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05/28/2013

The ABCs of the IRS Scandal

 

 

Last Thursday, Dan Epstein, Cause of Action’s executive director appeared on WDEL’s The Rick Jensen Show to talk about the scandal surrounding  the IRS’s exempt organizations unit and recent discoveries it specifically targeted conservative organizations when applying for the tax-exempt 501(c)(4) status. Rick asked the questions and Dan dished out the answers. Here are some of the highlights:

 

Rick: There are so many people that don’t believe that using the IRS as a weapon is illegal and is a big scandal.  So what? Lots of presidents have done this. It’s not a scandal. Why should we care?

 

Dan: Actually, not a lot of presidents have done this; in fact the Internal revenue code—the whole reason why we were able to get transparency on what Nixon was doing and allegedly Johnson and Kennedy was because there’s a specific provision of the tax code that specifically authorizes the President to get tax information and he has to report that back to Congress. Cause of Action investigated this…we found that in fact even though the President had appeared to have gotten private information of certain entities he did not use the statutory mean s to do that.

 

So why should we care? We should care because:

1)       We want a President, an Administration that follows the law.

2)       It’s not just the issue of political corruption or political targeting; it’s the silencing of free expression.  When you’re a non-profit and an organization that wants to get a tax-exempt status and you apply to the IRS, part of what that IRS application and certification does… it’s the government approving you to engage in certain protected expression.  When you don’t’ approve them and when you actually are engaged in selective politicization in terms of whom you approve, you’re violating the most important  amendment in the United States Constitution, that’s the First Amendment, that’s the freedom of speech, the freedom of expression, the freedom of no government-established religion.  And when you infringe on that, you’re fundamentally infringing on something has been most key to the expression of our basic rights.

 

Rick: The Tea Party…they don’t want to pay taxes.  They should be investigated. The IRS investigating Tea Party is the right thing… the IRS is doing the right thing, right?

 

Dan: It’s actually quite ironic because the Inspector General’s report from the IRS—TIGTA actually showed that in fact if the IRS was really just concerned about groups that are doing political activity then the IRS actually was in fact under-inclusive.  In fact, most of the Tea Party groups that the IRS investigated were actually not doing any political activity and were educational or social in community-outreach organizations.  Yet in fact, there were left-of-center groups that applied for tax-exempt status that were granted it and yet clearly—according to the Inspector General—were engaging in political activity.

 

So if anyone needs to be audited, if anyone need s be investigated, it’s not the majority of the Tea Party groups, it’s the left-of-center groups. And in fact the person is incorrect because the Inspector General, the government official who investigated this stated that as a matter of fact most of these Tea Party groups were not interested in engaging in policy.

 

Rick: Asking some group to answer a few questions is not intimidating. These Tea-Party people they’re just whining and trying to make something out of nothing.  Big deal- you have to answer a few questions. How the heck can that be intimidating or harassment?

 

Dan: There are a number of issues there. It’s not just as if they’re asking a few questions.

 

1)      They’re asking for in many cases, disclosure of donors, disclosure of contributors, and in other cases they’re asking specific questions that relate to how you would answer certain political questions.  So the IRS has no authority to do those types of things. The IRS does not actually have the authority to respectively use the examinations process as an audit process.

2)       It merely wasn’t just a few questions, because in other instances, the IRS actually conducted audits which are a costly enterprise- you have to hire lawyers.  Most organizations have to hire lawyers anyways to apply for an exempt status… it’s not just a question of having to deal with questions, its having to deal with questions that very much take the posture  of an investigation, or as we now know, were actual audits.

 

Rick:  Regarding the disclosure of donors and contributors to these groups we (the public) want to know who’s funding these groups and who’s behind them and behind this. [Shouldn’t the IRS be investigating this?]

 

Dan: When you’re applying for exempt-status as a  501(c)(4) which is basically a social-welfare organization, what the IRS is trying to determine is in fact,  should you be a 501(c)4 or should you be a section 524 – a Political Action Committee (PAC)?  That’s really what the examination process is geared towards.  It has nothing to do with donors.  It has everything to do with what is the evidence that you’re going to be engaging in social welfare activities verses pure politics.

 

Rick: What’s with the IRS sending the names of donors to the media? When you actually send these names illegally to a group like ProPublica they can use the list of these names against them in public.

 

Dan: What the IRS did in disclosing those lists to ProPublica is illegal. Imagine if the IRS was to take any of our tax returns and just give it to a news organization. That is a violation of law.

 

Rick: So the question is…. these phony retirements. You’ve got two people who are going to retire anyway, and Obama is saying, “Okay we fixed it, we’re retiring them early.”  So who goes to jail?

 

Dan:  What we know is that so far, the only things that have happened from the criminal side is that Attorney General Holder has asked the FBI to investigate.  Congress doesn’t have the authority to recommend prosecution.  It looks like the claim is that these were just a few rogue employees.  The likelihood is that the FBI will find no criminal wrongdoing, that’s typically what happens with these types of issues.  It may just be a slap on the wrist.

 

Rick: Is it a problem that Eric Holder is in essence investigating himself, recusing himself and saying, “I may be a whistleblower myself”?  Should we have a special prosecutor?  Who oversees Holder?

 

Dan: I think we need to do one of a few things:

1)      Congress either needs to set up a special committee to investigate the IRS –which it can do and empower through emergency legislation— it can either make it an Article 1 Committee, which is legislative or it can make it an executive branch committee and give it prosecutorial power.  Congress has the authority to do that.

 

2)      What can happen (and this likely not to happen) is that the Attorney General, or if he has a conflict of interest, the Deputy Attorney General could appoint an Independent Counsel or a Special Counsel which would actually have much of the prosecutorial authority as the Attorney General himself.

 

3)      In any of these legal cases that have now been filed, whether the case in Ohio or the case filed in the U.S. District Court for the District of Columbia – in either of these cases, a judge (based off the necessity of fact gathering) can appoint an Independent Prosecutor and assign an Independent Counsel to prosecute these issues.  A federal judge has the opportunity to recognize the importance of independence here.

 

For more information on Cause of Action’s investigation into the IRS click here.

 

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05/13/2013

FOIA Freak-Out: IRS Wrongly Denies FOIA Request, Comes Unglued Over Media Response

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(Photo via Politico and BGA Think Tank)

A little-known provision of the Internal Revenue Code, IRC § 6103(g), allows the President of the United States to request the tax returns of any individual or business he wishes.  Concerned that the President may be asking for tax returns in order to retaliate against opponents of his administration, in March 2012 Cause of Action submitted a FOIA request to the Internal Revenue Service (IRS) seeking records of any presidential requests for these returns.  The IRS denied our request in May, citing a provision that prohibits the release of private tax return information.  Since Cause of Action asked only for any presidential requests for returns, not the returns themselves, we appealed the IRS’s decision.  When the IRS denied our appeal as well, we sued for the documents’ release while also submitting an additional FOIA request seeking communications concerning our original request.

After months of back-and-forth between Cause of Action and the IRS, in October 2012 we were stunned to learn that the documents we’d been requesting since March had never even existed!  According to the IRS Office of Disclosure, since the law’s inception in 1976 no president had ever requested tax returns through § 6103(g).  Why it took the IRS seven months to disclose this important bit of information, plus a bona fide freak-out by IRS Counsel and Disclosure staff, is revealed in the following documents [Large file warning] received by Cause of Action in March 2013.

Take a look at these excerpts from an e-mail between Tax Law/ FOIA Specialists Valerie Barta and Janice Rudolph, dated May 21, 2012:

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Ms. Rudolph agreed, concluding that Cause of Action was not privy to information regarding presidential requests for tax returns.  Note that these specialists appeared to operate under the assumption that the records did, in fact, exist.

Cause of Action eventually filed suit on October 2, prompting immediate finger-pointing in the IRS’ FOIA division:

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Ms. Barta’s response is telling:

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Way to throw a colleague under the bus, Val.  Ms. Barta and Ms. Rudolph both seemingly failed to inform management why they denied Cause of Action’s request or to convey the seriousness with which we threatened to take legal action.  In fact, it appears that the two neglected to conduct a due diligence review of potentially responsive documents, instead relying on poor legal reasoning to prop up their contention that the documents would be exempt from disclosure.  After we filed suit, IRS analyst David Nimmo returned to the issue and made a surprising discovery.

An excerpted e-mail from the afternoon of October 2:

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Forgive us for feeling a little miffed that the IRS didn’t research this issue with Counsel before denying both our request and appeal.  And since it took Mr. Nimmo a matter of hours to ascertain that no records existed, what exactly prevented Ms. Barta and Ms. Rudolph from conducting that most basic of searches five months previously?

Counsel’s research soon yielded an answer to whether the denial was done in error.

Senior Technician Reviewer Don Squires on October 3:

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Counsel A.M. Gulas:

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And Chief of Disclosure Gary Prutsman:

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With it now established that the IRS had erred in denying our request, one would expect the agency to confess its mistake and quickly contact us to remedy the situation.  But with journalists now asking questions, the IRS was hesitant to admit it had acted wrongly.  In fact, all the press attention caused a bit of an office-wide freak-out.

Disclosure Chief John Davis responding to our press release and the resulting media inquiries on October 3:

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Counsel A.M. Gulas after the Washington Examiner published a piece on October 4:

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As the flames climbed higher, IRS firefighters worked to douse the blaze before it consumed their agency’s reputation:

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Counsel Sarah Tate came up with a creative way to spin their original denial:

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If that explanation sounds largely incomprehensible, that’s because it is.  By this point the IRS was grasping for any justification that would allow them to avoid responsibility for their error.  In the process, they wasted a tremendous amount of employee time and taxpayer dollars defending themselves in a pointless battle they could have easily avoided some months previously.

As we often do, Cause of Action alerted media when we filed our lawsuit against the IRS for refusing to disclose presidential requests for tax returns.  After Politico and the Washington Examiner ran stories, media began questioning the IRS for a response.  Although Cause of Action had been in contact with the IRS regarding our FOIA request and appeal for months, they only revealed that no documents existed to the Washington Examiner and the Washington Free Beacon.  IRS officials apparently do not respect the FOIA process or even the judicial system, but instead will cave to media scrutiny.

After finally receiving written confirmation in late November that no responsive documents existed, Cause of Action dismissed the lawsuit on December 5; by that time, however, the damage had already been done.  Because two FOIA analysts failed to undertake a simple search and instead relied on their own inadequate legal analysis, Cause of Action and the IRS were both forced to spend time and money on needless litigation.  Even after it became clear no records existed, the IRS continued to obsessively protect its reputation rather than admit its error and move forward.  Unfortunately, it appears that one must sue to ensure that IRS analysts conduct searches with the diligence and oversight that FOIA demands.

 

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05/10/2013

Thomas Perez: Justice belabored

Thomas Perez: Justice belabored

By Dan Epstein, executive director, Cause of Action – 05/09/13 06:56 PM ET

On April 12, the Office of Special Counsel announced it was investigating allegations that B. Todd Jones, nominee to lead the DOJ’s Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF), had retaliated against whistle-blowers at the U.S. Attorney’s Office in Minnesota, where he concurrently served as U.S. Attorney.  But the U.S. Attorney’s Office in Minnesota, the DOJ, and concerns about whistle-blower protection are not just appetizers for corruption in Washington – they make up a main course that is about to become the meal ticket for a Cabinet appointee.

According to a recent Congressional report, Thomas Perez, current nominee for Secretary of Labor, struck a deal in early February 2012 with the City of St. Paul, Minnesota, in which St. Paul withdrew a Supreme Court appeal in a case involving the Fair Housing Act (FCA) as the DOJ declined intervention in two legal complaints against St. Paul.

The Congressional report states that Perez, current Assistant Attorney General for the DOJ’s Civil Rights Division, “sought, facilitated, and consummated this deal” that concerns three cases all involving minorities, housing, and the City of St. Paul.

On May 19, 2009, Frederick Newell, an African-American, brought a False Claims Act (FCA) case against the city of St. Paul for falsely certifying compliance with federal law in order to receive over $50 million in Housing and Urban Development (HUD) funds.  On October 4, 2011, DOJ’s commercial litigation branch recommended intervention in the case, U.S. ex rel. Newell v. City of St. Paul, Minnesota, and on October 7, 2011, HUD agreed.  On October 25, 2011, Assistant U.S. Attorney Greg Booker signed and forwarded the memo approving the DOJ’s intervention in Newell to Acting Associate Attorney General Tony West for final approval.

During the pendency of Newell, on February 18, 2011, Andrew and Harriet Ellis, providers of affordable housing to low income minorities for over thirty years, filed Ellis, et al. v. City of Minneapolis, et al., an FCA case against Minneapolis and St. Paul for falsely certifying to HUD compliance with community development requirements in order to receive over $150 million in federal fair housing funds.

Then there’s Magner v. Gallagher, where, on September 1, 2010, the Eighth Circuit held that St. Paul violated the FCA because its municipal housing code enforcements disproportionately harmed African-Americans.   According to Congressional investigators, this holding buttressed a theory that Perez had used to “secure multimillion dollar settlements,” and when the Supreme Court agreed to hear St. Paul’s appeal on Gallagher in November 2011, this gravy train was threatened. Hearing the case would ultimately expose Perez’s agenda and shine light on the precedent he was setting through his discriminatory and disparate housing approach.

On November 22, 2011, Thomas Fraser, a lawyer representing St. Paul, exchanged e-mails with Perez concerning both Gallagher and Newell.  Notes obtained by Congressional investigators reveal that on a November 28, 2011 call led by Perez, declining intervention in the FCA case was described as “leverage” for getting St. Paul to drop its Supreme Court petition in Gallagher.  That same day, Perez sought DOJ ethics advice concerning whether his settlement with St. Paul in Gallagher, which he disclosed was predicated on an agreement by the government not to intervene in Newell, created any ethics prohibitions.  He asked HUD General Counsel Helen Kanovsky to reconsider HUD’s support, and by November 30, 2011, HUD “changed its mind” recommending declining intervention in Newell.

On February 3, 2012, Perez struck a deal with St. Paul Mayor Christopher Coleman.  By February 9, 2012, Associate Attorney General Tony West formally declined intervention in Newell.  The following day, St. Paul withdrew its Gallagher petition before the Supreme Court.  And on June 18, 2012, the United States notified the U.S. District Court in Minnesota of its decision not to intervene in Ellis.

Thomas Perez thought the Supreme Court would tarnish his political achievements and induced St. Paul to withdraw its petition by pressuring the government to decline intervention in two FCA suits.  Neither Fredrick Newell nor the American taxpayers who funded St. Paul had any say in the adequacy or fairness of Perez’s deal.  An originally slam dunk FCA case – returning millions of dollars to the taxpayers – is now in jeopardy.

The DOJ’s Civil Rights Division was created through the passage of the Civil Rights Act of 1957, established to uphold the civil and constitutional rights of the most vulnerable members of our society.  But as the Congressional report details, Thomas Perez, who today leads the Civil Rights Division and is likely to soon lead the Labor Department, used his political skill and legal acumen to induce a quid pro quo last year that fundamentally disenfranchised those vulnerable members of society he swore to protect.

 

Dan Epstein is the executive director of Cause of Action, a non-profit, nonpartisan organization advocating for government accountability.

Read more: http://thehill.com/blogs/congress-blog/labor/298931-thomas-perez-justice-belabored#ixzz2SqKzXpTs

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04/25/2013

FOIA Freak-Out: DOJ Scrambles to Avoid Fallout Over Swag Purchases

When news of the General Service Administration’s (GSA) Las Vegas blowout broke in April 2012, Cause of Action was as appalled as anyone at the reckless waste of taxpayer dollars.  But instead of focusing on mind readers and ritzy sushi receptions, we zeroed in on the unconscionable amount the GSA spent on baubles and trinkets commemorating the conference.  Knowing that this kind of spending is all-too-common in the federal government, Cause of Action sent Freedom of Information Act (FOIA) requests to each government agency for all documents related to purchases of commemorative and promotional items over a three-year period.

While some agencies responded relatively quickly, others delayed production for weeks or even months.  The Department of Justice (DOJ), in particular, took so long to produce documents that Cause of Action began to suspect the agency of deliberately dragging its feet.  In November 2012 we sent another FOIA request to DOJ Interpol, this time asking for any communications regarding our original request sent seven months previously.  When we finally received the documents, largely e-mail communications, in late January of this year, they revealed a department in the midst of a FOIA freak-out.

Check out this excerpt from notes taken during a DOJ Executive Officer’s meeting last May:

CoA FOIA 1

We’re flattered that DOJ bigwigs felt compelled to discuss Cause of Action’s request along with such important items as the Department’s budget and new management structure, but all that attention shouldn’t be necessary for a routine FOIA request.  And what did they mean by commanding components to “stand down?”  If they instructed employees already answering requests from FOX News and Bloomberg to stop their work and instead focus their efforts on Cause of Action’s request, that’s a major violation of the agency’s statutory obligations.  FOIA regulations dictate that requests be addressed in the order they are received, not the order of their potential to embarrass the agency.

Then there’s this e-mail from DOJ Interpol’s Executive Office:

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Call us old-fashioned, but Cause of Action believes agencies should follow the plain language of the law.  And the plain language of the Freedom of Information Act states that agencies have 20 business days to respond to a request, even if only on an interim basis.  That’s their “responsibility.”  When a Director worries about “responding prematurely” after the Department has already sat on a request for three months, one has to wonder about that person’s motive.  Is it to ensure that no stone is left unturned in the pursuit of relevant documents?  Or is it to prevent damaging coverage of the department’s wasteful spending until the GSA conference scandal recedes from the public consciousness?

Perhaps the next few e-mails can shed some light on this question:

CoA FOIA 3

So, Justice Management Division (JMD) was tasked with reviewing all components’ responses before sending them on to Cause of Action.  A little unorthodox, perhaps, but not unprecedented in our own experiences with federal FOIA procedures.

By August, DOJ Interpol had completed its document production:

CoA FOIA 4 - Copy

After submitting it’s response to JMD, Interpol waited…and waited…

CoA FOIA 5 - Copy

 

CoA FOIA 6 - Copy

 

CoA FOIA 7 - Copy

More than three months after submitting its production, Interpol finally received the long-awaited go-ahead:

CoA FOIA 8 - Copy

In a stunning coincidence, JMD completed its review just one week after Interpol received our second FOIA request for communications regarding our original request.  Funny how these things work out.

Although Cause of Action is still waiting on answers from a few more components, the documents we’ve received so far indicate that between January 2009 and June 2012, DOJ spent over $1 million on plaques, lapel pins, commemorative coins, and a whole slew of other trinkets for DOJ employees and contractors.  The worst offender by far was JMD itself; in 2009 it spent $80,245 on awards alone for just one event, the Annual Attorney General’s Award Ceremony.  In 2010 and 2011, as the rest of the Department scaled back costs in the face of a budget backlash, spending on swag for the Ceremony actually increased, to $160,137 and $172,845, respectively.  When one DOJ component spends nearly half a million dollars on awards for three events in as many years, it’s clear that the GSA isn’t the only agency struggling with excessive and irresponsible spending practices.

Cause of Action believes that despite the attempts at transparency by some FOIA officers, Department of Justice leadership deliberately delayed our request rather than provide details on the embarrassing amount the agency spent on swag and trinkets.  The high-level meetings, the fear of “responding prematurely,” the delays for a straightforward request; all this points to an agency hypersensitive to any and all reproach, obsessed with protecting its reputation at the expense of accountability and transparency.  Rather than spending time and money shielding itself from criticism, perhaps DOJ should focus its resources on complying with FOIA law and serving the American taxpayer.

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04/24/2013

5 Ways the DOE Loan Program and Fisker Automative Failed American Taxpayers

The House Oversight Committee is holding a hearing today on “Green Energy Oversight: Examining the Department of Energy’s Bad Bet on Fisker Automotive.”

We’ll be live tweeting beginning at 2pm.

1. According to the DOE Loan Program Office, $34.5 billion of loans have created about 60,000 jobs, which is $575,000 per job.

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Via Tumblr

2. Cause of Action analysis determined that 95% of those who received a loan gave political contributions, while only 31% of those who were not chosen gave contributions.

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3. Fisker Automotive continued to receive money for almost a year after the Obama administration found out it was failing to meet conditions set in the loan.

 In 2010, the Obama administration gave a $529 million loan to Fisker. Fisker would only receive $192 million before it was cut off.

Via Gifrific

4. Fisker never finished construction on its factory or produced any cars backed by the government loan.

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5. Taxpayers are looking at a potential loss of $171 million. The largest loan failure since Solyndra.

Via REACTION GIFS

 

 

 

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04/16/2013

Cronies Putting Politics to Work

The Communities Putting Prevention to Work (CPPW) program is a grant program administered by the CDC for education on tobacco use and obesity prevention.   All grant recipients are notified that it is illegal to use the funds for lobbying, but a CoA investigation has uncovered seven new instances where your federal tax dollars were used to push for higher taxes and new ordinances. Our investigation shows how the CDC failed to conduct proper oversight of the CPPW program. While the CDC was made aware of the Florence County, SC violation, CoA uncovered seven additional communities in risk of violating federal law and HHS guidelines.

Read more in our Press Release or see the full report here. 

Florence County, SC

$6 million for tobacco control

 Illegal Lobbying 

  • The South Carolina Department of Health and Environmental Control (DHEC) and the Smoke Free Florence (SFF) coalition used the grant money to lobby in support of a smoke-free ordinance.
    • This email from a DHEC employee describes lobbying  two members of the county commission (Glynn and Buddy): 

 Cover-up

  • CPPW staff at DHEC attempted to cover-up the lobbying by altering the meeting minutes.
    • “DHEC would like to go through the past meeting minutes to “massage” them and take out the details.”
    • “He said that it is not unethical because they are not looking to “twist” things that were written, just remove the details.”

Pima County, AZ

$15.8 million for obesity prevention 

  • The Pima County Health Department (PCHD) used taxpayer dollars to contract with the University of Arizona to lead policy workshops and develop neighborhood plans in support of zoning codes, regulations, and ordinances.

Out in the Open

  • The sub-contract for the University of Arizona College Of Architecture clearly states that the grantee will be “engaging public officials.”  

Jefferson County, AL

$13.3 million for tobacco control and obesity prevention

  • CPPW funds paid 80% of the salary for a “Director of Advocacy” with the following duties and responsibilities: 

Miami-Dade County, FL

$14.7 million for obesity prevention 

  • The Miami-Dade County Health Department (MDCHD) used taxpayer funds to hire the Health Council of South Florida to provide a legislative agenda for CPPW-funded policy work.

Mobile County, AL

$2.4 million for obesity prevention 

  • CPPW funds paid the salary of an “outreach coordinator” who worked with the TFMC to “educate decision makers about the benefit of 100% percent smoke-free policy, increasing the unit price of tobacco products, and reducing tobacco advertising. 

Los Angeles County, CA

$32.1 million for tobacco control and obesity prevention

  • LA Public Health used CPPW funds to  hire a “Legislated Policy Project Coordinator” who managed teams of policy liaisons, community organizers and community representatives

 Santa Clara County, CA

$6.9 million for tobacco control

  • The Santa Clara County Public Health Department (Santa Clara Health) used tax dollars to hire a tobacco retail license coordinator to lobby for a workplace smoking ordinance and also used CPPW funds to support a state-wide tobacco tax increase.

DeKalb County, GA

$3.2 million for tobacco control and obesity prevention

  • The DeKalb County Board of Health (DCBH) used CPPW funds to support the adoption of a strengthened county CIAO and partnered with the Georgia Alliance for Tobacco Prevention (GA Alliance) to train coalition partners and finance a media campaign in support of state cigarette tax increase.

 

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04/12/2013

Amber Abbasi: The Curious Case of Trent Arsenault: Questioning FDA Regulatory Authority Over Private Sperm Donation

Amber Abbasi, chief counsel for regulatory affairs at Cause of Action, wrote an article for the Annals of Health Law, the Health Policy and Law Review of Loyola University of Chicago School of Law:

 

The Curious Case of Trent Arsenault: Questioning FDA Regulatory Authority Over Private Sperm Donation

 

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