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Sensitive Case Reports: A Hidden Cause of the IRS Targeting Scandal

Investigative Report: Presidential Access to Taxpayer Information

Beginning in February 2010, the Internal Revenue Service (“IRS’) singled out certain non-profit organizations for extra scrutiny when they applied for tax-exempt status. Numerous subsequent congressional investigations and media reports demonstrated that the targeting involved invasive questioning and years-long delays, and focused disproportionately on right-leaning groups, especially those with “Tea Party” in their name. These reports, however, have almost entirely overlooked a hidden cause of the targeting scandal,which remains in effect today. As a result, American taxpayers are at risk for similar treatment in the future.

Contrary to the conventional storyline, there exists an institutional policy that was the first impetus in prompting IRS employees to target groups based on their political viewpoints. That policy is embodied in an internal IRS rule—which is still on the books—that singles out applications from any group interested in issues that might garner attention from either the media or Congress. In such cases, the merits of the application are ignored as IRS employees develop “Senstive Case Reports” for consideration by those above them in the IRS hierarchy. The result is a process that interferes with the unbiased review of applications for tax-exempt status designed to apply to all eligible organziations, regardless of their political viewpoints or affiliations.

Key Findings:

  • Targeting was—and is—IRS policy, not a violation of it.
  • The employees who initiated the targeting cited an internal “Sensitive Case Report” process that singled out applications that might attract media or congressional attention.
  • Sensitive Case procedures remain in effect today.
  • The IRS has the authority to change its internal policy at any moment, which means it can remove the problematic rules at its discretion. Doing so would eliminate the agency procedure that enabled the targeting scandal. To date, the agency has not made the required changes to its rules.

We Recommend

Seven years after the targeting scandal began, the rule that enabled this inexcusable behavior still exists. Until that rule is removed from the internal manual used by all IRS employees, targeting of politcal opponents will remain a very real threat. Fortunately, removing the offending provisions is a simple process that can be started at any time and completed without the need for new legislation or formal notice-and-comment rule-making.

 

Fighting Confusion and Complacency to Keep the IRS Accountable

March 15, 2017 by

It seems like a simple idea – the Freedom of Information Act (FOIA) allows any interested citizen to request documents from the people and agencies who exercise power over them. Elected officials have called it “our nation’s premiere transparency law” and one which serves a “crucial need … for open access to government information.”  Unfortunately, as one recent case shows, the process rarely works this way, leading to frustrating and sometimes bizarre results.

In 2014, Cause of Action Institute became concerned that lawyers employed by the Tax Division of the Department of Justice (DOJ) were being detailed to work at the White House. At least two of these attorneys had access to the confidential taxpayer information of administration opponents because of their prior work on lawsuits connected to the IRS “targeting” scandal, and giving them this kind of assignment was unprecedented.  Taxpayer information would normally be kept private from White House officials, including the president, but now a pipeline had been opened where such information could reach political appointees. [See our investigative report discussing this issue in greater detail]

IRS quotes[Excerpts from IRS letters complaining about having to search its own records. CoAI would later discover a search had already taken place]

The IRS has a long history of misusing tax information, one that reaches as far back as FDR. Without proper procedures or training, the same kind of misconduct will inevitably happen again no matter which political party is in charge.  To find out more about the attorney transfers and whether any steps had been taken to safeguard taxpayer privacy, we submitted a FOIA request to the Internal Revenue Service (IRS) for e-mails between three attorneys assigned to the White House and the IRS division at the heart of the targeting scandal.

The request was sent in January 2014. The first reply arrived a month later, but it was merely notification that the agency would be “unable to send the information” within the 20 business days required by FOIA.  A second delay letter arrived in May, followed by a third delay in August and yet another delay in December.

Finally, in April of the following year – a full 282 business days after the 20 business-day deadline – we received a response. But it was not the e-mails we requested; it was a notice that our request was now too broad and would be closed because searching the e-mails of three people was “an unreasonable burden upon the IRS.”  Even if this were true, which seemed very unlikely, the agency had violated its own rules by dragging out the process and then failing to give us a chance to narrow the request before rejecting it.  We pointed out these problems in an appeal of the IRS decision, but the agency refused to acknowledge these problems and again rejected our request.

In an attempt to figure out how the process had gone so wrong, we submitted another FOIA request in May 2016 requesting the “processing notes” for the original request.  These notes document what happens to a request once it arrives at a government agency.  They are internally made, follow a particular format, and should be among the simplest of documents to locate and share.  Yet the first delay letter soon arrived, and another one three months later.  Not wanting to wait for a third delay notification, we filed a lawsuit against the agency to get a full explanation of what happened.

Such lawsuits are often required to get a meaningful response from the government, and ours finally forced the IRS to release the processing notes for our original request. So what was the explanation for the agency refusing to conduct a simple search – and taking over a year to say so?

Apparently, there wasn’t one. The IRS tax law specialist processing the request had marked in her records all the way back in December 2014 that a search had been done and “produced no documents.”  This happened four months before the IRS called our request “an unreasonable burden,” seven months before the agency claimed it was “unable to initiate a search” at all, and a full two years before we filed suit just to discover the IRS could have saved everyone time and money simply by reporting its original findings.

Why would government officials compare our request to “an all-encompassing fishing expedition” if they already knew there weren’t any fish to catch? The answer, if there is one, remains to be seen.  The original FOIA request is the subject of a separate and ongoing lawsuit, but the IRS has not yet produced any responsive documents.  If no improper communication took place between the lawyers transferred to the White House and their former IRS colleagues, then that is good news.  If no ethics training was given to those lawyers, then that good news is merely a coincidence.  Whatever the truth turns out to be, it is a worrying sign that a simple request can result in years of delays, constant obstruction, contradictory answers, and no solid explanation for any of these.

John McGlothlin is counsel at Cause of Action Institute

Filed Under: Blog, Media Tagged With: , , ,

IRS Watchdog shields records on breach of confidential taxpayer information

January 5, 2017 by

The Treasury Inspector General for Tax Administration (TIGTA) has concluded its review of allegations brought by Cause of Action Institute (CoA Institute) concerning the unlawful disclosure and inspection of more than one million pages of confidential taxpayer information. The agency opened its investigation in July 2016 but now claims it cannot provide any further information about of the outcome of its review because such information is itself protected by confidentiality laws originally intended to protect taxpayers.

In June 2016, CoA Institute called on TIGTA and the Department of Justice Office of Inspector General (DOJ-OIG) to examine potential legal violations arising from the October 2010 disclosure of more than one million pages of tax returns and return information to the FBI and DOJ Public Integrity Section by Lois Lerner and the IRS.  CoA Institute first alerted TIGTA about the possible violation of Section 6103 of the Internal Revenue Code with respect to these records in July 2015. [For more information, see pages 11–15 of CoA Institute’s recent investigative report.]

Just months prior to TIGTA’s response, DOJ-OIG confirmed the unlawful disclosure of taxpayer information but dismissed a request to investigate the wrongdoing.  The IG concluded that CoA Institute was correct that “protected taxpayer information was included” on CDs provided by the IRS to the FBI and DOJ, yet it determined inexplicably that the matter “does not warrant further investigation[.]”

CoA Institute Assistant Vice President Lee A. Steven: “Although it appears that TIGTA has investigated our now-proven allegations of wrongdoing, we are concerned by the lack of transparency surrounding whether the responsible IRS officials will be held accountable for the unlawful disclosure of over one million pages of confidential taxpayer information. Congress never intended taxpayer confidentiality laws to be a shield against the disclosure of information concerning the conduct of officials who have abused their positions and acted in contravention of their duty to protect American taxpayers’ most private information.  This incident involves one of the largest and most significant breaches of taxpayer confidentiality laws by the federal government in U.S. history.  The DOJ-OIG seems to have washed its hands of the matter and it is disappointing to see TIGTA do the same.”

The DOJ Public Integrity Section and the FBI originally sought the records at issue in an attempt to identify non-profit organizations who may have engaged in prohibited political activity.  As part of its public oversight efforts, CoA Institute obtained records demonstrating that, between 2009 and 2012, neither agency ever submitted the statutorily-required requests for disclosure of this information to the IRS.

Section 6103 of the Internal Revenue Code provides a strict rule of confidentiality for tax returns and return information.  Unless a statutory exception applies, government agencies and their employees may not disclose such information.  Violations can include fines, termination from employment, and imprisonment.

To access CoA Institute’s June 29, 2016 Letter to TIGTA and DOJ-OIG, click here.
To access DOJ-OIG’s October 12, 2016 response, click here.
To access TIGTA’s December 19, 2016 response, click here.
To access CoA Institute’s October 2016 Investigative Report, click here.

Filed Under: Media, Blog Tagged With: , ,

CoA Institute Sues IRS for Improperly Shielding Records

December 1, 2016 by

Washington D.C. – Cause of Action Institute (CoA Institute) today filed a lawsuit against the IRS after the agency refused to produce records under the Freedom of Information Act (FOIA) relating to its dealings with Congress’s Joint Committee on Taxation (JCT).

In December 2015, the IRS Office of Chief Counsel issued new guidance claiming that nearly all IRS records relating to the JCT should be treated as “congressional records” and therefore shielded from public disclosure under FOIA. This revised guidance contradicts long-standing precedent for what records government agencies must provide in response to FOIA requests.

CoA Institute Vice President John Vecchione: “The IRS continues to withhold agency records that the American people have a right to see. Agency records, including communications with Congress, are subject to FOIA. But the IRS is now attempting to change the rules and withhold all of its communications with, and other records relating to, the JCT. Our lawsuit challenges what appears to be a ploy by the IRS to avoid transparency.”

For months, CoA Institute has sought IRS communications with JCT and other JCT-related records, including those that reflect internal deliberations concerning the agency’s dealings with the JCT.  By definition, these are agency records, as they would necessarily have been received or created by the IRS and are currently in the possession of the agency.  Such records would have been used by IRS employees and uploaded or stored into IRS recordkeeping systems, including e-mail or correspondence tracking databases.

On November 22, 2016, in response to CoA Institute’s administrative appeal, the IRS re-affirmed its conclusion that the requested records were not subject to FOIA and went a step further to describe CoA Institute’s FOIA requests as “too broad and too nebulous.” The Department of Justice has explained, however, that “[t]he sheer size or burdensomeness of a FOIA request, in and of itself, does not entitle an agency to deny that request on the ground that it does not ‘reasonably describe’ records.” The IRS never indicated that it was unable to locate records responsive to CoA Institute’s FOIA requests, nor did it suggest it required a narrowed scope or clarification as to the records sought.

CoA Institute’s lawsuit seeks to prevent the IRS from improperly shielding agency records from disclosure under FOIA.

The lawsuit can be found here
Exhibits can be found here

 

Filed Under: Press Release, Media Tagged With: ,

DOJ Watchdog Confirms Massive IRS Taxpayer Data Breach, Dismisses Request for Investigation

October 20, 2016 by

Washington D.C. – The Department of Justice (DOJ) Inspector General (IG) has confirmed unlawful disclosure of taxpayer information by the IRS, while at the same time dismissing a request by Cause of Action Institute (CoA Institute) to investigate wrongdoing. The response from the IG concluded that CoA Institute was correct in its allegations that “protected taxpayer information was included” on CDs provided by the IRS, but also determined that the matter “does not warrant further investigation[.]”

Last June, CoA Institute called on the DOJ IG and the Treasury Inspector General for Tax Administration (TIGTA) to examine potential legal violations arising from the October 2010 disclosure of more than one million pages of tax returns and return information to the FBI and DOJ Public Integrity Section by Lois Lerner and the IRS.  [For more information, see pages 11-15 of CoA Institute’s recent investigative report]

TIGTA has not yet provided its response to the request.  CoA Institute also requested that the DOJ IG examine whether FBI and DOJ employees violated taxpayer confidentiality laws by inspecting that data.

While the IG admitted that “protected taxpayer information was included” on the IRS CDs, it stated that as soon as DOJ “learned of this, it returned the CDs to the IRS and informed Congress[.]”  Therefore, “[g]iven the absence of available information suggesting that Department employees . . . violate[d] laws, regulations, or policy,” the IG concluded that “this matter does not warrant further investigation[.]”  CoA Institute has filed a FOIA request with the DOJ IG to determine the exact nature of its notification to Congress.

CoA Institute Vice President John J. Vecchione: “The DOJ IG’s response is concerning.  While admitting that the IRS did, in fact, disclose confidential taxpayer information, the IG failed to address the absence of any proper requests for disclosure from the DOJ.  Even more alarming, the IG refused to conduct an investigation into legal violations because of the ‘absence of available information.’  The whole point of an investigation here is to collect the information necessary to determine whether DOJ officials broke the law by inspecting taxpayer data.  Americans deserve to know how Washington handles their most private information.  This incident may be one of the largest and most significant breaches of taxpayer confidentiality laws by the federal government, yet the IG seems to be washing its hands of the matter.”

The DOJ Public Integrity Section and the FBI sought the tax information at issue in order to prosecute non-profit organizations allegedly engaged in prohibited political activity.  As part of its public oversight efforts, CoA Institute obtained records demonstrating that neither agency ever submitted the statutorily-required requests for disclosure of this information to the IRS between 2009 and 2012.

Section 6103 of the Internal Revenue Code provides a strict rule of confidentiality for tax returns and return information.  Unless a statutory exception applies, government agencies and their employees may not disclose such information.  Violations can include fines, termination from employment, and even imprisonment.

To access CoA Institute’s June 29, 2016 Letter to TIGTA and DOJ-OIG, click here.

To access the DOJ IG’s October 12, 2016 response, click here.

To access CoA Institute’s October 19, 2016 FOIA request to DOJ IG, click here.

Filed Under: Press Release, Media

Cause of Action Institute Secures Access to Secret IRS Memos with the White House

September 22, 2016 by

Washington, D.C. – Cause of Action Institute has secured access to a series of previously undisclosed memoranda of agreement between the IRS and the White House, which the IRS claims exempts it from prepublication review of its rules.  The release includes agreements between the IRS and White House from 1983 and 1993 that contain “exemptions from regulatory review.”

The IRS has resisted providing the memos to Congress, which have been sought by the Senate Finance Committee but to-date have not yet been provided.  The memos were also discussed in a recently released Government Accountability Office audit.  However, until today, the memos have not been made public.

Click here to access the memos.

Cause of Action Institute President and CEO, and former federal judge, Alfred J. Lechner, Jr.: “Agencies of the federal government should not operate by secret agreement with the White House.  Lawful prepublication reviews are critical to the regulatory process to ensure that rules are developed in a fair and transparent manner. The IRS has skirted these rules for far too long.”

Typically, agencies submit their rules to the White House Office of Management and Budget (OMB) for regulatory review before publication.  However, the IRS has long claimed an exemption from this rule.  As Cause of Action Institute argued to the Supreme Court in an amicus brief, “Over the past ten years, the IRS has submitted only eight rules to OIRA [the Office of Information and Regulatory Affairs] for regulatory review and deemed only one of those rules significant.  Those eight rules are less than one percent of the final rules the IRS published in the Federal Register over the same period.”

Filed Under: Press Release, Media

TIGTA Reviews IRS FOIA Compliance

September 15, 2016 by

The Treasury Inspector General for Tax Administration (“TIGTA”)—the Internal Revenue Service (“IRS”) watchdog—released its annual audit report today on IRS compliance with the requirements of the Freedom of Information Act (“FOIA”). The results of the review suggest that IRS disclosure officials may have improperly withheld information from the public in 12% of FOIA cases. Additionally, the review reveals that while increased training has reduced the number of inadvertent disclosures of confidential tax information, these unauthorized disclosures have not been entirely eliminated. Overall, the IRS FOIA backlog continues to grow and the agency has room for improvement.

These findings should be unsurprising to everyone who follows FOIA issues. The IRS has a long history of evading its obligations under that statute. Cause of Action Institute remains committed to fighting for transparency and openness at the IRS. We continue to litigate access to records about potentially unauthorized requests for taxpayer information from the White House. We recently filed another lawsuit to challenge the refusal of the IRS even to recognize, let alone process, two FOIA requests for records of communications between IRS officials and White House advisors.

Ryan Mulvey is Counsel at Cause of Action Institute.

Filed Under: Blog Tagged With: