Originally published on Forbes.com.
The news about a preliminary victory against the IRS in a suit by not-for-profits broke last week making it Day 986 of the TaxProf’s IRS Scandal. I didn’t make it into my inbox till last weekend, because the ruling required redaction. Judge Susan Dlott of the United States District for the Southern Division of Ohio ruled in NorCal Tea Party Patriots, et al v IRS that the various groups that believe they were targeted by the IRS will be recognized as a class.
Beginning in 2010, Plaintiffs applied to the IRS for exemption from federal taxation pursuant to the Internal Revenue Code, 26 U.S.C. §§ 501(c)(3) and/or 501(c)(4). Plaintiffs allege that the IRS targeted them and other dissenting groups by segregating their tax-exemption applications because their names included terms such as “Tea Party,” “Patriots,” or “9/12 Project” or because their focus included issues such as government spending. Plaintiffs allege that the IRS subjected the applications from these dissenting groups to delays and increased scrutiny. They further allege, with respect to a certain subset of dissenting groups, that the IRS requested and then inspected information not relevant to the tax-exemption application process.
In case this sounds familiar. Here is why.
The allegations that underlie this federal case also were the subject of investigations by the Treasury Inspector General for Tax Administration (“TIGTA”), the Senate Finance Committee, and the Senate Permanent Subcommittee on Investigations for the Committee on Homeland Security and Governmental Affairs (“Senate PSI”). TIGTA issued its initial report on May 14, 2013 and a supplemental report on March 27, 2015. The Senate Finance Committee issued its report on August 5, 2015. The Senate PSI issued its report on September 5, 2014
The claim for damages revolves around privacy issues. The IRS is not supposed to ask you for information that is not germane to tax administration
Is There A Class?
The decision is about whether the groups represent a class. In this case there is a class and a subclass being claimed. The primary class is all organizations whose applications for exempt status were flagged by the IRS as an “Advocacy case” from February 2010 toJune 2013 with references in the case file to “Tea Party”, “Patriots” of “9/12 Project”, references to government spending, government debt or taxes, references to making America a better place to live or criticizing how the country is being run.
The subclass consists of those groups in the primary class that were asked for names of donors, issues of the group, information about non-member participants, whether officers or directors had run for public office, political affiliation, information regarding employment of officers and directors including hours worked and information about the activities of other entities..
The discussion of whether you have a class is pretty lawyerly. The government argued that determining which groups were in the class by objective criteria was not practical, indicating that some files rather than being marked “Tea Party” or “TP” were designated “Political Activities – Sensitive issues”.
The court was not buying that argument:
The Government’s arguments are not sufficient to defeat a finding that the proposed class and subclass are ascertainable. The Targeting Criteria are a compilation of the various approaches that IRS agents used to identify and segregate Tea Party-type cases. The fact that multiple approaches, as opposed to a single approach, were used to segregate applications does not change the result that a discrete number of applicants ultimately were selected for increased scrutiny. The Government’s discovery responses strongly suggest that objective determinations about class membership can be and have been made.
Reading the full discussion of what constitutes a valid class might improve your vocabulary. “Numerosity” is a word – Who knew?
Who Is In Charge Here?
The government is also arguing that the lead plaintiffs will not be able to adequately represent the class and that it is the lawyers, who are being paid by a different group that is really running the show.
In rebuttal, the Government initially questioned whether the third-party funder of this litigation, an entity known as Citizens for Self-Governance (“CSG”), was directing Plaintiffs’ counsel and thus usurping the duty of the named Plaintiffs to serve as the adequate class representatives. The Court gave the Government leave to depose CSG and to file a supplemental brief on adequacy if appropriate. After conducting a Rule 30(b)(6) deposition of CSG, the Government determined that “despite numerous public statements to the contrary, is not overseeing this lawsuit or directing counsel.” Thus, CSG’s role as a third-party funder does not impugn the adequacy of the named Plaintiffs to serve as class representatives.
This was the part that I found fascinating. The hundreds of Tea Party and the like groups that were harmed by the IRS slow walking their applications and aggravating them with unnecessary questions are not holding bake sales and spaghetti suppers to pay for lawyers to vindicate them. Rather a group whose exempt status was not challenged is bankrolling the effort.
About Citizens For Self-Governance
As noted the litigation is being funded by Citizens For Self-Governance. The suit gets prominent play on CSG’s website. One of the things that flashes up is that CSG filed the only class action lawsuit against the federal government to defend the law-abiding citizens who were harassed by the IRS. That was the point of contention in that CSG actually could not file the suit, since it was not part of the class. It is funding the suit.
Regardless, in stating its aims with the lawsuit CSG leads with
Bring those involved in this government overreach and abuse of power to light. Through deposition, discovery, subpoena and other legal processes, we seek to expose those who have intimidated law-abiding Americans. Citizens deserve to know who — and at what level of the Washington establishment — made these decisions.
Recovering damages for the organizations that were harmed comes second.
More About Citizens For Self Governance
Learning more about CSG was a little challenging. I could not find its Form 990 on guidestar.org. As it turns out “Citizens for Self Governance” is a dba for John Hancock Committee For The States. The most recent Form 990, I could find available was 2013. It shows CSG paying Graves Bartle Marcus, the law firm representing NorCal et al, $315,296 in 2013.
CSG does not disclose its donors to anybody, including the IRS.
THE ORGANIZATION DECLINES TO PROVIDE SPECIFIC INDENTIFYING INFORMAITON ON
ITS DONORS ON THE GROUNDS THAT SUCH DISCLOSURE MAY CHILL THE DONORS FIRST
AMENDMENT RIGHT TO ASSOCIATE IN PRIVATE WITH THE ORGANIZATION.
Sourcewatch working in the opposite direction (from disclosures of donors) has identified a few of the larger donors including $2.5 million from the Vanguard Charitable Endowment Program (a donor advised fund) and $691,916.16 from DonorsTrust. DonorsTrust is essentially a donor advised fund dedicated to supporting conservative causes “… to insure the intent of donors who are dedicated to the ideals of limited government, personal responsibility, and free enterprise.”
So CSG is starting to looking like part of the Kochtopus. Board member, Eric O’Keefe is reputed to have Koch connections. And here we have Mark Meckler, President and CEO of CSG addressing ALEC
Convention of States
The address is about CSG’s main focus which is to have a Convention of States to solve the problem of the federal government overreaching its constitutionally-established boundaries. The Convention of States can give us a new Constitution, which will apparently be more like what the founding fathers really meant. In the FAQ, they explain why this will work.
Amendments at a Convention of States today will be written with the current state of the federal government in mind. The language they use for these amendments will be unequivocal. There will be no doubt as to their meaning, no possibility of alternate interpretations, and no way for them to be legitimately broken. For example, the General Welfare Clause could be amended to add this phrase: “If the States have the jurisdiction to spend money on a subject matter, Congress may not tax or spend for this same subject matter.”
It seems that CSG is embarking on a program of extremely radical change. The promoters of the IRS scandal narrative have been talking about the Obama administration, somehow through Bush era appointees, weaponizing the IRS. A counter argument might be that groups like ALEC and CSG are part of an effort to weaponize philanthropy and they will brook no interference.
At least for the upcoming election cycle, they have pretty well defanged the IRS, but it may be that this litigation is meant to be part of stomping on it and grinding it into the dust.