sider. Within the space of 13 months, that tax shelter was destroyed by legislation, which the taxpayer himself signed, and with respect to which he made a TV and radio announcement in discussing in generalities, the features of the bill.

We would then look to the fact that in 1968 he prepared, he personally signed the papers gift deed for 1968. He was intimately concerned with his attorneys in determining the extent to which he could make a papers gift deduction in 1968.

Shortly after he became President, the matter of his tax planning for the future was under discussion. We have the memorandum from Mr. Ehrlichman to Mr. Morgan in which he endorses "good," and we would construe the purport of that memorandum to mean that a piecemeal sort of gift deduction was contemplated for 1969 in future years. I'm sorry, that was Ehrlichman to the President, endorsed by the President in his hand "good", and then his second endorsement with respect to a charitable foundation.

We have the Ehrlichman memorandum in June which concerns questions raised by the President or raised on behalf of the President and which does not seem to be at all concerned with papers gift deductions.

And after the fact of the return, we have a few bits and pieces of insight into the thinking of the taxpayer. In press conferences and in statement, public statements made at the time of his submission of his tax returns to the Joint Committee on Internal Revenue, the President referred to the manner in which he had been advised by President Johnson of the availability of the papers gift deduction, and he stated that he turned this matter over to his lawyers and assumed that they took care of it in proper style.

Now, I am paraphrasing, but when we prepare a prosecution memorandum in the Justice Department, paraphrasing is not unusual. You have to put down the gist of what is said for the purposes of getting it in compact form. In none of these statements did he refer to his 1968 performance in which he personally was involved. We would consider this a matter of great significance in that he appears to be, to us, appeared to be, and it is for you, of course, to consider what you think of this particular kind of evidence, he would be appearing to us to be attempting to strengthen the inference that he relied entirely on others when, in point of fact, he had personally participated in his 1968 transaction and in the 1968 research on the issue of the gift deduction.

Those are the few pieces of information that we have as to the taxpayer's idea about this particular tax return and this gift deduction in 1969. Given all of the circumstances of the preparation of this 1969 return, it is my judgment that the attorneys in the Tax Division would conclude, and the Tax Division would conclude that something further was required in the way of procedure to resolve this case. It might well be that it would be advisable to refer to the U.S. attorney for grand jury action to get the statements of witnesses under oath. None of these witnesses have been interviewed under oath in this instance.

There would be an offer to the taxpayer of a conference in the Tax Division at which point he or his counsel would come in and meet the allegations that had been raised with respect to their client. If no

satisfactory response was forthcoming, it would be my judgment that in the case of an ordinary taxpayer, on the facts as we know them in this instance, the case would be referred out for presentation to a grand jury for prosecution. That I take it, is really the function that you are performing, something akin to the function of the criminal section of the Tax Division in deciding on the facts that are before you in this instance.

Ms. HOLTZMAN. Mr. Chairman?

Mr. EDWARDS. Mr. Chairman?
Mr. DONOHUE. Mr. Maraziti.

Mr. MARAZITI. Thank you, Mr. Chairman.

I have no question, but I would like to make a request of Mr. Nussbaum, if he could check for me and the committee the situation, as I recall, I think the President attempted to retrieve his papers, and I remember some discussion that the National Archives or the GSA ruled that he could not receive a return of the papers because there had been a valid gift, a transfer to the National Archives. I wonder if you could procure from the National Archives or the GSA, whatever the authority is, that ruling?

What I am trying to determine is whether in their ruling and their decision they took the position that title passed March 25 or 26, 1969. I wonder if we could do that?

Mr. DOAR. We will do that.

Mr. DONOHUE. Mr. Edwards.

Mr. EDWARDS. Thank you, Mr. Chairman. Mr. Folsom?

Mr. FOLSOM. Yes, sir.

Mr. EDWARDS. Would any inference be drawn in the case—well, would any inference be drawn from the fact that on December 7, 1973, letters were hand delivered to the White House notifying the President that their Federal income tax for the years 1970, 1971, and 1972 would be reexamined, and yet on December 8, the President made a public announcement that he was referring his tax matters to the Joint Committee on Internal Revenue Taxation, and made a further public announcement that the Internal Revenue Service had examined his tax returns for those years, and that they had given him a complete clearance?

So he made the announcement, this public announcement, went on public television, and at the same time, the day before, he had received information that he was going to be reexamined, and yet he made no mention of that in the public announcement.

Mr. FOLSOM. Possibly an inference could be drawn that there was an attempt, a self-serving attempt to make it appear that all was right with his tax world. I am not at all sure that that would justify a conclusion that the contrary was true, and there was something wrong and he knew it.

Mr. EDWARDS. Thank you.

Mr. WIGGINS. Mr. Chairman?

Mr. DONOHUE. Ms. Holtzman.

Ms. HOLTZMAN. Thank you, Mr. Chairman.

Mr. Folsom, from your review of the procedures used by the IRS in the second audit, would you conclude that the procedure by which they handled the second audit was out of the ordinary and was unusual in terms of handling the tax fraud case from your experience?

Mr. FOLSOM. I would consider it such, and I further think that it was deliberately I don't mean to use the word deliberately, purposefully made as quickly as possible.

Ms. HOLTZMAN. În your experience, have you ever seen a tax fraud case in which no attempt was made to interview the taxpayer? I know you said that it was unusual, but I want to know in your experience in the number of years that you have served in the Justice Department on this matter, have you ever seen a tax fraud case where the taxpayer, no attempt was made to interview the taxpayer?

Mr. FOLSOM. Yes; I have. And I do not want my response to carry any implications beyond what I have got to say. It simply is a frequent occurrence in the case of racketeers who are known to be surrounded by a cordon of lawyers who would not let them talk to anybody, any police authority.

Ms. HOLTZMAN. Mr. Chairman, I have not finished my question.
Mr. DONOHUE. You have one more question. Proceed.

Ms. HOLTZMAN. Well, I would like to ask this question of Mr. Doar and Mr. Nussbaum with respect to two other matters that I found puzzling or disturbing when I was reading the joint committee's report, and did not appear in the presentation here.

Namely, first the failure of the President to include royalty income in his 1969 through 1972 tax returns referred to on page 210 of the joint committee report, which income would have been taxable had it been included on the returns. And also the treatment, the inconsistent treatment of the face of the President's returns regarding the San Clemente property in which he first claims that there was no business use of the San Clemente property whatsoever for the purpose of nonrecognition of capital gains from the sale of his New York apartment and the purchase of the San Clemente apartment, and then on the same tax return claims a 25-percent business deduction for San Clemente, even though on the return he had said that it was not a business purpose for the purpose of his sale of his New York apartment. I wonder if you could deal, I mean tell me, how you view these two matters, whether they would go into, say, Mr. Folsom's contemplation of a fraud case here, and how the IRS treated these matters?

Mr. DOAR. Well, we cannot answer the latter question of whether it would go into or would be a criterion to take into consideration by the Tax Division. We have looked into these questions carefully, and we can give you the answers to the first part of the question.

Mr. DONOHUE. Mr. Smith.

Ms. HOLTZMAN. Could I have the answer to my question?

Mr. DONOHUE. I thought you had but one question.

Ms. HOLTZMAN. I know. They are answering it.

Mr. DONOHUE. You may answer her question.

Mr. McKEITHEN. Ms. Holtzman, as to your first question, you are interested in the royalty income and the fact that the President did not report certain royalty income on his 1969 return which were assigned to foundations. This matter is dealt with by the joint committee on page 210, I believe of its report. Yes; that is correct, on page

210.

I have spoken with the joint committee about this matter. As you know, all income from whatever source derived the Internal Revenue Code says must be reported on income tax returns, and under section

61A (6) of the Internal Revenue Code of 1954, as amended, royalty income is specifically mentioned.

As to the effect of inclusion or noninclusion of royalty income on the tax return, the joint committee noted that some royalty income which the President had was assigned to charitable institutions or foundations, and that paricular royalty income was not reported. The joint committee staff has advised me that the effect of not reporting that royalty income, aside from the issue of duty of a taxpayer to report all income on his income tax return, is that had the papers deduction from 1969 not have been disallowed; that is, if the papers deduction for 1969 is good or was deemed to be good, then his income tax would have been increased for that year. Since the Internal Revenue Service and the joint committee disallowed the 30-percent deduction for the most part in 1969, then the tax effect of reporting this royalty income was then assigned to a foundation would have resulted in a wash, but you are correct in stating that it is the duty of the taxpayer to report income.

Now, I might point out that the President did report certain royalty income on all of the years which are covered by the joint committee report. In 1969 on page A-693 of the joint committee report you will see he reported income of $710.24. For 1970, on page A-718, he reported income of $8,879.90. For 1971, on page A-735, you will see that he reported royalty income of $367.05. And then on page A-759 you will see that for 1972 he reported royalty income of $220.58.

Mr. WIGGINS. Mr. Chairman?

Mr. McKEITHEN. Now, if you want an answer to your second question dealing with the business use of his property as reported in the 1969 return, on page A-709 of the joint committee report you will see that the form which deals with nonrecognition of gain on a sale of a residence, there is a box checked on that page showing that both residences were not used for business purposes. We have been told in our interview with the President's accountant, Arthur Blech, two things that he was told by Mr. DeMarco, whom he understands in turn was told by the White House, to not recognize the gain on the sale of the New York apartment, and it would have the effect of causing him to check this no business use box, and he also told us that he received orders through Mr. DeMarco from the White House that he was to take a deduction for business use of the San Clemente property of 50 percent.

Blech told us that he, on his own initiative, reduced this business use deduction to 25 percent, but he explained to us that he filled out the one form, the nonrecognition of gain form, prior to the time that he considered the deduction of business use of the San Clemente property, and that apparently he never went back and checked the return to make sure that it was internally consistent.

Mr. DONOHUE. Thank you very much. Mr. Smith.

Mr. SMITH. Mr. Doar, Mr. Nussbaum, in regard to the gift of papers or the attempted gift of papers in 1969, has anybody talked to the preparers as to whether they had talked to the President?

Mr. NUSSBAUM. Yes. We interviewed Mr. DeMarco and Mr. Blech with respect to the return. And Mr. DeMarco stated that he did talk with the President with respect to the return, as we indicated yesterday in our report, the day the return was signed, on April 10, 1970. That

was the only discussion, to our knowledge, that Mr. DeMarco had with the taxpayer, President Nixon, with respect to the return.

Mr. Blech, it is our understanding the accountant who prepared the return never talked to the President with respect to the return. Mr. SMITH. But in those

Mr. DONOHUE. Mr. Drinan.

Mr. SMITH. There is no indication

Mr. NUSSBAUM. I should say one other thing to be complete. Mr. Morgan, who was involved in the deduction of the gift of papers, as well as various other matters with respect to the return, informed us that he never spoke with the President with respect to the return. Mr. DONOHUE. Mr. Drinan.

Mr. DRINAN. Thank you, Mr. Chairman. I have several questions, and I have talked to the counsel here earlier this morning, and I hope he will bring out what he indicated to me. I think the committee has a very difficult assignment unless we get a lot more information.

And back to tab 6, we have an unsigned, undated document which is the only thing that we have on the key question of the civil fraud penalty. And I have a lot of difficulties with that document, aside from the fact that we do not know who wrote it, who is responsible or at what time.

Counsel told me this was prepared after the joint committee indicated to the IRS that it was going to make the recommendation which it did.

But, I have a key question as to the third or fourth paragraph.

All of the above individuals had direct or indirect contacts in the preparation of the tax return and could possibly, under oath, or with a grant of immunity, connect the taxpayer with the preparation and, therefore, change our recommendation against the 50-percent criminal fraud penalties.

The obvious question arises, Why was this not done? This is referred to at the very last paragraph on page 2.

In summary, unless we have affirmative testimony by some or all of the individuals mentioned above, we cannot charge the fraud.

I wonder if Mr. Nussbaum would tell the committee about his conversation with Mr. Alexander last night.

Mr. NUSSBAUM. Well, subsequent to Congressman Rangel's question yesterday with respect to this document, we, after the hearing on yesterday, contacted the Internal Revenue Service to determine the precise origins of this document, which, as I indicated yesterday, was contained in the IRS files.

We learned by talking to various people at the IRS yesterday, including Mr. Alexander and others, that this document was prepared by a Robert Brown, who is the head of the intelligence section in the Baltimore district office. That is the section which investigates criminal tax fraud.

Mr. Brown prepared this document on approximately March 22, 1974. He then gave the document to a revenue agent, who is one of the revenue agents who did the audit of the President's tax returns, Mr. Calogero, Al Calogero. He gave that to Mr. Calogero on March 22, 1974, to give to Commissioner Alexander, to hand deliver it to Commissioner Alexander.

I personally spoke to Mr. Calogero yesterday, and Mr. Calogero informed me that he did personally hand deliver this document to

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