Memorandum to E. I. McLarney from Elting Arnold

COPY Aug 20 1951 Mr. B. R. McLarney, Deputy Commissioner : Income Tax Unit Elting Arnold (Signed) Elting Arnold : Assistant General Counsel The purpose of this memorandum is to confirm our telephone conversation on August 17 about the way in which my requests for information on persons who may be connected with the "China Lobby" should be handled by your Bureau. Our discussions related to the fact that the investigations were not being confined to the files of your Bureau and its field offices, but were being extended to questioning of taxpayers and perhaps other investigations outside the Bureau. You explained the reasons for which the outside in- vestigations had been started, reasons with which there certainly could be no dispute in ordinary circumstances. However, the fact remains, as I explained, that in the interdepartmental discussions which led to my most recent request for information I expressly TREMAN raised, several times, the question whether investigations were to SAFETY "NATIONAL ARGHIVES AND be confined to existing files or should be pursued outside. The RECORDS LIBRARY U.S. SERVICE persons present definitely believed that no outside investigation GOVERNMENT should be undertaken at this time. Accordingly, I requested that your Bureau should promptly terminate any outside investigation. It is my understanding that you accepted this request and are pro- ceeding to issue the necessary instructions to field agents. In the same conversation, we discussed the confidential nature of income tax returns. I indicated that for the purposes of the interdepartmental group it would not be necessary, at least at the outset, to submit actual returns. It would be sufficient to pre- pare a statement as to each person indicating whether or not the returns show: (a) any income from persons on the list recently supplied to you; (b) any income from other sources, which were obviously Chinese, such as the Government of China or corporations or individuals in China; (c) contributions or other payments to any other organizations or persons, which were clearly Chinese. In addition it would be desirable to show the approximate propor- tion which these payments represented to total income or total con- tributions so that some judgment could be made as to whether they were a significant part of the taxpayer's income or contributions. As you suggested, I will take up with Mr. Lynch the question of making such information available to the other members of the inter- departmental group. Meanwhile I suggest that your work should aim at the preparation of the kind of statement indicated above and that such statements actually be prepared as the necessary information is developed. The manner in which the statements will be used can be determined later.