3,500 which stemmed from no desire to cheat the Government, but only from the naive accounting procedures of a well meaning wife . . .. The events not only wrecked a career; they brought great pain into what had been, and we hope is once more, a happy marriage."

The court awarded damages to Johnson of $11 million.

The Moral: A good name is rather to be chosen than great riches -- and he who tarnishes that good name must provide great riches.

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Don't make an Internal Revenue Service collection officer angry. Carol Ward did and suffered the consequences.

The IRS said Ward owed $325,000, later settling for $3,500, and began seizing her assets. The agency had issued a jeopardy assessment -- an action usually reserved for drug dealers and other crooks who might flee the country without paying taxes. The seizure and assessment don't require court approval, and the target must go to court to prove the actions unjust.

Apparently Ward's problems started when she criticized IRS collection officer James Scholan. Not able to control his anger, Scholan made a major mistake. He failed to limit his vendetta to action within the IRS. He wrote a letter to the editor of the Colorado Springs Gazette Telegraph. His letter, faithfully printed, told about Ward's tax status and the jeopardy assessment. The law allows collection officers to beat up on taxpayers within the confines of the IRS, but when the employee discloses confidential tax information, he has gone too far.

Ward sued the IRS. She showed the court she had suffered mental distress and humiliation because of the IRS disclosure. She became bitter and cried frequently. Her mother testified Ward was so enraged at the IRS "we began to hate her." Ward said some friends and relatives began to question whether she really was a drug dealer or at least a tax protestor.

The IRS conceded that Scholan divulged confidential information. But it claimed he didn't intentionally violate the law.

In deciding for Ward, the court said Scholan must use his vast power wisely. IRS employees cannot be selective in their treatment, dispensing equity to those who please them and withholding it from those who do not.

Ward won $325,000 in damages plus court costs. But she doesn't believe she'll ever see the money. She knows that former insurance company executive E.E. Johnson from Galveston, Texas, has never received his money. Johnson, whose career was ruined by the improper disclosure of his tax information, won an $11 million judgment against the government. The IRS refuses to pay and continues to fight in court 16 years after the disclosure.

In similar fashion, the IRS fought rancher Shirley Lojeski in court until it persuaded a judge to reverse the decision against it. The agency wasn't accusing her of owing taxes, but thought Lojeski was keeping money in her bank account for a friend who owed taxes. She wasn't. An over zealous IRS employee tied up her assets in liens and levies until she couldn't pay for insurance premiums, feed for her horses or food for herself. A court awarded her $67,000 in damages, finding she suffered financial and personal loss through the IRS' unbridled zeal. A higher court reversed the decision.

Ward is probably right in thinking she will never get any money from her day in court. Even when a taxpayer can afford to challenge the IRS, the agency's unlimited power probably will overcome any decision against it. Help could come from Congress. But will it?

The Senate Finance Committee learned in gory detail from witnesses -- some afraid to show their faces -- how IRS employees abuse taxpayers. Their stories were familiar to members of Congress who passed the Taxpayer Bill of Rights in 1988 -- and Taxpayer Bill of Rights 2 in 1992. Yet so far all taxpayers have are the makings of Taxpayer Bill of Rights 3.

The Moral: He who continues to get lost traveling down the same road needs a better map.