Newly Released Records Confirm IRS, DOJ Violated Taxpayer Confidentiality Law

Whether we like it or not, the Internal Revenue Service (IRS) plays a central role in the administration of our tax laws. The agency consequently possesses copious amounts of sensitive financial information about individual Americans, nonprofits, and other corporations. Congress considered the protection of such information so important that it has mandated its confidentiality. Section 6103 of the Internal Revenue Code requires that “returns and return information”—essentially, anything about a taxpayer in IRS files—“shall remain confidential.” The importance of taxpayer confidentiality, and the danger inherent in its unauthorized disclosure, is one reason why the 2010 “Tea Party” targeting scandal was so serious—the Obama White House weaponized the IRS to target individuals and nonprofit groups based on their perceived political alignment.

IRS records recently produced to Cause of Action Institute (CoA Institute) in a Freedom of Information Act (FOIA) lawsuit now shed further light on how carelessly the IRS and the Department of Justice (DOJ) handled sensitive taxpayer information and only belatedly admitted to Congress that they had violated taxpayer confidentiality. In 2012, CoA Institute began its in-depth investigation into the nature and causes of the IRS targeting scandal and the misdeeds of government bureaucrats such as Lois Lerner. Part of our investigation revealed that IRS officials, including Ms. Lerner, willingly handed over twenty-one computer disks, containing over 1.1 million pages of taxpayer information, to the DOJ Public Integrity Section and the Federal Bureau of Investigation (FBI), despite lacking proper legal authorization to do so. This allegedly was done as part of the previous Administration’s efforts to investigate exempt entities suspected of having engaged in prohibited political activity.

After repeatedly insisting that it had received only “publicly available portions” of Form 990s when the IRS turned over those 1.1 million pages of taxpayer information, the DOJ later admitted it was mistaken. The records received by CoA Institute confirm that was the case.

In two requests for investigation (here and here), CoA Institute explained why the IRS’s unauthorized disclosure constituted a serious breach of taxpayer confidentiality laws. But the DOJ Inspector General, while admitting that taxpayer data had been mishandled, choose to do nothing and merely stated that Congress had been “informed” and “this matter does not warrant further investigation.” The DOJ watchdog’s inaction led to a series of further FOIA requests (here, here, and here) that were designed to discover more about what the IRS and DOJ had done, and how Congress was alerted to the violation of Section 6103. CoA Institute obtained the requested records only after filing a lawsuit to compel disclosure.

Section 6103 sets out clear rules for the handling of tax information. Those rules are in place to protect taxpayer privacy. In this case, however, the rules were not followed. The DOJ never had proper authorization to obtain the nonprofits’ tax information, including information about donors. But the IRS nevertheless transferred 1.1 million pages of returns to the DOJ and agreed to provide the data in “raw” format, so that it would be easier for the FBI to process.

On May 29, 2014, after the U.S. House of Representatives Committee on Oversight and Government Reform opened an investigation into the unauthorized transfer of these tax returns, the DOJ claimed that it had obtained only publicly available information, such as the returns available online on Guidestar.org.

Days later, on June 2, 2014, the DOJ again argued that the trove of tax information it obtained from the IRS was not confidential.

And then, only two days after that, the DOJ changed its story—the agency admitted that the IRS had discovered confidential Section 6103 information within the 1.1 million pages of returns and return information. The DOJ claimed that the disclosure had been “inadvertent,” and it indicated that it was “returning [its] copies of the disks to the IRS[.]” Unfortunately, it is impossible to judge just how serious this “inadvertent” breach of confidentiality was because the DOJ has refused to furnish the House Oversight Committee with internal correspondence about the incident. It has withheld this correspondence by citing the deliberative process privilege—a species of executive privilege— and, to date, those records remain secret.

To be clear, by returning the twenty-one CDs to the IRS and informing Congress about what happened, the DOJ followed proper procedure. But that does not exonerate the federal government for having allowed the breach of taxpayer confidentiality to have happened in the first place. All citizens deserve to know their government does not act with political motivations, and that the IRS will safeguard sensitive taxpayer information, especially as it pertains to charitable giving and the operation of nonprofit entities.

The DOJ’s delayed disclosure of records, which finally give a complete picture of what happened, also illustrates another danger of politicization, namely, of the FOIA process. In this case, the DOJ put up so many hurdles to accessing these records that it required a lawsuit to compel disclosure. Even then, it took months for the agency to produce the records. It would have been next to impossible for an ordinary citizen to get the same result.

For government to be truly transparent, it must be held accountable by its citizens. The behavior of the IRS and DOJ in this case is a perfect illustration of why CoA Institute is committed to fighting for an open and transparent government. Government agencies should not be allowed to violate statutes and then stonewall requests that seek to expose the truth. That is why we pursued this investigation and why we will continue to vigorously serve as a government watchdog on behalf of every American.

Ryan Mulvey is Counsel at Cause of Action Institute. 

Cause of Action files lawsuit against DOJ relating to Lois Lerner-IRS data scandal

WASHINGTON, D.C. – Sept. 14, 2018 – Cause of Action Institute (CoA Institute) has filed a lawsuit against the Department of Justice (DOJ) seeking records relating to the infamous Lois Lerner-IRS scandal. In 2010, the Internal Revenue Service (IRS) improperly released 21 CDs of confidential taxpayer information to the DOJ. This illegal release of confidential tax information resulted in several internal investigations, but the government has refused to release any of its internal reports or communications relating to the scandal.

“Taxpayers deserve to a have a full and clear picture of what took place nearly a decade ago when the U.S. Department of Justice and Internal Revenue Service were partnering in an effort to target nonprofits,” said Ryan Mulvey, counsel at Cause of Action Institute. “We have repeatedly requested the release of the internal investigation reports and the records revealing when and what the DOJ shared with Congress about this improper release. Taxpayers deserve a clear picture of who knew what and what really took place in the targeting of nonprofits by the DOJ and the IRS.”

In its investigation of this matter, CoA Institute has engaged with various DOJ components and Treasury Inspector General for Tax Administration (TIGTA), filed multiple unanswered Freedom of Information Act (FOIA) requests, and sought records regarding the potentially illegal access to and disclosure of this confidential taxpayer information.

Background:

  • In 2013, the public learned that the IRS Exempt Organizations Section, led by then-Director Lois Lerner, had been involved in unfairly targeting nonprofits, allegedly for political purposes.
  • Before then, the IRS and DOJ met on several occasions to discuss targeted prosecutorial efforts.
  • At one of those meetings, the IRS improperly provided the DOJ with 21 CDs containing statutorily protected confidential taxpayer information. That information could have been disclosed to the DOJ pursuant to statutory exemptions, none of which applied to this disclosure.
  • DOJ returned to the IRS, the CDs contained 1.1 million pages of confidential information regarding tax return information of various tax-exempt groups.
  • CoA Institute wrote to both the TIGTA and the DOJ Office of Inspector General (DOJ OIG) to request investigations into this illegal access to and disclosure of confidential taxpayer information. TIGTA and DOJ OIG both opened investigations of this matter.
  • TIGTA refused to release its findings.
  • DOJ OIG, in a letter to CoA Institute, explained that, “[b]ased upon [its] initial inquiries, it appears that some protected taxpayer information was included on compact disks (CDs) that the IRS provided to the Department in response to a Department request.” Once “the Department learned of this, it returned the CDs to the IRS and informed Congress about it.” Citing “the absence of available information,” DOJ-OIG “determined that [CoA Institute’s request] does not warrant further investigation.”
  • In October 2016, CoA Institute sent a FOIA request to the DOJ-OIG seeking records of its communication with Congress relating to this unauthorized disclosure.
  • In October 2017, CoA Institute sent two additional FOIA requests to various DOJ components to ensure that CoA Institute received all relevant records pertaining to the IRS’s unlawful disclosure, particularly regarding the DOJ’s communications with Congress.
  • DOJ has refused to respond to any of the CoA Institute FOIA requests for this matter.
  • On Thursday, Sept. 13, 2018 Cause of Action Institute filed the following complaint against the U.S. Department of Justice, Cause of Action Inst. v. U.S. Dep’t of Justice, 18-2126 (D.D.C.)

Full complaint can be viewed below.

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government.

Media Contact:

Matt Frendewey

matt.frendewey@causeofaction.org

202-699-2018

Loader Loading...
EAD Logo Taking too long?

Reload Reload document
| Open Open in new tab

Download [53.63 KB]

 

Watchdog Exposes IRS Record Management Failures

The Treasury Inspector General for Tax Administration (“TIGTA”) released an important report yesterday that detailed the Internal Revenue Service’s (“IRS”) inconsistent and inadequate records retention policies over recent years. The audit had been requested in March 2016 by the House Committee on Ways and Means.  TIGTA, the IRS’s watchdog, concluded that the agency had failed to “comply with certain Federal requirements that agencies must ensure that all records are retrievable and usable for as long as needed.”  In other words, TIGTA took the IRS to task for having ignored the requirements of the Federal Records Act (“FRA”) and the Freedom of Information Act (“FOIA”).

Consider some highlights from the report:

  • “The IRS’s current e-mail system and record retention policies do not ensure that e-mail records are saved and can be searched[.]”
  • “[R]epeated changes in electronic media storage policies, combined with a reliance on employees to maintain records on computer hard drives, has resulted in cases in which Federal records were lost or unintentionally destroyed.”
  • “Interim actions taken by the IRS while developing an upgraded e-mail solution do not prevent loss of e-mail records.”
  • The IRS’s “interim e-mail archiving policy for executives” was “not implemented effectively because some executives”—including four members of the Senior Executive Team—did not properly configure their e-mail accounts . . . and the IRS did not have an authoritative list of all executives required to comply with the interim policy.”
  • “Policies requiring the IRS to document search efforts [under the FOIA] were not followed for some cases.”
  • “The IRS does not have a consistent policy to search for records from separated employees.”

TIGTA’s report offers countless examples of how not to comply with federal law.  Yet none of the details are terribly unexpected.  Ever since the Lois Lerner Tea Party targeting scandal broke in 2013, the IRS has been grilled for its shoddy records management.  Cause of Action Institute’s oversight of the agency revealed, for example, that the IRS used to delete BlackBerry messages after only fourteen (14) days because of “routine system housekeeping” and “spacing constraints.” More egregiously, the IRS intentionally failed to capture, preserve, or retain instant messages created on its Microsoft Office Communications Server (“OCS”) platform because of a contractual agreement with the National Treasury Employees Union.  That “memorandum of understanding” sought to “enhance employee work environments and allow employees to more effectively and efficiently collaborate with their colleagues.”  In other words, the IRS had no systemic means of assuring that employees’ communications on OCS were not records subject to the FRA or the FOIA and, if they were, that they were appropriately retained and retrievable.  Our lawsuit against the IRS helped push the agency to implement a new records management system for text and instant messages in line with the requirements of the law.  Unfortunately, as the TIGTA report demonstrates, the agency still falls short with respect to its management of email records.

It is also unsurprising—but still deeply troubling—that TIGTA concluded the IRS “did not consistently ensure that potentially responsive records” were identified, searched, and produced in response to FOIA requests. CoA Institute frequently litigates with the IRS over requests that go unanswered for months.  The fight usually boils down to a disagreement over the adequacy of the agency’s search.  Regrettably, courts give agencies a great deal of deference in justifying the reasonableness of their searches, even when a declarant fails to provide sufficiently specific information about how a search was conducted.  In some of our cases, IRS FOIA officers have merely asked senior employees whether potentially responsive records exist and then called it a day.  That’s unacceptable.  The onus is now on the IRS to make improvements, and it is for Congress and taxpayers to ensure those improvements are made.

Ryan P. Mulvey is Counsel at Cause of Action Institute

National Review: Conservative Group Uncovers New Roots of the IRS Scandal

Read the full story: National Review

A group of lawyers who have been investigating the origins of the IRS scandal for the past year-and-a-half say they’ve uncovered the real roots of the IRS scandal — and they’ll surprise both liberals and conservatives alike.

 

The group, Cause of Action, which has subpoenaed thousands of pages of documents from the agency and is still embroiled in litigation with it, says the targeting of conservative groups resulted as much from IRS personnel merely following the instructions laid out in their employee handbook, the Internal Revenue Manual, as from any political bias at the top.

 

When the scandal broke nearly two years ago, the IRS and the Obama administration pointed the finger at a few bad apples in the agency’s Cincinnati office. The agency’s inspector general blamed the inappropriate targeting of tea-party groups on the “ineffective management” of top bureaucrats. Many reporters, particularly on the right, including here at National Review, concluded that top D.C. official Lois Lerner and her colleagues in the IRS’s Exempt Organizations office had orchestrated events from the outset.

 

Dan Epstein, executive director of Cause of Action, is a former attorney and investigator for the House Oversight Committee. He and his team, a group of 13 attorneys funded by the Koch brothers’ sprawling network of donors, say none of these stories fully explain what happened at the IRS between 2010 and 2014 and that, in fact, the targeting was baked in the cake. That is, the Internal Revenue Manual, the handbook by which IRS employees are required to abide, mandates the sort of scrutiny that delayed the processing of the applications of hundreds of conservative nonprofit organizations. Cause of Action has laid out its case in a confidential, 35-page memo obtained by National Review. They concluded that many of the IRS officials involved in the scandal were just following the rules.