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Government Executive: IRS Probe Continues to Divide House Oversight Panel

August 1, 2013 by

By Charles S. Clark
July 30, 2013

Two conservative groups with long-standing tax-exempt status were unfairly targeted by the Internal Revenue Service and merit a new investigation by the inspector general, according to two members of the sharply divided House Oversight and Government Reform Committee.

Reps. Darrell Issa, R-Calif., chairman of the panel, and Jim Jordan, R-Ohio — acting without cooperation from the panel’s ranking member Elijah Cummings, D-Md. — on Monday wrote a letter complaining about audits and unfair paperwork demands that a controversial unit of the tax agency imposed on the Arlington, Va.-based Leadership Institute and the Herndon, Va.-based Claire Boothe Luce Policy Institute.

“The totality of your ‘targeting’ investigation along with evidence obtained by the committee points to the fact that the IRS may have selected certain conservative organizations for additional scrutiny after the IRS already approved their tax-exempt status,” Issa and Jordan said in a letter to J. Russell George, the Treasury inspector general for tax administration.

The Leadership Institute, founded in 1970 and run by longtime conservative activist Morton Blackwell, reported about $15 million in assets in 2012. During IRS audits, the lawmakers’ letter said, the group had to turn over 23,430 pages of documents at a cost of some $50,000. Staff told congressional investigators that they were asked “invasive questions, including requests for information about its interns and where they worked after their internships.”

The Clare Booth Luce Policy Institute, founded in 1993 to advance conservative women and run by Michelle Easton, an Education Department appointee during the Reagan and George H. W. Bush administrations, reported assets of some $2 million. Easton told congressional staff that its treatment by the IRS amounted to “harassment,” and that its audit “took the greater part of 2011 and cost tens of thousands of dollars.”

Both have 501(c)3 nonprofit status.

The Republican lawmakers want auditors to determine whether the Cincinnati-based entity within the IRS’ Exempt Organization Division called the Review of Operations Unit had been flagging groups with longtime tax-exempt status in addition to the 300-400 groups that had applied for the status beginning in 2010 that became the subject of this spring’s IRS scandal. Issa quoted an email from Lois Lerner, the director of Exempt Organizations who is on administrative leave and who so far has declined to testify to Issa’s panel, instructed underlings that “[o]ne of the recommended actions is going to be to send ROO referrals for those cases that cause us concern resulting from organizations making changes after being questioned during our case development.”

The request on Tuesday drew a rebuke from Cummings, who in a letter to Issa, said, “your letter appears to provide partial and incomplete information and to disregard key evidence that is contrary to your political narrative.”

Quoting from transcripts of congressional staff interviews with IRS employees who processed the nonprofits’ applications, Cummings said Issa’s version fails to explain that the head of the Exempt Organizations Determinations Unit in Cincinnati told the committee that referrals to the ROO were not “systematic,” but instead were done on a case- by-case basis. Also left out of the request to TIGTA, Cummings added, was the testimony from another employee saying that a referral to the ROO did not automatically result in an audit of the organization.

“The committee,” Cummings concluded, “has identified no evidence that the IRS discriminated against conservative groups that had been approved for tax exempt status.”

In another sign that the political and legal maneuvering stemming from the IRS scandal are not fading away, a transparency advocacy group called Cause of Action on Monday announced that it has hit the IRS’ Exempt Organizations Division with a complaint about Enroll America, a nonprofit that is also a 501(c)3 that works on a parallel track with the Health and Human Services Department to promote enrollment in health insurance exchanges during implementation of the Affordable Care Act.

Cause of Action is seeking removal of Enroll America’s charitable status because it operates “like a business league or trade association,” providing a profit incentive and performing marketing and lobbying for medical and insurance interests rather than charitable acts. “If Enroll America is designed to benefit insurance companies instead of the American public, then its charitable status no longer applies,” argued Dan Epstein, Cause of Action’s executive director. “An organization that has been granted tax deductible status but is actually depriving the American people of taxable revenue warrants an investigation.”

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FOIA Follies: HUD Flags Sensitive Freedom of Information Act Requests for Extra Scrutiny; Political Appointees Involved

July 31, 2013 by

Field offices of the Department of Housing and Urban Development (HUD) may not release records in response to FOIA requests deemed “sensitive” without obtaining approval from three HUD offices, according to a policy document obtained by Cause of Action from HUD’s Office of Inspector General.

A “sensitive” FOIA request is defined by the policy document as one that involves any of the following:

  • National significance, serious injury, or loss of life;
  • Information that could subject HUD to substantial litigation;
  • Current or former senior HUD management officials; or
  • Questions about HUD’s policies or the performance of departmental responsibilities.

The policy document, which is labeled “current as of April 7, 2008” and confirmed by HUD Public Affairs as still in effect, provides that any field office receiving such a request must notify its “Regional Director” and “Regional Field FOIA Liaison,” as well as “the Headquarters Division in the Office of Litigation.”  If a sensitive request is submitted by the media, the “Regional Public Affairs Officer” also must be notified.

After the above offices are notified, the field office handling the request must prepare a proposed response and obtain the “concurrence” of the Headquarters FOIA Division of the Office of Litigation, the Regional Director’s Office, and the “head of the relevant program office in Headquarters.”  If any of these offices disagree with the proposed response, the “Field FOIA Liaison must arrange a conference call with the FOIA division in Headquarters and the office(s) not approving of the response in order to resolve the outstanding issues and arrive at a consensus as to the appropriate response to the sensitive FOIA request.”

Notably, HUD Regional Directors and at least eight of twenty-two heads of HUD Program Offices, such as the General Counsel and Public and Indian Housing offices, are political appointees.

HUD’s policy concerning sensitive FOIA requests was initially revealed by the HUD IG to Congress on September 29, 2010 in response to an inquiry concerning the politicization of FOIA.  Neither the IG nor HUD has proactively disclosed this policy document to the public, nor is it referenced in HUD’s publicly available FOIA material.**  Perhaps worst of all, the IG’s report to Congress downplayed the policy’s significance.  Despite the fact that HUD’s FOIA policy allows political appointees to weigh in on sensitive requests, the IG accepted the agency’s assertion that “political appointees have a limited role in request reviews and no role in the decision-making regarding the documents to be released to the requester.”

HUD’s FOIA policy is similar to the secret policies that we uncovered at the Department of Defense and the Department of the Treasury, and its impact is equally harmful.   Specifically, it usurps the authority of career FOIA professionals, delays and/or prevents the release of requested records, and further erodes the public’s trust in government.

 

**HUD’s policy document for sensitive requests includes a URL and is dated “9/16/2010,” but that link does not work.  Nor were we able to locate the document on the HUD website or via the “Wayback Machine” or Google.

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The Hill: Dan Epstein: Who should be holding whom accountable?

July 18, 2013 by

Who should be holding whom accountable?

 By Dan Epstein  July 12, 2013

Inspectors General, who hold federal agencies accountable by conducting audits and, when needed, investigating alleged misconduct, are in place to provide oversight over how taxpayer funded federal agencies are operating. But what happens if the inspectors are allegedly conducting the misconduct?

A case in point is the recent investigation involving Department of Homeland Security (DHS) DeputyInspector General Charles Edwards and allegations of his misconduct and abuse. Senators McCaskill and Johnson share similar concerns to those of Cause of Action that have been brought forward by insiders at DHS. These concerns range from wasteful spending to the destruction of federal records, which is a criminal offense. We have already begun releasing documents we have obtained and are committed to exposing the truth about Edwards and his office.

But everyday Americans aren’t always afforded the time and resources to uncover the facts about government employees such as Edwards. That’s why, as a government watchdog group, Cause of Action is committed to exposing the overreach and cronyism fueling the federal government’s waste, fraud, and abuse of taxpayer dollars. As a result of our own investigation and information from insiders familiar with the DHS OIG office, Cause of Action sent a letter to President Obama on July 1 requesting that the President remove Edwards from his position. Edwards has failed to honestly and appropriately conduct investigations, manage subordinates, and has potentially misused public resources.

Cause of Action exposes these types of government accountability issues because Americans have the right to know how their government spends their hard earned money. We are rooted in the belief that regardless of party affiliation, we all deserve an efficient, effective government that protects our best interests rather than an ulterior political or personal agenda. Cause of Action concentrates on the decisions and rule making that may go unchecked at federal agencies.

Our staff of investigators, lawyers, and communications professionals frequently uses Freedom of Information Act (FOIA) requests to shed light on otherwise opaque facets of the federal government. We also seek to utilize valid tips from government employees who have noticed the misuse of taxpayer resources.

Our recent accountability work included a report on a Centers for Disease Control and Prevention’s (CDC) grant program revealing seven grant recipients who allegedly used federal funds to illegally lobby for tobacco taxes, clean air ordinances, and bans on sugar-sweetened drinks.

Our work doesn’t stop at exposing misuses of power; we fight to hold officials accountable through litigation and public education. Our litigation and investigations are tactical, covering a spectrum of issues and targets that are part of our greater mission to educate the public on how the government exercises its unchecked power.

By employing the checks and balances our government provides, whether through the courts or through Congressional investigations, our aim is to bring real public change through our investigations and litigation. We remain committed to shedding light on the discretionary power of unelected officials who spend our dollars and regulate our sources of livelihood.

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

 

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Secret Pentagon policy may delay responses to Freedom of Information Act requests

July 9, 2013 by

Department of Defense FOIA offices are prohibited from responding to “significant” FOIA requests having “departmental level interest” without approval from the Pentagon, according to a policy document obtained by Cause of Action from the DoD’s Inspector General.   

 A “significant” request is defined by the policy document as one where, in the judgment of a FOIA office, “the subject matter of the released documents may generate media interest and/or may be of interest or potential interest to DoD senior leadership.”  This can include requests regarding “the current administration (including request for information on Senator Obama) previous administrations, and current or previous DoD leadership.”

The policy document further provides that if a “significant” request generates “departmental level interest,” the DoD FOIA office handling the request must forward its proposed FOIA response and all responsive records for departmental level clearance.  Departmental level clearance is done at the DoD Freedom of Information Policy Office (DFOIPO) which is responsible for the formulation and implementation of FOIA policy guidance for DoD.  The office was created in 2006 after President Bush signed an Executive Order aimed at improving the FOIA process, though the policy document in question was drafted only after President Obama took office.         

The Pentagon’s FOIA review policy was initially revealed by the IG to Congress in 2010 in response to an inquiry concerning the politicization of FOIA.  The IG did not comment on this policy or on DoD’s FOIA practices; it merely forwarded documents to Congress.  Notably, neither the IG nor the Pentagon has proactively disclosed any of this information to the public.

This secrecy is especially troubling with respect to DFOIPO in light of its mission. Not only is this policy document omitted from a long list of “FOIA Policy Guidance” on DFOIPO’s Web site, but none of DFOIPO’s other publicly available FOIA material even mention this Department-wide policy.  Those documents include DoD’s “Freedom of Information Act Handbook,” its annual FOIA reports to the Department of Justice, as well as a bi-annual newsletter “DoD FOIA News.”  This is hardly the stuff of which transparent administrations are made, let alone one that claims to be the most transparent in history.

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Dan Epstein Discusses Acting DHS Deputy IG Edwards on The Lead

July 1, 2013 by

Dan Epstein discusses the corruption within the Department of Homeland Security Office of Inspector General with Jake Tapper on CNN’s The Lead.

Who Watches The Watchmen?

 

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White House and Treasury Department Politicize FOIA

June 24, 2013 by

In 2010, the Associated Press (AP) uncovered that the Department of Homeland Security (DHS) was blatantly politicizing the Freedom of Information Act (FOIA) process by having senior political appointees review requests.  Additionally, it was revealed that documents implicating “White House equities” had been sent by DHS to the White House Counsel’s Office for review, but what are White House equities? And who is defining the term?

In subsequent testimony before the House Committee on Oversight and Government Reform, Mary Ellen Callahan, Chief Privacy Officer for DHS, was asked about the meaning of White House equities by Rep. Jason Chaffetz:

Mr. Chaffetz. Let me read another paragraph. “Two exceptions required White House review, request to see  documents about spending under the $862 billion stimulus law, and the calendars for cabinet members, those required White House review,” is that correct?

Ms. Callahan. The calendars–anything that has White House equities would require White House review. That is—-

Mr. Chaffetz. What is a White House equity? What does that mean?

Ms. Callahan. In the circumstances with the Secretary’s calendar to the extent that she was in the White House, or that was a–disclosing some sort of element. This is a typical process of referring FOIA requests to different departments. It may be their underlying records. That is a standard process throughout the—-

Mr. Chaffetz. The other part of that is under the $862 billion stimulus; is that correct? Is that part of the White House equity? It says “Two exceptions required White House review. Request to see documents about spending under the $862 billion stimulus law,” is that correct?

Ms. Callahan. That is correct.

Mr. Chaffetz. Why? Why does that require a special White House review?

Ms. Callahan. Sir, I’m the chief FOIA officer; I’m not a policy person in this area.

Mr. Chaffetz. So is that a directive that you got from the White House?

Ms. Callahan. I believe I was instructed by the Office of the Secretary to do that, and we processed it—-

Three years after the above testimony, we have confirmed that Congressman Chaffetz was right about the source of authority that required “special White House review.” In January 2009, the President issued his Executive Order on FOIA and transparency, and then Attorney General Eric Holder issued a March 2009 FOIA memo encouraging disclosure. Both of these memos were made public and lauded as standards for federal agencies. But in April 2009, a previously undisclosed memo was sent from White House Counsel’s Office to Department and Agency General Counsels, reminding them to send to the White House all records involving “White House equities” collected in response to any document request.  According to FOIA attorneys at multiple federal agencies, this White House consultation policy is still in effect.

The practice of sending agency records to the White House for review is not altogether new. In 1993, for example, the Department of Justice (DOJ) instructed agencies to send “White-House-originated” records to the White House Counsel’s Office whenever located in response to FOIA requests. However, the current White House consultation policy is substantially broader in scope.   First, this memo expands the types of documents being sent to the White House to include Congressional committee requests, GAO requests, and judicial subpoenas. Additionally, the documents to be referred need not “originate” from the White House, as the DOJ advised in 1993, but need only involve “White House equities,” an undefined term that could be construed to include any records in which the White House might be interested.   Indeed, that is exactly the type of referral that appeared to have occurred at DHS, and which is likely still occurring throughout the Executive Branch. In sum, the White House Counsel’s office is potentially receiving and reviewing, and actually demanding access to information they previously would not have been able to review under FOIA. Cause of Action is now seeking to obtain documentary evidence of this practice via FOIA requests to multiple agencies.

 

The 2009 memo that Cause of Action obtained:

White House Equities

How the Treasury Department and the IRS Stall FOIA Requests

  • Treasury’s Departmental Offices (DO) and the IRS gives extra scrutiny to FOIA requests from all media requesters, delaying the release of records and usurping the regulatory authority of FOIA officials
  • 13 requests to DO were marked for sensitive review were sent to the White House for review in 2009

In the wake of the DHS FOIA scandal, Senator Grassley and Congressman Issa sent a joint August 25, 2010 letter to 29 Inspectors General, asking them to investigate: (a) whether FOIA requests were given more scrutiny based upon the identity of the requester, and (b) the extent to which political appointees were systematically made aware of the requests and participate in FOIA decision-making. Our research found that only 7 of the 29 Inspectors General released their findings publicly, and none of those reports revealed any wrongdoing.

However, according to the Treasury Inspector General, both the Treasury’s main office, called Treasury’s Departmental Offices, as well as the IRS established formalized “sensitive review” processes in late 2009 that singled out media requesters and slowed down the FOIA process. At Treasury DO, a committee of senior Treasury officials reviewed requests deemed to be “sensitive” before career FOIA personnel were permitted to release any records. Notably, multiple government sources have confirmed that all FOIA requests submitted by the media were required to be forwarded to the review committee regardless of the content of the requested records. This discriminatory policy, which delayed the release of records and usurped the regulatory authority of FOIA officials, is all the more nefarious because it was established at a time when Americans were seeking to obtain vital information about Treasury’s response to a severe financial crisis.

At the IRS, any FOIA request submitted by “major media” would be labeled as a “sensitive case,” and sent to the Chief Disclosure Officer and the Director of Communications, Liaison, and Disclosure, who would decide if documents were “appropriately disclosed.”

Interestingly, in response to a FOIA request that Cause of action sent to the IRS, the IRS admitted internally that it had forgotten to put us in a “Sensitive Case Report.”

IRS Sensitive Review

According to the IG report, none of the other offices within Treasury had established a “sensitive review” process or were cited as sending requests to the White House for review.

Broken Promises on Transparency Continue

The Obama Administration cannot credibly claim to be the most transparent in history when it publicly issues memos about the presumption of openness in the FOIA process, for example, but then instructs agencies in a non-public memo to refer all records with “White House equities” to the White House for review. The White House is by its nature political and it is not subject to FOIA. Thus, it should not be interfering with the FOIA process. Not only is the FOIA process significantly stalled by this White House review  — a fact that agencies zealously keep secret from requesters — but it permits the White House’s political interests to trump the correct application of the FOIA, a disclosure statute whose purpose is ensure an informed citizenry. In sum, this Administration is more concerned with appearing to be transparent than with actually being transparent.

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The Fiscal Times: Dan Epstein: Lax IRS Oversight Fostered Costly Charity Scams

June 20, 2013 by

Lax IRS Oversight Fostered Costly Charity Scams

By DAN EPSTEIN    June 20, 2013

 

In addition to its clean beaches, rolling hills and exclusive real estate, Pacific Palisades, California, was home to the International Humanities Center (IHC), a tax-exempt sponsor of over 300 charitable endeavors. Its executive director, Steve Sugarman, rose to non-profit stardom by leading IHC-supported organizations to over $6 million in combined revenue.

But by December 2011, several IHC-sponsored projects received a shocking letter from Sugarman. It disclosed that IHC was “running a considerable deficit that has severely impacted all operations,” and warning the projects that future payments may not be processed.IHC became so successful so quickly that by 2009 the organization had to place a moratorium on sponsoring new projects. Sugarman’s secret was fiscal sponsorship – a term of art referring to tax-exempt 501(c)(3) charities that raise tax-deductible contributions on behalf of projects that lack the resources to operate as independent, tax-exempt charities themselves.

One month later, Sugarman informed IHC’s projects that their fiscal sponsor was shutting down. Donations to hundreds of charitable causes – and the sponsor entrusted with them – had vanished. The FBI subsequently launched an investigation into the apparent disappearance of an estimated $1 million in donations that about 200 non-profits reported losing when the organization abruptly shut down.

The story of IHC is not unique. Fiscal sponsors that engage in money laundering and fraud are systemic. And these CEOs are not on Wall Street or in the boardrooms of large, publicly-traded corporations. This kind of corporate 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.

While the Internal Revenue Service got into trouble for targeting Tea Party groups, many fiscal sponsors have wrongly obtained charitable status to engage in a dangerous pattern of abuse that destroys jobs and ruins charitable aims toward the public good. Sadly, despite evidence of fiscal sponsors having fabricated tax documents and bank statements or mismanaged federal grant money, fiscal sponsorship has been unmanaged, unchecked, and undefined by the IRS.

The importance of IRS oversight of fiscal sponsorship is not just in the interest of those charitable projects that rely on the practice for their support – but for the American taxpayers as well. IHC received economic stimulus funding from the U.S. Department of Energy – yet no shovel-ready jobs were created.

In fact, the IHC’s use of these funds was subject to a DOE Inspector General investigation, with a criminal and civil case pending against IHC as of April 2012. Proper IRS oversight over fiscal sponsorship would have averted whatever bureaucratic wisdom concluded that IHC merited tax dollars or that it would employ out-of-work Americans.

Moreover, fiscal sponsorship has been abused in ways that threaten American security interests. Many are familiar with the Freedom Flotilla, which was led by the pro-Hamas Free Gaza Movement; it resulted in the death of nine people. But few are aware that the Free Gaza Movement is fiscally sponsored by a Washington, D.C.-based tax-exempt nonprofit, the American Educational Trust. For the IRS, fundraising for terrorism abroad apparently does not raise the same red flags as does being a “patriot” or supporting the constitution.

The IRS must regulate fiscal sponsorship by clearly defining the parameters and standards of the practice. Fiscal sponsorship agreements should be treated as contracts that identify the fiscal sponsorship arrangement between sponsor and client, as well as provide evidence that the sponsoring organization will exercise discretion and control over its client. The IRS, through rulemaking, should require that any 501(c)(3) organization that engages in fiscal sponsorship file with its Form 990 copies of all of its written fiscal sponsorship arrangements. Additionally, the IRS should require that fiscal sponsors disclose in their 990s when the gross receipts of a sponsored project exceeds $50,000.

Cases like IHC and the Free Gaza Movement underscore the substantial lack of guidance regarding fiscal sponsorship. Those gaps in oversight have exposed hundreds of charities to abuse and allowed substantial sums of donations – including federal government grants – to be mismanaged by unaccountable sponsors.

The IRS’s failure to properly oversee tax-exempt groups puts all projects that find themselves under an incompetent or disreputable fiscal sponsor at risk of losing funding and shutting down.

Dan Epstein is executive director of Cause of Action, a nonprofit, nonpartisan group that promotes government accountability and transparency. The group has filed a request with the IRS to develop rules and standards for tax-exempt fiscal sponsors.

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