That is not the only flashback element to this story. There other is the discussion of the damage claim which reminds me of the days when I used to have go over detailed bills with clients. It was painful. The worst was when you had justified every line item and then they told you they still couldn’t pay. Finally, like many of the decisions I write about, it may be that the story behind the story might be even more interesting. As I looked into the background a bit, it struck me that Citizens Awareness Project could well be a great example of what was upsetting Lois Lerner so much – i.e. dark money using 501(c)(4) to game campaign financing disclosure.
IRS Admits It Screwed Up
The IRS is not contesting that it screwed up when it released a copy of
CAP’s Form 1024 . ProPublica had requested the applications of 67 organizations. They were organizations that had reported substantial expenditures to the FEC. On October 16, 2012
CAP reported paying
Stephen Clouse & Associates Inc $993,916.79 for printing, production and postage in opposition to Barrack Obama. The expenditure caught a little coverage with this piece titled
Mystery group spends $1 million opposing Obama.
Thursday’s filing was the first reported political expenditure made by the group. The group is likely a 501(c)(4) “social welfare” nonprofit. Such organizations can function like super PACs but are not required to register with the FEC or disclose their donors. They are required to file reports with the IRS.
ProPublica was interested in whether any of the groups were, you know, fibbing on their exempt application by not admitting that they would be making political expenditures.
CAP had indicated that it would be making political expenditures so it ended up not being
part of the story which focused on Karl Rove’s Crossroads GPS. According to ProPublica Crossroads GPS had spent $70 million on the 2012 election while stating on its application that expenditures of that sort would be limited in amount and not represent the organization’s primary purpose.
No Harm No Foul?
The law that
CAP is suing under, Code Section 7431, provides that the IRS liability is the greater of $1,000 or the actual damages. If the disclosure is willful or the result of gross negligence there is provision for punitive damages. The IRS could also be found liable for the cost of the action plus attorneys fees. The IRS is arguing that there are no actual damages. That is where the nit-picking commenced.
CAP is claiming damages for time spent by
Charlie Smith. Mr. Smith was Chairman of
CAP and, as the Court notes, somewhat confusingly an associate of the law firm representing
CAP. Here is the itemization:
12/17/2012 – Call from IRS regarding potentially stole 1024; email board regarding situation; $33.33;
2/25/2013 – Call with IRS agent regarding 1024 application. Review and requests for additional information. Review letter from FEC regarding EOY.; $33.33;
5/14/2013 – Call with IRS regarding letter regarding 1024 disclosure, call with Shaun Boyd, strategize with JZ regarding tax scandal, call with Congressman Gardner regarding IRS situation, Emails with EE regarding FOIA request; $633.33;
5/16/2013 – Research Z-Street lawsuit and federal statutes regarding IRS scandal and determinations as to tax exempt status, research existence of conservative organization who dropped 1023 applications for purposes of filing federal suit, Research Simmet v. BOP; $233.33;
5/21/2014 – Research Norcal TP vs. IRS suit, read complaint, research privacy act of 1974; $266.67; and
5/31/2013 – Call Torchinsky regarding on lawsuit, research 26 USC 7431 and cited statutes.; $100.
Well I’m glad that is cleared up and off the table before the three-day trial scheduled in October. The rest of the time is questionable though as to whether it is damages or attorney fees or unrelated to the disclosure along with the $2,000 or so in expenses that were incurred when Mr. Smith went to Washington.
It finally dawned on me why the nitpicking might be important. The IRS admitted that it was wrong to have released CAP’s 1024 that was still in process, so presumably, it would have cut the organization a check for a grand without a lawsuit. If the actual damages don’t break $1,000, then presumably CAP does not get to recover the costs of the action, which I suspect are a bit more than the potential claim for actual damages of $4,819.78 that the Court still sees as being in play.
No Punitive Damages
Sophia Brown was the IRS employee charged with responding to ProPublica’s request. Apparently she failed to check whether CAP’s Form 1024 had been ruled on yet. Since it had not been ruled on, it should not have been released. The Court did not see any gross negligence here.
To the extent CAP claims that some sort of quality control process should have been in place to review Brown’s work, CAP does not dispute the IRS’s assertion that it had a process since 2010 for randomly spot-checking responses to information requests from the public. The fact that Brown’s response did not get randomly selected does not show that the process was so deeply flawed as to create “wanton or reckless disregard of the rights of another.”
The Court sees no gross negligence here. First, taking steps to ensure that Brown personally does not receive media requests is not something the IRS is required to do to avoid gross negligence. Despite thousands of requests, she and her supervisor cannot recall a single wrongful disclosure other than the one to ProPublica. CAP does not challenge this. Second, the fact that the IRS intended to implement more scrutiny for media requests does not mean that the lack of it in this instance (even due to communications lines crossing) created gross negligence. As previously discussed, Brown’s department had a quality control process, and the Court has already concluded that its failure to catch this wrongful disclosure in this instance does not support a gross negligence finding. Accordingly, CAP’s claim for punitive damages fails as a matter of law.
About Citizens Awareness Project
According to its initial Form 990 for the year 2012 it received $2,535,000. It had no paid staff or occupancy expenses. Pretty much the whole $2.5 million went to two vendors. The $993,916.79 noted above to Stephen Clouse & Asooc and $1,449,952.10 to Direct Response LLC in Phoenix Arizona. The latter was to conduct research to measure the “current opinions of specific demographic groups and how such groups change over time”.
On the
2013 Form 990 we see that
CAP received $100. It spent about half of the slightly more than $50,000, it had left over from 2012. The extraordinary thing about that precipitous decline in support is that
Steven Clouse & Assoc prides itself on “turning ordinary donors into major contributors”.
It struck me as pretty impressive that
Charlie Smith, who was something of a rookie lawyer having just received his JD in 2012 was chairman of this group that had $2.5 million run through it. It turned out, though, that he had been chairman of the College Republican National Committee, which is a pretty big deal. I contacted him for comment on the decision. He forwarded my inquiry to the attorneys handling the case. If I hear anything interesting I’ll let you know.
Other Coverage
My inner investigative reporter tells me that there is more of a story here, but I’m way behind on my tax blogging, which is what I do. The thinness of coverage on this decision is a sign that either I am finally catching up or that nobody else thinks it is interesting.
