The Truman administration investigates corruption in the IRS

The Truman administration investigates corruption in the IRS as both a mounting scandal and a test of whether the federal tax-collection system could be separated from political patronage. After years of rumors and a slow start, Harry S. Truman’s administration removed senior officials and employees, while deciding that tax-collector jobs should no longer be distributed as political rewards. The response was substantial, but the revelations implicated appointees associated with earlier administrations and with Democratic political machines, making the effort to clean house inseparable from questions about political responsibility.

Rumors and a delayed reckoning

For more than a year, Treasury Secretary John Snyder had tried to investigate persistent reports of corruption in tax collectors’ offices around the country. He made little progress at first. The situation became harder to contain in April 1951, when James P. Finnegan, the collector in St. Louis, resigned after being cleared by a grand jury. In July, Truman fired Denis W. Delaney, the collector in Boston, and James G. Smyth, the collector in San Francisco. Eight of Smyth’s associates were suspended, and, a few months later, Joseph P. Marcelle, the collector in Brooklyn, was also fired.

The sequence of departures and suspensions brought several offices under scrutiny, but the problem was not confined to one city or one official. The accusations concerned bribery, the handling of tax delinquencies and fraud claims, and the conduct of people entrusted with collecting federal taxes. By December, George Elsey reported in a White House memorandum that corruption appeared to be spreading so quickly that staff could not document every sign of it. The memorandum conveyed not a settled count of wrongdoing, but the difficulty of keeping pace with a widening investigation.

Appointments and irregular practices

All four collectors at the center of the scandal—Finnegan, Delaney, Smyth and Marcelle—had been appointed by Bob Hannegan when he headed the Bureau of Internal Revenue under Franklin D. Roosevelt. They had taken their jobs on the understanding that tax collection would be only a part-time responsibility and that they could pursue other activities as well. Each was also a product of a big-city Democratic machine. The account describes corrupt practices, or at minimum flagrant irregularities, as widespread during their tenures.

The cases differed in their specific allegations. Finnegan was indicted for bribery and misconduct. Delaney was indicted for accepting bribes to fix tax delinquencies, while Smyth was indicted over the fixing of tax-fraud claims. Marcelle’s case involved both his tax returns and his private earnings: he was found to have cheated on his own returns and, through his law practice, accumulated nearly a quarter of a million dollars beyond his annual salary of $10,750 as collector. These examples made the conflict of interest especially plain: officials charged with enforcing tax obligations were themselves accused of evading them or manipulating their application.

A wider bureau crisis

The upheaval reached beyond the four city collectors. George J. Schoeneman, Commissioner of Internal Revenue, resigned suddenly for reasons of health. His departure was followed almost immediately by the resignations of Assistant Commissioner Daniel A. Bolich and the bureau’s chief counsel, Charles Oliphant. In November, Truman fired T. Lamar Caudle, head of the tax division at the Justice Department. A House investigating committee later concluded that Caudle, though undoubtedly an honorable man, had been naive in his dealings with tax fixers.

The circumstances surrounding Hannegan complicated any simple account of responsibility. His appointments had created a link between the scandal’s principal collectors and the bureau’s earlier leadership, but Hannegan was also known as a thorough Truman supporter and had himself been a first-rate head of the tax bureau. He had died of heart failure in October 1949 and was no longer available to answer for his role. The record also included a gift that sharpened doubts about the boundary between official duties and private influence: Caudle’s wife received a mink coat for Christmas from an attorney who had dealings with the tax division. The account distinguishes Caudle’s personal honor from his poor judgment, without treating that distinction as a reason to overlook the failures around him.

Dismissals and institutional reform

The administration’s defense rested in part on the fact that the collectors under fire were holdovers from the Franklin D. Roosevelt administration. But Truman’s response was not limited to assigning blame backward. He moved to remove officials and clean up the bureau; by December, 113 Bureau of Internal Revenue employees, including six regional collectors, had been fired. The breadth of those dismissals made the cleanup a major administrative action, even as the scale of the scandal showed how overdue it was.

Truman also sought to change how collectors obtained their positions. When Frank E. McKinney replaced William Boyle as Democratic national chairman, Truman determined that Internal Revenue collectors would no longer be patronage appointments but would instead be placed under civil service. The decision addressed a vulnerability visible in the cases: collectors selected through political networks, and allowed to treat tax collection as a part-time occupation, could be difficult to distinguish from the networks that had placed them in office. Civil-service status offered a structural response to the appointment system, rather than relying solely on removing individuals after misconduct came to light.

Truman’s public response

At a December press conference, Truman was asked whether he would take drastic action to clean up the government. He answered that the administration would continue its drastic action. The wording presented the dismissals not as a newly adopted posture but as an ongoing course. When he added that wrongdoers had no place with him, reporters were puzzled by his expression; he later told his staff that he had used it since boyhood. The phrase conveyed a personal repudiation of wrongdoing, while the firings and civil-service decision gave that repudiation administrative consequences.

Asked whether he felt betrayed by his friends, Truman answered angrily that anyone would feel that way, then said no more. His response registered the personal cost of a scandal involving people connected to his political world, but the cleanup’s public significance lay in the measures taken: dismissals across the bureau and a decision to remove collectors’ jobs from patronage. The effort did not erase the corruption or make the reckoning timely. It did, however, turn a crisis of individual conduct into a question about the rules governing appointments and tax administration.