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Case 4:08-cv-01496-JEJ-TMB Document 114 Filed 07/17/2010 Page 1 of 3

February 27,2008

SUBJECT: Revenue Compromises

TO: Michael Roman

Chief Deputy Attorney General
Financial Enforcement Section
Office of Attorney General

FROM: Thomas D. Kimmett

Senior Deputy Attorney General
Financial Enforcement Section
Office of Attorney General


James Furlong complained that the Financial Enforcement Section ("FES") is not
processing compromises efficiently and is not approving compromises that clearly should be
approved. I am both surprised and perplexed by Mr. Furlong's position, based on the
background and history that is intertwined with the compromise process.


The history of the compromise process in FES is very messy and one that had the
potential to embarrass the Office and the Attorney General. From almost the start of my tenure
at FES, I was advised repeatedly by Revenue that the compromise process in FES was rife with
malfeasance. After I reported this assertion up my chain of command, I followed-up with
Revenue to make sure I had not misinterpreted the statements made. I was assured that I had not.

I had been told that there were no controls, no standards and no procedures for how
compromises were handled or approved in FES. Revenue claimed that compromises worked and
approved by a FES attorney were moved to a Private Collection Agency ("PCA") just prior to
the money being received, allowing for commissions to be earned. Revenue claimed that cases
were being taken away from the Revenue field offices and moved to a PCA just prior to money
being paid. Revenue claimed that there was favoritism in the referral process to a certain PCA
by FES personnel. Revenue claimed that solid tax cases were being compromised by FES for
extremely low amounts. Revenue claimed that the reason Revenue demanded that all referrals to
PCAs be handled by Revenue and not the Office of Attorney General was because of the
transgressions that Revenue had identified in its investigation/review of FES. When the referral
request was refused, Revenue claimed to have threaten to refer this matter to the Office of the
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Auditor General and Treasury for investigation. According to Revenue, the referral request was
granted within minutes.

My review (and that of my team) of the compromise process showed me that numerous
problems and deficiencies existed with the compromise process. We could not identify any set
of controls, standards or procedures in place for compromises. When one individual from FES
who was working as the PCA Liaison was found to have violated Revenue's confidentiality
provision in the statute and denied access to Revenue information, I requested all his Revenue
files in order to continue to have them worked. The vast majority of the files were compromises
that were being worked. I put together a team of four experienced people to review the files and
to begin working the cases (PCA Compromise Project). They reported that the files were a mess
and were in all stages of disarray with some compromises being very old. Vy'e determined there
weÍe no standards or procedures as to what information was needed for a compromise or what
actions, if any, were used for reaching a compromise. My team and I met every week for months
in order to review and examine these files in order to make decisions on the numerous
compromises pending (over 100 PCA compromises). As part of working this project, we had all
the PCAs submit a list of compromises they had pending and to identify those compromises that
needed to be rushed. worked the rushes first and often times found the file incomplete.
When we requested additional information, the response from the PCA took months or in most
cases no response was received. We found a number of PCA compromises that were never sent
in by the PCA and that the PCA had no knowledge or record of ever being submitted. also
received reports from taxpayers that they never requested a compromise even though one had
been submitted on their behalf.

In addition, we put in place standard procedures (attached) and guidelines for all PCAs to
follow in submitting compromises (Revenue and State Workmen's Insurance Fund). As part of
this process, we began to verify income claims made by the debtor. This verification has
identified a number of cases where the income claimed by the debtor is substantially understated,
i.e. claims $22,000.00 a year, actually earned $102,000.00 a year. This obviously has an
influence on our decision regarding both the veracity of all statements made and especially any
pertaining to financial hardship.

As we were in the process of the PCA Compromise Project, we discovered that there
were hundreds of pending compromises dating back to the 1990's that were approved in FES but
were never (as far as we could tell) forwarded to the referring agency to process. This was and is
an embarrassment for both agencies (OAG and Referring Agency) because the referring agency
would still be billing the debtor for this debt, when in fact; a compromise had been reached and
paid years earlier. I put together a Project Team (Pending Compromise Project) to identify these
past cases and clean-up these files. Moving forward procedures and safeguards have been put in
place to ensure this does not happen again.
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Overall, as stated at the outset, this area was rife with problems and deficiencies.
have worked very hard to not only clean this area up, but to put in place solid procedures,
guidelines and safeguards moving forward. At no point was I contacted by the PCA or Revenue
requesting to discuss this issue or any problems that they felt were present in our review process.
In fact, I received exactly the opposite feedback from Revenue. It is especially troubling that
Revenue would find fault with the new procedures and safeguards when they had made some
serious complaints upfront regarding this process.

I am very comfortable with the procedures and safeguards that have been established for
compromises moving forward. I feel they are in the best interest of the Commonwealth and this
Office. If it is found down the road we are erring too far on the side of caution, then we can
review our procedures and make the necessary adjustments, but at the present time, I believe that
structure and prudence is required in this area.

Attached are the spreadsheets provided by Revenue in their complaint, with our
comments regarding our steps taken and decisions made, along with our procedures for
reviewing compromises and the information contained therein.