Originally published on Forbes.com.
Day 1049 of the IRS Scandal is the first day in a while with a real development. In the NorCal Tea Party Patriots litigation the IRS has really gotten slapped around by the Sixth Circuit for its dilatory conduct in long running litigation.The decision starts out by reiterating the preferred right wing narrative of the interminable never ending scandal:
Among the most serious allegations a federal court can address are that an Executive agency has targeted citizens for mistreatment based on their political views. No citizen—Republican or Democrat, socialist or libertarian—should be targeted or even have to fear being targeted on those grounds. Yet those are the grounds on which the plaintiffs allege they were mistreated by the IRS here. The allegations are substantial: most are drawn from findings made by the Treasury Department’s own Inspector General for Tax Administration. Those findings include that the IRS used political criteria to round up applications for tax-exempt status filed by so-called tea-party groups; that the IRS often took four times as long to process tea-party applications as other applications; and that the IRS served tea-party applicants with crushing demands for what the Inspector General called “unnecessary information.”
It Gets Worse
And then it gets worse:
The lawsuit has progressed as slowly as the underlying applications themselves: at every turn the IRS has resisted the plaintiffs’ requests for information regarding the IRS’s treatment of the plaintiff class, eventually to the open frustration of the district court. At issue here are IRS “Be On the Lookout” lists of organizations allegedly targeted for unfavorable treatment because of their political beliefs. Those organizations in turn make up the plaintiff class. The district court ordered production of those lists, and did so again over an IRS motion to reconsider. Yet, almost a year later, the IRS still has not complied with the court’s orders. Instead the IRS now seeks from this court a writ of mandamus, an extraordinary remedy reserved to correct only the clearest abuses of power by a district court. We deny the petition.
The treatment of lead plaintiff NorCal is used to illustrate the travails of groups that were identified as political cases.
The experience of the lead plaintiff in this case, NorCal Tea Party Patriots, provides an example. NorCal applied for tax-exempt status in April 2010. In July 2010, the IRS sent NorCal a letter requesting additional information to process its application. NorCal promptly replied with 120 pages of responsive material. Eighteen months passed without further word from the IRS. Then, in a letter dated January 27, 2012, the IRS demanded more information from NorCal. The IRS’s “Additional Information Requested” ran five pages single-spaced and comprised 19 separate requests, almost all of which had subparts, and many of which had six or more subparts.
It goes on from there ending with NorCal ultimately providing approximately 3,000 pages of responsive material.
Protecting Confidential Information Or Protecting IRS Reputation (What’s Left Of It)?
At issue in this particular decision are lists of organizations flagged of special attention using “Be On the Lookout” criteria and two spreadsheets that the IRS provided to the Inspector General. The reason the plaintiffs want the lists is to identify the members of their “class” in the putative class action suit. The IRS has been refusing to turn over the lists arguing that they are “return information”
The discussion gets complicated and lawyerly from there and the names on the list are broken down into groups:
We therefore hold the obvious: the names and identifying information of groups whose applications for tax-exempt status the IRS has already granted are public information under § 6104. And that means the IRS’s petition is patently meritless as to the names and identifying information of groups whose applications the IRS has since granted—which is presumably most of the names and information at issue here, given the very high approval rate of tax-exemption applications generally.
As to those who were denied or withdrew their applications:
For all of these reasons, we hold that the names, addresses, and taxpayer-identification numbers of applicants for tax-exempt status are not “return information” under § 6103(b)(2)(A). And we otherwise emphasize that the phrase “data, received by, recorded by, furnished to, or collected by the Secretary” as used in § 6103(b)(2)(A), does not entitle the IRS to keep secret (in the name of “taxpayer privacy,” no less) every internal IRS document that reveals IRS mistreatment of a taxpayer or applicant organization—in this case or future ones. Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers. ( Emphasis added)
The issues here remind me a good bit of the litigation Cause of Action ran against TIGTA looking for more information. They wanted more details on TIGTA’s investigation of statements by Austan Goolsbee about Koch Industries that hinted that he might have access to information that was protected. TIGTA indicated that revealing more details would, in itself, be an improper disclosure.
Other Coverage
As with any decision against the IRS in the interminable scandal, there is a good bit of coverage of the decision. I won’t try to duplicate the TaxProf and instead will refer you to Day 1049, Day 1050 and Day 1051.
The best discussion I have seen is on Paul Streckfus’s EO Tax Journal, which is not free. There are two main narratives of the scandal. The one embraced by those who continue to pay attention is that there was a deliberately orchestrated conspiracy to impede the work of conservative groups. The other is that the IRS has certain bureaucratic limitations in its ability to handle competing priorities and that the Tea Party applications created a perfect storm to bring out the worst in the Service. Fundamentally the IRS can do some discreet things very well, but when you want it to walk and chew gum at the same time, things are less good. Throw in people outside with political agendas pushing in opposite directions and the chance of paralysis is high.
Some High Quality Commentary
Paul provides some greater nuance to the two views. He published a letter from Barnaby Zall which includes
I would suggest you keep an eye on the NorCal case, Paul, even if it doesn’t fit your personal views on the scandal. This case is not going away easily, and it’s important. The case may involve personal liability for IRS employees, class-action certification of hundreds of organizations hurt by the scandal, and lots and lots of discovery of things the IRS clearly did not want public. Many of your readers may start getting inquiries from their clients about court notices and news coverage. Plus, it really does shed more light on how those dark days aren’t quite behind us just yet.
Paul indicates that he is not that far off with one significant difference.
I think where Barnaby and I part is on what caused the IRS “scandal” or, as Marc Owens called it last week, “brouhaha.” I think Barnaby and others believe that there was a criminal scandal directed by the President or by Lois Lerner or by some cabal of Democratic sympathizers at the IRS and Treasury. I still think the cause of what happened was IRS mismanagement caused by the usual irresponsible and inexcusable dithering, which is standard practice whenever the IRS is confronted with difficult or confusing issues, but not a crime.
As I’ve said before, if Lois Lerner had asked me, I would have told her to deny all the Tea Party applications since they appear to me to be mini-political parties not entitled to (c)(4) exemption. If the IRS ever came after them (probably not), I’m sure Jay Sekulow and his American Center for Law and Justice would have represented them for free — or they could have self-declared and never even contacted the IRS for exemption.
I have been a longtime critic of the IRS’s litigation strategy. When I was at Tax Analysts many years ago, I was tangentially involved in some of their FOIA and other litigation against the IRS. Since it costs the IRS nothing to litigate (their attorneys are paid to be at their desks each day), a major strategy of the IRS Office of Chief Counsel is to string out litigation , to bleed dry the plaintiffs so they will quit or never sue again
Mr. Zall had a further response this morning and I think I’ll leave that as the last word for today.
…the origin and continuing shame of this scandal — a POLICY concern about Citizens United — and the fact that the response was halting and ham-fisted does not excuse the fact that it was fundamentally wrong. What was most wrong in a litany of many is what appears to be an essential disregard for the First Amendment by the agency charged by law and logic with being neutral in sensitive and truly dangerous decisions in that area. I have argued in these pages and in many others that what was done was not criminal (although other elements, like the cover up and the leaks, might have been), but it was wrong and should not have occurred. And it was entirely avoidable. In a sector where trust and cooperation between regulators and regulated was normal, the Service broke the model.
Do not complain about Congress’ ill treatment of IRS and especially TE/GE if you do not stare the reason in the face. It is not blatant partisanship. It is recognition that an agency, for misguided reasons, went rogue, and needed to be reined in. Because it had lost the trust of those both regulated by, and regulators of, its behavior, it could not simply say “Oops. Sorry about that. Just our usual Keystone Kops. We’ll do better in the future.”