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07/18/2017

Watchdog Exposes IRS Record Management Failures

The Treasury Inspector General for Tax Administration (“TIGTA”) released an important report yesterday that detailed the Internal Revenue Service’s (“IRS”) inconsistent and inadequate records retention policies over recent years. The audit had been requested in March 2016 by the House Committee on Ways and Means.  TIGTA, the IRS’s watchdog, concluded that the agency had failed to “comply with certain Federal requirements that agencies must ensure that all records are retrievable and usable for as long as needed.”  In other words, TIGTA took the IRS to task for having ignored the requirements of the Federal Records Act (“FRA”) and the Freedom of Information Act (“FOIA”).

Consider some highlights from the report:

  • “The IRS’s current e-mail system and record retention policies do not ensure that e-mail records are saved and can be searched[.]”
  • “[R]epeated changes in electronic media storage policies, combined with a reliance on employees to maintain records on computer hard drives, has resulted in cases in which Federal records were lost or unintentionally destroyed.”
  • “Interim actions taken by the IRS while developing an upgraded e-mail solution do not prevent loss of e-mail records.”
  • The IRS’s “interim e-mail archiving policy for executives” was “not implemented effectively because some executives”—including four members of the Senior Executive Team—did not properly configure their e-mail accounts . . . and the IRS did not have an authoritative list of all executives required to comply with the interim policy.”
  • “Policies requiring the IRS to document search efforts [under the FOIA] were not followed for some cases.”
  • “The IRS does not have a consistent policy to search for records from separated employees.”

TIGTA’s report offers countless examples of how not to comply with federal law.  Yet none of the details are terribly unexpected.  Ever since the Lois Lerner Tea Party targeting scandal broke in 2013, the IRS has been grilled for its shoddy records management.  Cause of Action Institute’s oversight of the agency revealed, for example, that the IRS used to delete BlackBerry messages after only fourteen (14) days because of “routine system housekeeping” and “spacing constraints.” More egregiously, the IRS intentionally failed to capture, preserve, or retain instant messages created on its Microsoft Office Communications Server (“OCS”) platform because of a contractual agreement with the National Treasury Employees Union.  That “memorandum of understanding” sought to “enhance employee work environments and allow employees to more effectively and efficiently collaborate with their colleagues.”  In other words, the IRS had no systemic means of assuring that employees’ communications on OCS were not records subject to the FRA or the FOIA and, if they were, that they were appropriately retained and retrievable.  Our lawsuit against the IRS helped push the agency to implement a new records management system for text and instant messages in line with the requirements of the law.  Unfortunately, as the TIGTA report demonstrates, the agency still falls short with respect to its management of email records.

It is also unsurprising—but still deeply troubling—that TIGTA concluded the IRS “did not consistently ensure that potentially responsive records” were identified, searched, and produced in response to FOIA requests. CoA Institute frequently litigates with the IRS over requests that go unanswered for months.  The fight usually boils down to a disagreement over the adequacy of the agency’s search.  Regrettably, courts give agencies a great deal of deference in justifying the reasonableness of their searches, even when a declarant fails to provide sufficiently specific information about how a search was conducted.  In some of our cases, IRS FOIA officers have merely asked senior employees whether potentially responsive records exist and then called it a day.  That’s unacceptable.  The onus is now on the IRS to make improvements, and it is for Congress and taxpayers to ensure those improvements are made.

Ryan P. Mulvey is Counsel at Cause of Action Institute

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06/28/2017

Supreme Court to Hear Case on Obstruction of the Tax Code

The Supreme Court this week announced that it will hear the case of Carlo Marinello, II v. United States next fall.  The Supreme Court granted Mr. Marinello’s petition for a writ of certiorari after considering it in conference on June 26, 2017, the Court’s last day of the summer session.  Cause of Action Institute filed an amicus curiae brief in support of Mr. Marinello’s petition, urging the Supreme Court to hear the case to address the Second Circuit’s expansive reading of a tax statute that could be interpreted to criminalize routine conduct of everyday American taxpayers and business owners.

Mr. Marinello owned a small courier service in New York. In 2012, the United States obtained an indictment against him under 26 U.S.C. 7212(a)’s “omnibus clause” of the criminal tax code, which makes it a felony to “in any other way corruptly…obstruct [] or impede [] or endeavor to obstruct or impede, the due administration” of the tax code.  The government argued 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.”  The Sixth Circuit, in order to cabin its expansive language, has held that an individual must have knowledge that his or her conduct is obstructing an ongoing IRS investigation in order to be found guilty under the omnibus provision.  The Second Circuit and other courts of appeals have interpreted the language much more broadly, however, causing a circuit split.

Cause of Action’s amicus curiae brief highlighted the importance of preserving mens rea, or “guilty mind” requirements and the need for our criminal code to clearly inform people about what is, or is not, illegal.  As Judge Jacobs wrote in his dissent from the rest of the judges on the Second Circuit, “if this is the law, nobody is safe.”  Cause of Action hopes that the Supreme Court will cabin the omnibus clause as the Sixth Circuit has done and intends to file a new amicus curiae brief at the merits stage.  You can check out our prior blog post on this case here.

Erica Marshall is counsel at Cause of Action Institute.

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05/8/2017

The next front in the FOIA War: Congress blocking disclosure of its dealings with the Executive Branch

By Ryan Mulvey, Opinion Contributor

Presidential interference with public access to politically sensitive agency records has been an ongoing fight that seems unlikely to end anytime soon, and now it appears Congress has decided to get into the game.  My organization, Cause of Action Institute (“CoA Institute”), has long been at the forefront of fighting against unlawful obstruction of the Freedom of Information Act (“FOIA”).  Last year, we filed a lawsuit against the Office of the White House Counsel to end the practice of “White House equities” review, which results in the delay of responses to FOIA requests that the administration deems politically embarrassing.  With that lawsuit still ongoing, Congress has taken a page from the White House’s playbook to keep records of its dealings with agencies hidden from public view, too.

BuzzFeed reported last week that Financial Services Committee Chairman Jeb Hensarling (R-Texas) sent a letter to the Treasury Department that directed the agency to treat all records exchanged with the committee as “congressional records” not subject to the FOIA.  Read More

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04/4/2017

A Former IRS Official Chimes In – and Reminds Us Why Change is Necessary

In a letter published earlier this week by the EO Tax Journal, a former branch chief of the IRS Exempt Organizations Division, inadvertently confirmed just what our recent report argued – that the IRS is focused on its own reputation, not its duty to taxpayers.  Conrad Rosenberg, who retired from the agency 20 years ago, doesn’t seem to realize that government agencies have a purpose beyond avoiding criticism:

I find a certain irony in the complaints about the IRS’ use of Sensitive Case Reports to alert upper management about potentially controversial rulings. Imagine the cries of anger and incredulity if the Service issued some ruling that received notoriety in the media.  The very same complainants would be issuing furious pronouncements along these lines: “What!  How is it possible that this terrible mistake never received attention above the level of a GS-13 reviewer?  Surely you don’t expect us to believe that!  Sheer incompetence!  Why weren’t responsible managers rung in on this decision?!”

This letter is a failure of logic and of law. Your rights do not vary based on how “potentially controversial” you are in the eyes of the media, Congress, or the IRS itself.  An organization either satisfies the law’s requirements for tax-exempt status, or it does not.  By trying to concern itself with predicting controversy instead of determining tax status, the IRS risks becomingly overly focused on organizations opposed to a current administration – as was amply demonstrated by the number of “Tea Party” and “patriot” groups treated inappropriately merely because of their names.

The letter is also a prime example of how the government solution to bad government is always more government. Low level staffers were not the ones making “terrible mistakes” in the targeting scandal – in fact, because of the Internal Revenue Manual (IRM) rule discussed in our report, they weren’t making many decisions at all.  They were forced to look upward if an application “might receive media of Congressional attention,” a fact irrelevant to the application’s merit but very relevant to the job prospects of IRS management.

The targeting scandal is not a story of insufficient oversight by senior leaders but of suffocating micromanagement from them. The kind of “cries of anger and incredulity” that Mr. Rosenberg mocks were due to years-long delays and invasive questioning that improperly prevented concerned citizens – including more than one Occupy organization – from fully joining in the democratic process.  Those delays were not caused by junior staffers twiddling their thumbs but by IRS leaders who insisted on centralizing the decision-making.

In the free time taxpayers will inevitably have waiting for the IRS to process their applications, they may find it interesting that the GS-13 employees portrayed by Mr. Rosenberg as too junior to be publicly trusted with doing their job will be paid as much as $127,000 this year.  At what point do they become trustworthy?  $150,000?  $200,000?  Refusing to let these employees make decisions does not increase the quality of the process, only the length of it.

Lastly, our report explains that the other criteria specified by the IRM for issuing Sensitive Case Reports “fall comfortably within the agency’s area of expertise: whether an application affects a large number of taxpayers, presents unique tax issues, or involves $10 million or more.” We are not against the IRS being diligent; we are against it continuing to use internal rules that have nothing to do with the laws it is empowered to enforce.  Criticism of the IRS is not such a terrible outcome that all else must be sacrificed to prevent it, particularly when taxpayers are the ones suffering the brunt of the sacrifice.

John McGlothlin is counsel at Cause of Action Institute

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04/3/2017

WSJ’s James Taranto on FOX News discusses our IRS targeting report

Hits&Misses

James Taranto: A miss to the Internal Revenue Service which claims to have ended the ideological targeting of non-profit organizations. But as the Cause of Action Institute points out, the rule that enabled this targeting is still on the books. It tells agents to investigate any non-profit that might, and I quote, “attract media or congressional attention,” which suggests the IRS is more interested in protecting its image than the rights of Americans.

You can access our full report, “Sensitive Case Reports: A Hidden Cause of the IRS Targeting Scandal” HERE

 

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03/31/2017

The IRS Responds to Our Report on Targeting – but Misses the Point

As detailed in our recent report, the IRS targeting scandal has a hidden cause which remains unaddressed to this day – a rule in the agency’s own manual that directs employees to treat applications differently if they might “generate media or Congressional attention.”  This rule is what initially prompted low-level IRS tax specialists to hold up applications from Tea Party groups, ultimately resulting in both years of delays for taxpayers and widespread embarrassment for the agency.

The report was accompanied by an op-ed in the Wall Street Journal and was reported on by, among other outlets, Fox News and the EO Tax Journal.  Both of these news reports included quotes from an IRS statement responding to our findings – or at least the agency’s interpretation of them.  Although the aggressive tone of the IRS response surprised the editor of the EO Tax Journal, it serves as a classic example of the bureaucratic mindset that led to the targeting scandal happening in the first place.  Here is the IRS statement in full, as reported in the EO Tax Journal:

“The IRS strongly disputes the [Cause of Action] report and any suggestion or allegation that Exempt Organizations is targeting taxpayers. The IRS emphasizes that this point has been confirmed by independent third parties, including the Treasury Inspector General for Tax Administration. There should be absolutely no doubt on that point, and the continuing commitment by the IRS to be guided by the tax law and nothing else.”

“[Sensitive Case Reports] are used within the IRS to bring to upper management’s attention cases that may generate press or Congressional attention, present unique or novel issues, or affect large numbers of taxpayers. It’s important to note that IRS internal guidelines on sensitive case reports do not instruct the employees to stop working a case or direct employees on how to work a case.

It is head-spinning that the IRS can argue in one sentence that it should be guided by tax law “and nothing else” and then insist in the very next sentence that it is proper to consider “press or Congressional attention” as a criterion, delaying a final decision on tax-exempt applications as a result.  The only purpose of this rule is to avoid possible embarrassment.  Yet an application for tax exempt status is no more related to the notoriety of the applicant than a driver’s license is to the fame of the driver – if you pass the test, you should get the status

The problem with rules that mandate this kind of PR-minded defensiveness is that, as amply documented by the many investigations into the targeting scandal, it drags the application process through multiple echelons of bureaucracy and involves higher officials with strong political leanings. The IRS’s statement claims that it was absolved by the Treasury Inspector General for Tax Administration (TIGTA), but in reality, a report from that office repeatedly criticized the IRS for “using inappropriate criteria” to scrutinize applications – criteria which ended up focusing overwhelmingly on political opponents of the administration in power.  IRS officials insisted on seeing every application from Tea Party-affiliated groups because of the “media attention” they were attracting, and as shown in the same TIGTA report, the result was an endless array of delays and invasive questioning.

John McGlothlin is counsel at Cause of Action Institute

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03/22/2017

Report Finds Threat of IRS Targeting Continues Today

Washington D.C. – Cause of Action Institute (“CoA Institute”) today released a staff report titled, “Sensitive Case Reports: A Hidden Cause of the IRS Targeting Scandal,” outlining how seven years after the IRS targeting scandal began, the rule that enabled this inexcusable behavior remains in place.

IRS targeting during the Obama administration involved invasive questioning and years-long delays in the processing of applications by non-profit organizations for tax-exempt status, and focused disproportionately on right-leaning groups, especially those with “Tea Party” in their name. The policy that enabled this targeting is an internal rule 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 “Sensitive Case Reports” for consideration by those above them in the IRS hierarchy.  In the targeting scandal, the existence of this rule allowed partisan concerns to overtake the process, leading to the unfair treatment of groups holding political viewpoints at odds with the Obama administration.

The report explains that unless and until that rule is removed from the internal manual used by all IRS employees, targeting of political 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.

The full report can be accessed HERE

In Case You Missed It…

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‘Media Attention’ and IRS Abuse
A simple rule fix could end partisan targeting tomorrow.

By John J. Vecchione | March 21, 2017

The Internal Revenue Service’s targeting of Americans for their political views may have ended with the Obama administration—or even with its exposure in 2013. But it could easily recur. Even now, an internal IRS rule singles out applicants for nonprofit status who might be tied to anything newsworthy.

The genesis of the targeting scandal was Section 7.29.3 of the Internal Revenue Manual. As noted in a report my organization is issuing Wednesday, this manual dictates how IRS employees handle everything from customer service to criminal investigations… Read More

 

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

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