Archives for 2013

FoxNews.com: Obama administration pledged transparency, but slowed document requests, memos show

Obama administration pledged transparency, but slowed document requests, memos show

By Judson Berger    Published June 20, 2013

Even as the freshly minted Obama administration was pledging a “new era of open government” in 2009, officials were quietly adding new rules that had the potential to slow down public requests for documents.

Those rules, detailed in memos reviewed by FoxNews.com, could even trip up present-day efforts to dig into the IRS’ practice of targeting conservative groups. The rules detailed in the memos largely emanated from the Treasury Department and, specifically, the IRS.

“It would seem to repudiate this notion that this is going to be the most transparent government in history,” said Dan Epstein, executive director of Cause of Action, the group that first obtained the memos.

The memos follow reports about the administration’s use of private email accounts, and coincide with ongoing debate about government transparency — particularly with recent disclosures about widespread surveillance programs.

Epstein said the document request procedures are “troubling” since the media are “really concerned about the limits of government power.”

According to the documents, the Treasury Department in 2009 set up an additional review for requests involving “sensitive information,” which covered a broad range of items. The White House sometimes got involved, slowing down the process. The IRS also acknowledged having another review process for requests from “major media,” but not for requests from private individuals.

Members of the media often try to obtain documents not readily available by citing a law known as the Freedom of Information Act. The Treasury Department, though, in late 2009 erected speed bumps for some so-called FOIA requests.

The rules were detailed in a November 2010 memo and report sent from the Treasury inspector general to Sen. Charles Grassley, R-Iowa.

The documents showed the Treasury Department set up an additional “formal level of review” for requests for “sensitive information.” This category would cover everything from emails to memos to calendars to travel logs for top department officials, legal advisers, senior advisers and others.

Once a request was deemed “sensitive,” it would then go before a “review committee,” made up of officials from several Treasury offices.

Further, the document said a special report would be prepared for IRS requests from “major media.” This covers requests from traditional news media as well as bloggers, and according to the report covered information that “was likely to attract news media or congressional interest, involved large dollar amounts, or involved unique or novel issues.”

This report would then be sent to a higher-up in the division who decided whether the material should be disclosed.

The report repeatedly said that, in most cases, political appointees were not involved in these decisions, and that the agencies have no procedures to allow that.

But Epstein said these rules could cause problems as Congress and the media dig deeper into the origin of the IRS practice of singling out conservative groups for additional scrutiny.

He pointed to another memo, dated April 15, 2009, from then-White House Counsel Greg Craig that urged “executive agencies” to consult with his office “on all document requests that may involve documents with White House equities.” Craig said this pertains to everything from FOIA requests to congressional requests to subpoenas.

This practice apparently dates back to 1993. The Treasury IG memo cited this, and described the White House involvement as “minimal and limited.” However, the report also said the White House involvement “was responsible in several cases for adding a significant processing delay,” which in Treasury’s case slowed them down.

“It actually is heavily ironic in the realm of transparency,” Epstein said.

He pointed to edicts and memos early on in the first term of the administration stressing transparency. Obama issued a January 2009 directive calling for an “unprecedented level of openness.”

Attorney General Eric Holder in March 2009 directed all Executive Branch departments to use a “presumption of openness” when dealing with FOIA requests.

To that end, the administration has instituted several other transparency initiatives. It has followed through on requiring Cabinet secretaries to hold Internet town hall discussions, set up a comprehensive website to track stimulus spending, and set up a national declassification center.

 

Cause of Action Sues IRS for Records of Communications between the White House and IRS

FOR IMMEDIATE RELEASE                                                                                   CONTACT:      

June 20, 2013                                                                                     Jamie Morris, 202-499-2425

 

Cause of Action Sues IRS for Records of Communications between

the White House and IRS

IRS refuses to reveal whether the White House has improperly received individuals’ tax return information

WASHINGTON – Cause of Action (CoA), a government accountability organization, yesterday filed a lawsuit against the Internal Revenue Service (IRS) for its wrongful withholding and redaction of documents involving records of communications between the White House and the IRS. These documents would reveal whether the President requested tax records of individuals and businesses outside the legally permitted process under the tax code.

“While this Administration claims to be the most transparent in American history, it is ultimately unwilling to disclose to the American people whether the President improperly accessed confidential tax information of individuals and companies,” stated Dan Epstein, Cause of Action’s executive director.  “We aren’t asking for the tax records themselves—only the requests. What is the Administration trying to hide?”

CoA filed a Freedom of Information Act (FOIA) request in October 2012 for records of communication between the White House and the IRS concerning taxpayer information, particularly communications that were not made pursuant to 6103(g) of the tax code, which authorizes the President to request any individual’s tax return information from the IRS. On March 4, 2013, the IRS issued its final response—and with it, only partial records, thereby obstructing the path to transparency which American taxpayers were promised. CoA filed suit against the IRS, declaring that the IRS has wrongfully withheld the requested records, directing the IRS to revise its search and provide full records of communications from the White House to the IRS involving requests for tax returns.

The complaint, along with our exhibits, can be found here.

About Cause of Action:

Cause of Action is a nonprofit, nonpartisan organization that uses investigative, legal, and communications tools to educate the public on how government accountability and transparency protects taxpayer interests and economic opportunity. For more information, visit www.causeofaction.org.

 

To schedule an interview with Cause of Action’s Executive Director Dan Epstein,

contact Jamie Morris, jamie.morris@causeofaction.org.

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IRS FOIA Complaint

Complaint

Exhibits

ECF No 1-1_Civil Cover Sheet

ECF No 1-2_Summons to IRS_not executed by clerk

 

CFPB advises employees to FOIA-proof their work calendars

Updated: May 22, 2014 with the full CFPB FOIA Brochure

“Transparency is at the core of our agenda, and it is a key part of how we operate.   You deserve to know what the new bureau is doing for the American public and how we are doing it.” 

 CFPB Website

“Keep your calendar entries brief and general. If possible, avoid annotating entries with agendas, detail discussions, etc.

Minimize attachments to your calendar appointments. Consider using email to send related attachments.”

CFPB FOIA Team to CFPB employees

 

CFPB employees have been advised by its FOIA staff to keep their work calendars “brief and general” and to remove meetings to which they “were invited but did not attend,” according to a list of calendar tips obtained by Cause of Action.

These “Recommended Calendar DOs and DON’Ts” further suggest that employees “avoid annotating entries with agendas, detailed discussions,” and “minimize attachments to your calendar appointments.”  Consistent with such advice, the leadership calendars posted (and touted) by CFPB are noticeably devoid of details.

These calendar tips undoubtedly make it easier for the bureau’s FOIA staff to process any requested calendars.  However, they also undermine the Administration’s asserted commitment to creating “an unprecedented level of openness in Government.”  Additionally, this behind-the-scenes advice indicates that transparency at CFPB is not actually a “key mission,” as claimed.  Rather than full disclosure, the name of the game at CFPB obviously is partial disclosure lite.

Related: FOIA requests have found that the IRS and the DOJ are more concerned with their public image than they are with completing FOIA requests in accordance with the law.

CFPB FOIA Calendar Brochure by CauseOfAction

CFPB FOIA Insiders Guide 2013 by CauseOfAction

CFPB FOIA Email Focus 2013 by CauseOfAction

Lack of IRS Oversight Lead to Fraud, Money Laundering, and Abuse by Tax-Exempt Groups

FOR IMMEDIATE RELEASE                                                                                                 CONTACT:      

June 17, 2013                                                                                       Jamie Morris, 202-499-2425

 

Lack of IRS Oversight Lead to

 Fraud, Money Laundering, and Abuse by Tax-Exempt Groups

Cause of Action releases investigative report on fiscal sponsorship: “Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering”

WASHINGTON – Cause of Action (CoA), a government accountability organization, today released “Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering,” a comprehensive report revealing significant loopholes in the tax code which allow nonprofits to engage in corruption, fraud, and money laundering—in some cases with federal funds. In light of these findings, Cause of Action filed a petition for rulemaking with the IRS, asking them to define and set clear parameters for the practice of fiscal sponsorship.

CoA’s fifteen-month long investigation demonstrates how the Internal Revenue Service (IRS)  has consistently lacked oversight and enforcement of its Tax Exempt and Government Entities Division, the same division that has recently come under public, Congressional, and legal scrutiny for allegedly targeting applicants for 501(c)(4) status that hold specific political beliefs. The report reveals how the International Humanities Center (IHC), Christian Community, Inc. (CCI), and Help Is Here, Inc. (HIH), as well as other nonprofits, routinely used the practice of fiscal sponsorship to abuse their tax-exempt status, and in some cases even commit fraud.

“Conprofit: How the IRS’s Failed Enforcement Allows Nonprofit Money Laundering” exposes how these groups subverted the original intent of fiscal sponsorship, which is to create opportunities for charitable projects to start their endeavors under existing nonprofit groups. Instead, “Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering” documents fraud, corruption, and money laundering happening under the guise of fiscal sponsorship.

Some of the most egregious examples of fiscal sponsorship abuse:

  • IHC sponsored over 200 projects as a fiscal sponsor then collapsed after funneling almost $1 million in project funding toward its own mismanaged debts.
  • HIH preyed upon projects, improperly seizing funds, refusing to disburse funding to projects, and attempting to wrest control over projects which attempted to leave.
  • CCI posed as a fiscal sponsor for twenty years.  Tax documents, audits, and bank statements were fabricated and over $400,000 in project funding was lost.

 

Cause of Action’s Executive Director Dan Epstein explained the consequences of these findings:

“Cause of Action has exposed yet another layer of mismanagement and lack of oversight at the IRS.  This report exposes how the IRS engaged in selective enforcement, targeting certain 501(c)(3) applicants with additional scrutiny while it has approved the tax-exempt status of charities that have engaged in money laundering and fraud.

 

Significant loopholes in the tax code have opened the door to abuse for organizations to funnel money, fabricate tax documents, and destroy charities by abusing fiscal sponsorship. We now turn to Congress and the IRS to define fiscal sponsorship and remove the ambiguities which have allowed groups such as IHC, CCI, and HIH to exploit and defraud American taxpayers.”

 

Click here to read a full copy of the report.

About Cause of Action:

Cause of Action is a nonprofit, nonpartisan organization that uses investigative, legal, and communications tools to educate the public on how government accountability and transparency protects taxpayer interests and economic opportunity. For more information, visit www.causeofaction.org.

To schedule an interview with Cause of Action’s Executive Director Dan Epstein, contact Jamie Morris, jamie.morris@causeofaction.org.

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REPORT: Conprofit: How the IRS’s Failed Oversight Allows Nonprofit Money Laundering

I. Executive Summary

We will continue to work tirelessly with our partners from SIPC, the FBI, and the IRS, to track down any and all proceeds of Madoff’s Ponzi scheme and return them to their rightful owners. . .The investigation of prodigious fraud, like that of Madoff, remains one of the FBI’s top priorities. From robbers to fraudsters, the FBI will continue to bring to justice crooks who steal.” 

-Preet Bhara, U.S. Attorney

 “Nonetheless, there are some investigations underway. The California attorney general’s office has received sufficient complaints to have begun its own investigation. . . . . [C]ontacts have been made with the FBI and the Los Angeles district attorney. . . . Meanwhile, these projects will have to track down known donors, explain the details of what amounts to a fiscal sponsorship Ponzi scheme, and hope that the donors will be willing to ante up more money to make up what was lost.”

-Nonprofit Quarterly

 

The two above quotes may sound like depictions of the same problem, but the first statement was made by U.S. Attorney Preet Bharara concerning the money laundering, embezzlement, and fraud of white collar criminal Bernie Madoff.  The second, however, came from a Nonprofit Quarterly article about the nonprofit International Humanities Center that defrauded over 200 projects it sponsored and ran off with nearly $1 million.

While the IRS’s recent attention has been focused on scrutinizing tax-exempt applications, it has approved the tax-exempt status of charities that have engaged in money laundering and fraud. This system of abuse involves CEOs and corporate fraud, but its culprit cannot be found on Wall Street or in the boardrooms of large, publicly-traded corporations.  This fraud occurs in small, tax-exempt nonprofits, often run by one or two individuals who have discovered an opening in the tax code that allows them to dupe unsuspecting start-up charities and fly under the radar of an over-complicated tax code.

What follows in this report, based on Cause of Action’s fifteen-month investigation, is an account of a dangerous pattern of abuse that has destroyed jobs and ruined charities whose aim was the public good.  This abuse, combined with fabricated tax documents and bank statements and the mismanagement of federal grant money, paints a picture of corruption protected under the auspices of a process called fiscal sponsorship that is unmanaged, unchecked, and undefined by the Internal Revenue Service (IRS).

Whether through Congress or IRS rulemaking, the abuse of fiscal sponsorship warrants correction to protect taxpayers and charities. By clearly defining the parameters and standards of fiscal sponsorship, the IRS can alleviate its backlog of failed oversight of tax-exempt groups and prevent future non-profit Ponzi schemes.

Fiscal sponsorship was intended for good, but is being used for harm

When individuals seek to establish a new charity, they often apply for 501(c)(3) tax-exempt status in order to receive tax-exempt donations.  However, many projects only intend to exist temporarily and therefore have no incentive to seek formal tax-exempt status.  Other projects may require donations while their tax-exempt applications are being processed.  Fiscal sponsorship solves these problems by allowing existing tax-exempt organizations to accept grants and donations on behalf of the charity, or “project.”  As reflected by the current IRS scandal, the process for attaining tax-exempt status can be lengthy and arduous. For groups that either cannot afford the time or money to attain their own status before wanting to conduct their charitable activities, or have no desire to become an independent organization, fiscal sponsorship allows them to come under the umbrella of an existing non-profit organization.

But despite the benefits of fiscal sponsorship, we see in the cases of International Humanities Center (IHC), Christian Community, Inc. (CCI), and Help Is Here, Inc. (HIH) that these organizations were able to use the practice of fiscal sponsorship to abuse their tax exempt status, and in some cases even commit fraud.

IHC served as a fiscal sponsor for over 200 projects, funneling almost $1 million in project funding toward its own mismanaged debts before closing its doors.

Though IHC’s overall structure was not necessarily illegal, the organization may not have abided by the law governing sponsored projects’ individual transactions, and while the IRS was conducting an audit at the time of its collapse in 2011, former IHC employees reported to Cause of Action that the agency had focused on smaller issues and missed the fundamental problem which plagued IHC: uncontrolled and unaccountable spending.

IHC came under federal investigation for the potential mismanagement of federal grant money.

Through a Department of Energy program under the American Recovery and Reinvestment Act of 2009, Cause of Action found that IHC potentially improperly accepted federal grant funds intended for one of its sponsored projects, ultimately resulting in a DOE investigation. A criminal and civil case was pending against IHC as of April 2012 and DOE was considering debarring high-level IHC officials.

CCI fabricated tax documents, audits, and bank statements, costing its projects over $400,000 in lost funding.

CCI’s director, Steven Clapp, ran the fiscal sponsor organization for twenty years with little repercussion for his fraudulent activities.  For instance, Clapp told projects that he withheld Social Security taxes but never actually submitted the withholdings.  He also failed to file accurate 990 forms with the IRS.  When a former employee of one of CCI’s projects attempted to verify forms, payments, and legal filings by CCI, she discovered “nothing but fake colored pieces of paper.”  Prior to joining CCI, Clapp himself spent over four years in prison for bank fraud in Illinois for forging financial statements in order to obtain loans to support his business. Despite a history of financial fraud, the IRS was only alerted to potential problems at CCI when the organization failed to file its tax forms.

HIH preyed upon projects, improperly seizing funds, refusing to disburse funding to projects, and attempting to wrest control over projects which attempted to leave.

Under the leadership of Maggie Lane-Baker, HIH mismanaged funds intended for its projects which, without oversight by the IRS, were forced to take HIH to court.  HIH not only attempted to seize donations, but also claimed control over the charitable projects themselves.  When one project attempted to end its agreement with HIH, the request was denied.  While Lane-Baker eventually acknowledged that she confiscated $50,000 in funding, she claimed HIH was justified in keeping the funds.  This organization not only mismanaged money, but caused its sponsored projects to expend the time and resources required to initiate litigation, all of which could have been avoided with IRS oversight and a better understanding of how to properly structure a fiscal sponsorship arrangement.

Remedy

Cause of Action’s findings demonstrate a substantial lack of guidance regarding fiscal sponsorship that has subjected hundreds of charities to abuse and allowed substantial sums of donations—including federal government grants—to be mismanaged by unaccountable sponsors.

Furthermore, the IRS’s failure to properly oversee tax-exempt groups puts all projects who find themselves under a non-compliant fiscal sponsor at risk of losing funding and shutting down. Either Congress or the IRS must define fiscal sponsorship and remove ambiguities that have allowed groups such as IHC, CCI, and HIH to exploit and defraud American taxpayers through fiscal sponsorship.

 

 

Petition for IRS Rulemaking

Petition for IRS Rulemaking