Originally published on Forbes.com Apr 2nd, 2013
Several lawyers have signed a stern letter to Steven Miller, Acting IRS Commissioner, to scold him about careless handling of confidential information. I have to say that I agree with the lawyers that if the rules say something is confidential, confidential it should remain. On the other hand, I’m wondering, if whoever is responsible for investigating this type of thing should be fighting crime elsewhere rather than devoting a lot of energy to this particular breach. Here are some of the highlights from the letter:
As attorneys representing tax-exempt organizations, we are writing to express our grave concern about recent unlawful disclosures of pending applications and unredacted tax returns of certain tax-exempt organizations. We request that the Internal Revenue Service take immediate steps to determine how these disclosures of confidential taxpayer information occurred, to take any and all necessary steps to prevent similar disclosures in the future, and to make a detailed public statement describing these steps to reassure the tax-exempt community.
Wow. Sounds like big stuff. Here is one of the things they are talking about.
Recent reports and discussions make it clear one or more IRS employees responded to a public information request from the news organization ProPublica by giving ProPublica pending applications and subsequent extensive correspondence with the IRS regarding the applications from a number of organizations seeking recognition of their exemption from tax under Section 501(c)(4) of the Internal Revenue Code.
As you know, application documents are subject to public disclosure after recognition of the organization’s tax-exempt status, but still-pending (or withdrawn) applications are not. This restriction recognizes that pending applications are often incomplete and may include information about proposed activities that are questioned by the IRS determination agent and that the organization subsequently has a chance to clarify or eliminate from its plans before they are made public.
This appears to be the ProPublica story that was generated by the leak. Frankly, I don’t find it that exciting. Apparently a group called Americans For Responsible Leadership said in its initial application for 501(c)(4) status that it had not done any political spending, even though it had. The initial application was not supposed to be released. Apparently, they corrected the application but it is not clear whether they did that before or after ProPublica released the story.
But Wait There’s More
501(c)(4) organizations have to report their donors to the IRS on their Form 990. Form 990 is a public record, but the list of donors is not public. The disclosures about the application leaks “come on the heels” of a report of the donor list on a 501(c)(4)’s 990 be released by “someone at the IRS” (or at least someone with access to IRS files). I think it is likely that the organization involved was the National Organization for Marriage, which wrote this letter to the IRS last year, after its 2008 Schedule B found its way to the Human Rights Campaign.
The result was a slew of stories like this one in the Daily Beast titled Mitt Romney Secretly Supported Anti-Gay Marriage Group. In my mind it was not much of a secret or much of a story for that matter. Even though the report of the money going into NOM was not public record, the money going out of the Romney PAC ($10,000) was public record. A Romney PAC spending ten grand opposing same sex marriage shocking, shocking.
We Really Need To Worry About This Because ?
BNA interviewed one of the signers, Jeffery Altman of Whiteford Taylor and Preston. He wants people to know that this stuff is really important because:
“organizations whose applications are pending are irreparably injured when information about their plans are prematurely and unlawfully released and then mischaracterized by individuals or news organizations who are critical of the law that clearly allows Section 501(c)(4) organizations to engage in limited political activities and accept anonymous contributions, while unfairly referring to the organizations as ‘shadow groups’ and their supporters as ‘dark money.’ ”
Altman said it interferes with the normal application and IRS review process, but more importantly, may scare away donors who are concerned that their anonymity will be destroyed by the next round of unlawful disclosures.
My own view is that the IRS has a big enough job to do just collecting taxes and none of this really has much to do with collecting taxes. If the law says that people who donate to social welfare organizations can be anonymous even though the social welfare organizations can give some, but not too much, of the money to political organizations that don’t allow anonymous contributions, then I suppose care should be taken to preserve that anonymity. On the other hand, what is it that people are afraid of ? I suppose the Commissioner does need to look into this breach, but it can probably wait until he is done fixing identity theft.
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