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Congressional Inquiries into the VA are the First Steps Towards Reforming the Agency

August 8, 2018 by

We recently published a blog post urging newly confirmed Department of Veterans Affairs (“VA”) Secretary Robert Wilkie to mitigate the cultural plagues preventing the VA from operating as the functional and ethically organized agency that our veterans deserve.  Reports published last month from the Washington Post and the U.S. Government Accountability Office (“GAO”) found several problems within the VA including politicization, retaliation against whistleblowers, impunity for senior officials, and an overall lack of transparency.  The VA’s problems won’t be fixed overnight, but external pressures for reform within the agency should hopefully spur necessary changes.

Fortunately, there appear to be signs of progress on the reform front with several new congressional inquiries.  At the end of July, members of Congress from both sides of the aisle wrote letters to express concern about the VA’s toxic culture and to seek further information about the agency’s ongoing problems.

  • As Cause of Action Institute Counsel Ryan Mulvey discussed last week, eight Democratic Senators, led by Ranking Member Jon Tester of the U.S. Senate Committee on Veteran’s Affairs wrote to the VA on July 25th to express concern about the possible politicization of the agency’s Freedom of Information Act (“FOIA”) policies. The senators sent a concurrent letter to the VA’s watchdog, Inspector General Michael J. Missal, requesting an investigation in their allegations: “[FOIA] is the route through which media and other interested parties get answers and information after their requests to [the] VA about policies and initiatives have gone unanswered.”
  • On July 26th, Representatives Tim Walz (D-MN), Mark Takano (D-CA), and Kathleen Rice (D-NY) authored a letter to Attorney General Jeff Sessions referring former Acting Secretary Peter O’Rourke for investigation for “alleged perjury, or withholding information from Congress, or making otherwise unlawful statements in testimony and communications before the Committee on Veterans’ Affairs.” This letter comes one month after O’Rourke falsely claimed he had authority over the VA Inspector General—an independent entity that ensures investigators can conduct their work without fear of reprisal by agency leadership.
  • Finally, on July 30th, a bipartisan coalition of congressmen wrote to Secretary Wilkie asking him to implement the GAO’s recommendations from their report:

“To ensure the Department of Veterans Affairs (VA) can fulfill its important mission, it is vital that its work force is properly trained, led, and accountable.  To that end we call your attention to the recent [GAO] report . . . and urge the VA to immediately implement the recommendations outlined in that report . . . The GAO’s investigation uncovered serious issues with the VA’s record-keeping, its protection of whistleblowers, and its handling allegations of misconduct, waste, fraud, and abuse.”

I have previously discussed the GAO’s sixteen recommendations in an earlier blog post.  Of those sixteen recommendations, the VA concurred with nine of them and partially concurred with another five.  The congressional letter explains that immediate implementation of the GAO’s recommendations is necessary because the agency must encourage trust and openness in its culture.

These letters address different aspects of improvement needed at the VA.  Senator Tester’s letters highlight the possible politicization of how information is made available to the public.  The letter to Attorney General Sessions asks the VA to hold its senior officials to the same standards as their subordinates—one of the most prominent issues covered in the GAO report.  And finally, the letter to Secretary Wilkie underscores a necessary criticism of the VA: the primary role of the agency is to care for Americans injured or traumatized while defending our nation and, as such, it is unacceptable for agency leadership to tolerate misconduct, let alone encourage it.

However, we should view these signs of progress with just a bit of skepticism.  Senator Tester and the other Democrats on the Committee on Veterans’ Affairs have asked preliminary questions regarding politicization in the FOIA process, which is good, but what happens next? Will they continue to hold the VA accountable for their culture and leadership?  Or will they move on to another issue?  Will Attorney General Jeff Sessions open an investigation to determine whether O’Rourke made unlawful statements in providing false testimony, or will the bipartisan coalition fall upon deaf ears?

Cause of Action Institute will continue to investigate VA mismanagement  and the agency’s efforts to adopt GAO’s recommendations.  But we will also watch the congressmen who have expressed interest in reforming the plagued agency.  The authors of the letters to Attorney General Sessions and VA officials should be applauded for their inquiries, but they should also be committed to following through to the complete reform of the VA.

Chris Klein is a Research Fellow at Cause of Action Institute

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Federal District Court Excuses IRS’s Refusal to Search for Email Records Concerning White House Interference with the FOIA

June 21, 2018 by

Last week, Judge Emmet Sullivan of the U.S. District Court for the District of Columbia issued an order denying Cause of Action Institute’s (“CoA Institute”) cross-motion for summary judgment in a Freedom of Information Act (“FOIA”) brought against the Internal Revenue Service (“IRS”).  The opinion was long awaited—summary judgment briefing ended over a year-and-an-half ago.  Although we do not intend to appeal the decision, it is worth highlighting some issues with Judge Sullivan’s opinion and the IRS’s arguments.  The case is a fine example of how courts too frequently defer to agencies when it comes to policing their compliance with the FOIA.

Background: “White House equities” review and FOIA politicization

In March 2014, CoA Institute published a report revealing the existence of a non-public memorandum from then-White House Counsel Gregory Craig that directed department and agency general counsels to send to the White House for consultation all records involving “White House equities” when collected in response to any sort of document request.  This secret memo stands in stark contrast to President Obama’s January 2009 directive on transparency, as well as Attorney General Holder’s March 2009 FOIA memo.  Although originally praised as setting the bar for open government, the Washington Post eventually described the Obama Administration as one of the most secretive governments in American history.

As part of the system of politicized FOIA review established under the “White House equities” policy, whenever a requester sought access to records deemed politically sensitive, potentially embarrassing, or otherwise newsworthy, the agency processing the request would forward copies of those records to a White House attorney for pre-production review.  Not only did the entire process represent an abdication of agency responsibility for the administration of the FOIA, but it severely delayed agency compliance with the FOIA’s deadlines.  As we have previously suggested, “White House equities” review likely continues under the Trump Administration.

The specific FOIA request at issue in this case, which was submitted to the IRS in May 2013, sought records of communications between IRS officials and the White House reflecting “White House equities” consultations.  Similar requests were sent to eleven other agencies.  All those agencies produced the requested records; only the IRS failed to locate a single relevant document.  And the IRS only communicated its failure to find any responsive records two years after CoA Institute submitted its request and filed a lawsuit.

Why the IRS failed to conduct an adequate search for records

Our argument for the inadequacy of the IRS’s search for records reflecting “White House equities” consultations focused on several points, but two were especially important.  First, the IRS failed to search its own FOIA office—the most likely custodian of the records and issue.  Second, the IRS improperly refused to search for any responsive email correspondence within the Office of Disclosure.

The IRS inexplicably limited its search efforts to the Office of Legislative Affairs, a sub-component of the Office of Chief Counsel, and the Executive Secretariat Correspondence Office, which handles communications with the IRS Commissioner.  The agency offered no evidence that it sent search memoranda to its FOIA office, which is part of the “Privacy, Governmental Liaison, and Disclosure” or “PGLD.”  In fact, the IRS effectively admitted that it had foregone a search of the Office of Disclosure because a single senior employee testified that he did not believe any responsive records existed.  And because “White House equities” review was not mentioned in the Internal Revenue Manual, the FOIA officer assigned to CoA Institute’s request determined that consultations with the White House would never have taken place.

The IRS also refused to search individual email accounts within the Office of Disclosure because it would be too “burdensome.” Remarkably, the IRS claimed it would “take one IRS IT person at least 13 years” to capture the correspondence of all 165 employees within the Office of Disclosure.  Yet the IRS offered no explanation for why other reasonable options to search email did not exist, such as requiring individual employees to “self-search” email, conducting a preliminary sample search of individuals within the Office of Disclosure most likely to have responsive records, or making use of e-discovery tools like “Clearwell” and “Encase.”

The Court’s Flawed Opinion and Hyper-Deference to the IRS

One major flaw in the Court’s decision concerns its uncritical acceptance of a single IRS attorney’s belief about the existence of responsive records within the Office of Disclosure.  Although the IRS admittedly conducted a keyword search of its tracking system for incoming FOIA requests, it refused to send out search memoranda or engage in other typical search efforts.  The IRS instead relied on the declaration of John Davis, Deputy Associate Director of Disclosure, who claimed that he had never heard of “White House equities” and was unaware of White House consultations ever taking place.  On this basis alone, the IRS concluded it was “unreasonable” to conduct a more vigorous search.  The Court accepted this reliance without any real explanation when it should have given more consideration to the text of the Craig Memo, which was addressed to the entire Executive Branch—including the IRS—and the fact that the eleven co-defendants in the same case all produced responsive records—nearly all of which were email chains.

As for the search of individual email accounts, the Court yet again uncritically deferred to the IRS’s bizarre claim that it would take thirteen years to process CoA Institute’s FOIA request.

In deferring to the IRS, the Court failed to address the IRS’s practice of conducting email searches by manually inspecting the content of individual hard drives, a central reason why an email search would take so preposterously long.  This practice, which requires the IRS to warehouse a lot of old computer equipment, has been repeatedly criticized by the Treasury Inspector General for Tax Administration because it could lead to violations of records management laws.

Additionally, some doubt exists, based on information independently received by CoA Institute from IRS employees, as to the accuracy of the IRS’s claims regarding its ability to conduct an agency- or component-wide search of its email system.  Because FOIA cases rarely make it to trial, it is nearly impossible to pin the IRS down on the accuracy of its claims.  Regardless, the IRS has certainly made a habit of regularly evading its disclosure obligations, a habit buttressed in this instance by an overly deferential judiciary.

Ryan Mulvey is Counsel at Cause of Action Institute

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CoA Institute Responds to Opinion in FOIA Case Against IRS

June 14, 2018 by

On Tuesday, June 12, the District Court for the District of Columbia issued an opinion in CoA Institute’s long-standing FOIA suit against the IRS for failing to produce records regarding possible White House intrusion in to the agency’s FOIA practices. The opinion can be found here.

 

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Supreme Court Limits Gov’t Power to Charge Criminal Penalties for Unknowingly Obstructing the IRS

March 22, 2018 by

Washington, D.C. – The Supreme Court this week issued a ruling protecting all Americans from prosecution for vaguely defined tax crimes. In the case of Carlo Marinello, II v. United States, it clarified a broad statute regarding who can be charged with criminal conduct for obstructing the IRS’s administration of the tax code. Cause of Action Institute (“CoA Institute”) filed an amicus curiae brief in support of Mr. Marinello’s petition for Supreme Court review, and another one during the merits stage, urging a narrow reading of the statute to ensure no one could be charged under it without knowing that he is committing a felony.

CoA Institute President John J. Vecchione: “As Justice Breyer noted, the law Mr. Marinello was charged under could be interpreted to make felonies of routine conduct by everyday American taxpayers and business owners, such as failing to report a payment to a babysitter. Without this important decision, sloppy tax filers could be charged with obstruction with just an allegation that the conduct helped the defendant avoid tax liability. We applaud the Court for reining in such broad and potentially abusive prosecutorial authority, and Cause of Action is proud of its efforts in this result.”

Mr. Marinello owned a small courier service in New York. In 2012, the United States obtained an indictment against him under the criminal tax code, arguing that Mr. Marinello could be guilty of corruptly obstructing or impeding the administration of the tax code by performing acts as common as failing to maintain books and records for his small business, failing to provide his accountant with complete information, and discarding business records, all because he did these acts with the goal of not paying taxes.  However, the tax code already outlaws tax evasion, and it requires that the government prove a heightened criminal intent—that the defendant acted “willfully.”

During oral argument, the Court showed enormous skepticism towards the Government’s position that virtually any act or omission, no matter how slight, could subject one to felony conviction, even though the particular tax code penalties for those actions are misdemeanors. In the Court’s opinion, Justice Stephen Breyer wrote “Just because a taxpayer knows that the IRS will review her tax return every year does not transform every violation of the Tax Code into an obstruction charge.”

The full opinion can be found here.

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org.

 

 

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IRS Seeks to Halt Fifth Circuit Appeal of Controversial Inversion Rule, Submits Final Rule for White House OMB Review

March 13, 2018 by

In January, Cause of Action Institute released a report highlighting IRS exemptions from various regulatory oversight mechanisms.  This report kicked off a flurry of activity, and Treasury and OMB are now in talks about whether and how the IRS should continue to be functionally exempt from White House review of IRS rulemakings.  A recent development in a closely watched Fifth Circuit case challenging an Obama-era rulemaking on inversions shows the effort may be bearing fruit.

In April 2016, the Obama Administration issued a controversial rule attempting to block inversions, a business reorganization technique designed to provide relief from high U.S. corporate taxes.  The IRS made this rule by issuing a Notice and publishing a proposed rule in the Federal Register.  Because IRS rules are effective from the date of the Notice, the agency was in no hurry to complete the Administrative Procedure Act (“APA”) rulemaking process that it had begun with the proposed rule and request for comment.  The Obama Administration ended without the rule ever being finalized but the Notice continued to be in effect.

The Chamber of Commerce sued the IRS over the inversion rule, claiming that the agency failed to comply with APA rulemaking procedures and that the substantive rule was in excess of its statutory authority.  The IRS tried to use the Anti-Injunction Act (“AIA”) to block the suit, as it often does.  But, in October 2017, a district court in Texas ruled that the AIA did not deny the court jurisdiction over the case and that the IRS did indeed violate the APA.  The court than invalidated the temporary rule.  The IRS promptly appealed to the Fifth Circuit.

IRS Moves to Stay Appeal of Inversion Rule Decision

But, in a twist, last week the IRS moved the appellate court to stay the proceedings because it was restarting the long-dormant APA process and finalizing the underlying rule.  In its motion seeking a stay (or a 45-day extension), counsel for the IRS wrote that it needs “to reevaluate whether [the IRS] should proceed with th[e] appeal[.]”  The IRS also told the Fifth Circuit that:

Having completed notice and comment, Treasury and the IRS plan to finalize the proposed regulation. That process is nearly complete. A draft of the final regulation has been prepared, and it has been submitted to the Office of Management and Budget for review. The final regulation would replace the temporary regulation that is at issue in this case, which will be removed.

Accordingly, we respectfully request that briefing of this case be stayed until a final regulation is published in the Federal Register, during which time the Government will evaluate whether it should proceed with this appeal or dismiss it.

This is an interesting development.  The inversion rule remains controversial and whether it is still necessary, following the recent changes to the corporate tax rate, is an open question.  But it now appears that Treasury and IRS are rethinking whether it is wise to press the government’s current disadvantage on the AIA and APA compliance in the Fifth Circuit.  This case could provide a clear circuit split with the D.C. Circuit (following Florida Bankers, which held the AIA blocked pre-enforcement review in APA challenges to IRS rules) on the proper application of the AIA.  So we may be seeing a strategic retreat by the IRS trying to limit the damage from its earlier loss in the district court.  But it is good to see that the agency is involving OMB in this finalization process.

We’ll have to wait to see what OMB says about the rule, whether the IRS does indeed finalize the rule, what form that final inversion rule will take, whether the Fifth Circuit grants the stay, and, ultimately, whether the IRS will back out of this appeal.  Stay tuned.

Update: The Fifth Circuit did not act on the stay motion before the deadline for the IRS to file its opening brief, which it timely did on March 16.

Update 2: On March 22, the Fifth Circuit denied the stay motion and the case is proceeding.

James Valvo is Counsel and Senior Policy Advisor at Cause of Action Institute.  He is the principal author of Evading Oversight.  You can follow him on Twitter @JamesValvo.

 

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17 Groups Urge Trump Administration to End Unlawful IRS Practice of Dodging Oversight

February 27, 2018 by

Washington, D.C. – Cause of Action Institute (“CoA Institute”) today led a coalition of 17 organizations in sending a letter to President Trump and senior administration officials urging them to hold the IRS accountable by working to end the agency’s practice of dodging oversight of its rules.

CoA Institute recently issued an investigative report titled Evading Oversight: The Origins and Implications of the IRS Claim That Its Rules Do Not Have an Economic Impact, detailing how the IRS created and expanded a series of self-bestowed exemptions from three important regulatory oversight mechanisms.  The IRS created these exemptions by claiming that the economic effects of its rules flow from the underlying statute and not its regulatory choices.

The letter states:

This IRS practice denies Congress information about IRS major rules that should be reported to the Government Accountability Office under the Congressional Review Act.  It also hinders the White House’s ability to fulfill its constitutional obligation to supervise the Executive Branch by conducting oversight of IRS regulations pursuant to Executive Order 12,866.  And it impacts the public’s right to learn about and comment on the economic impact of the IRS rules that are subject to the Regulatory Flexibility Act… The IRS should live by the same rules of administrative law and agency oversight as the rest of the Executive Branch.

The letter was sent to President Trump, Secretary of the Treasury Steven Mnuchin, Office of Management and Budget (“OMB”) Director Mick Mulvaney, and Office of Information and Regulatory Affairs (“OIRA”) Administrator Neomi Rao.

The letter urges the Department of the Treasury and OMB to withdraw from a decades-old agreement allowing the IRS to avoid White House review of its rulemakings. Last week, two former heads of OIRA, Susan E. Dudley who served under President George W. Bush and Sally Katzen who served in the Clinton administration, wrote in The Wall Street Journal that this longstanding agreement has been abused and agreed it should be reconsidered.

Further, the coalition letter firmly holds that the IRS should not be permitted to claim that the economic impact of its rules is due to the underlying statute and not its regulatory choices.

The full letter can be found here.

The following groups signed:

American Business Defense Council
Dick Patten, President

American Commitment
Phil Kerpen, President

Americans for Prosperity
Brent Wm. Gardner, Chief Government Affairs Officer

Americans for Tax Reform
Grover Norquist, President

Association of Mature American Citizens
Dan Weber, President & CEO

Campaign for Liberty
Norm Singleton, President

The Carlstrom Group
Bob Carlstrom, President

Cause of Action Institute
John Vecchione, President & CEO

Center for Freedom and Prosperity
Andrew F. Quinlan, President

Council for Citizens Against Government Waste
Tom Schatz, President

Family Business Coalition
Palmer Schoening, Chairman

Freedom Partners Chamber of Commerce
Nathan Nascimento, Executive Vice President

FreedomWorks
Jason Pye, Vice President of Legislative Affairs

Hispanic Leadership Fund
Mario H. Lopez, President

National Taxpayers Union
Pete Sepp, President

Taxpayers Protection Alliance
David Williams, President

Tea Party Patriots
Jenny Beth Martin, President

 

For information regarding this press release, please contact Zachary Kurz, Director of Communications at CoA Institute: zachary.kurz@causeofaction.org.

 

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Treasury and OMB are Reconsidering IRS Oversight Exemption

February 20, 2018 by

I’ve been writing about the series of self-created exemptions the Internal Revenue Service (“IRS”) has been using to evade oversight of its rulemakings.  One of those exemptions is tied to White House review pursuant to Executive Order 12,866 at the Office of Information and Regulatory Affairs.  Today, for the first time, the agency publicly revealed that it is in talks with the Office of Management and Budget (“OMB”) to review that exemption.

The Trump Administration’s Departments of Health and Human Services (“HHS”), Labor, and the Treasury just released a proposed rule that would allow Americans to buy short-term health insurance plans that would not be affected by the Patient Protection and Affordable Care Act’s mandates that are driving up premiums and limiting choice.  Housed within that proposed rule is a microcosm of the problem I’ve been highlighting.

On pages 17–28, HHS and Labor conduct a series of regulatory assessments, including an explanation of what the costs, benefits, advantages, and disadvantages of the proposed rule are.  They even include an analysis of the number of enrollees likely to take advantage of the proposal and the impact on the individual market exchanges.  IRS?  Not so much.  As has been its practice, the IRS simply claims that “[c]ertain IRS regulations, including this one, are exempt from the requirements of Executive Order 12866 . . .  Therefore, a regulatory impact assessment is not required.”

However, the IRS also reveals that CoA Institute’s efforts to urge the Trump Administration to review the exemption is starting to bear fruit.  The IRS states that “[p]ursuant to Executive Order 13789, the Treasury Department and OMB are currently reviewing the scope and implementation of the existing exemption.”

IRS Section from Proposed Rule on Short-Term Insurance

Here’s hoping they go further than simply review the scope and implementation, and resolve to end the practice that allows the IRS to give short shrift to the impacts of its rules, while other agencies, like HHS and Labor here, do their homework.

James Valvo is Counsel and Senior Policy Advisor at Cause of Action Institute.  He is the principal author of Evading Oversight.  You can follow him on Twitter @JamesValvo.

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