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03/12/2019

IRS Gives Nod to Its Regulatory Noncompliance, Doesn’t Address Real Issues

The Internal Revenue Service (“IRS”) is notorious for flouting regulatory procedures that are designed both to legitimize the administrative state’s exercise of lawmaking power and to constrain the worst abuses of that authority through information gathering tools and judicial review.  One reason the IRS is able to avoid the traditional regulatory process is because the Anti-Injunction Act prevents most lawsuits that would invalidate rules that the IRS promulgates outside that process.

Last week, the IRS acknowledged some of those shortcomings in a policy statement announcing changes to the way it rolls out new rules.  These changes are on top of last year’s revocation of a decades-old exemption from White House pre-publication review and approval.

The Administrative Procedure Act (“APA”) has different processes for legislative and interpretative rules, i.e., rules that create new legal obligations on private parties and those that purportedly don’t.  The IRS has long maintained that nearly all its rules are interpretative and thus exempt from the APA and notice-and-comment regime.  This is a dubious claim, at best.  Notwithstanding this self-bestowed exemption, the IRS magnanimously still puts its supposedly interpretative rules out for notice and comment.  But it does so without following all of the required procedures, which it justifies by claiming that any process it is following is voluntary anyway, so it can follow which procedures it wants to.  In its policy statement, the IRS confirmed that it “will continue to adhere to [its] longstanding practice of using the notice-and-comment process for interpretive tax rules.”

IRS Won’t Seek Deference

An issue that has plagued the IRS is the use of subregulatory guidance to explain the IRS’s view on how it will apply statutes and regulations; these guidance documents often come in the form of revenue rulings, revenue procedures, notices, and announcements.  Although these documents are supposed to be interpretative and explanatory, in many cases they create new legal obligations and are thus actually legislative in nature.

For example, the IRS used a subregulatory mechanism to announce new “transactions of interest” that captive insurance companies must report to the IRS or face a penalty and enforcement.  This is a classic case of a new law that affects private parties that was slipped through in a policy document, without notice and comment, and which should be invalidated on those grounds.

The IRS now seems to be conceding the issue broadly, although not with regard to the example above, and announced in its policy statement that:

When proper limits are observed, subregulatory guidance can provide taxpayers the certainty required to make informed decisions about their tax obligations.  Such guidance cannot and should not, however, be used to modify existing legislative rules or create new legislative rules.  The Treasury Department and the IRS will adhere to these limits and will not argue that subregulatory guidance has the force and effect of law.  In litigation before the U.S. Tax Court, as a matter of policy, the IRS will not seek judicial deference under Auer v. Robbins, 519 U.S. 452 (1997) or Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), to interpretations set forth only in subregulatory guidance.

This is a positive development, but it remains to be seen whether IRS attorneys really will abide by the constraint when faced with a rule that they’re trying to save in court.  Further, the policy only applies in “litigation before the U.S. Tax Court,” and so will not apply when challenges are brought to federal district court, as many procedural challenges to rulemaking are.  Another limitation of the statement appears to be that the IRS is only forswearing seeking deference to interpretations of subregulatory tax guidance and not other rules that litigants might dispute the IRS has violated, such as the APA or the Regulatory Flexibility Act, which the IRS claims does not apply to nearly all of its rules.

“Good Cause”

One of the APA procedures the IRS sidesteps is providing “good cause” for when interim final rules become immediately effective upon publication.  Treasury and the IRS have decided to now “commit to include a statement of good cause when issuing any future temporary regulations under the Internal Revenue Code.”  This is a good, if minor, change and adherence to general practice used elsewhere in the government.

The biggest issue plaguing the IRS’s compliance with procedural rules that constrain the agency is the Anti-Injunction Act, which prevents many challenges that would clean up the IRS’s lack of compliance.  Unless and until there is a shift in judicial interpretation of that provision or Congress exempts Title 5 challenges to IRS rules, we will continue to see the IRS operate outside the bounds of standard administrative practice.  The IRS’s recent policy statement does nothing to change that.

James Valvo is counsel and senior policy advisor at Cause of Action Institute.

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03/12/2019

Busted During Sunshine Week: EPA Employees Still Appear to be Using Unauthorized Messaging Applications

Cause of Action Institute Urges Chairman Cummings to Investigate EPA Employees’ Violation of Disclosure & Records Retention Laws

Cause of Action Institute (CoA Institute), a nonpartisan strategic oversight group, sent a letter to U.S. Rep. Elijah Cummings, chairman of the U.S. House Committee on Oversight and Reform (Oversight Committee), on the eve of the committee’s hearing on transparency, to urge Chairman Cummings to investigate government employees using unauthorized messaging applications on their government devices to avoid and/or prevent disclosure, as required under federal law.

“We applaud Chairman Cummings for his commitment to government transparency and urge him to use the powers of his committee to determine why government employees can ignore government policies and federal law and use unauthorized messaging applications that thwart disclosure of government business,” said James Valvo, counsel and senior policy advisor at Cause of Action Institute. “The EPA promised it would clean up its act and eliminate unauthorized apps installed on government devices, but our investigation has found the EPA may have failed to take the necessary action, as a result, these unauthorized apps pose considerable harm to enforcing federal disclosure laws.”

By letter, the EPA informed the National Archives and Records Administration (NARA) that as of June 2018, the EPA had “completed its process” of disabling downloads of unauthorized applications subject to two minor exceptions, and removed most previously installed applications. However, CoA Institute uncovered evidence that 62.16 percent of all apps installed on EPA-furnished devices were unapproved applications, including the non-work-related or encrypted messaging applications that violate record retention and disclosure laws.

Cause of Action Institute, by letter, informed Chairman Cummings of this information in order to assist the Oversight Committee’s duty to reign in government abuses. CoA Institute also informed NARA and the EPA Inspector General of the findings.

The letter we sent to Chairman Cummings can be found below.
Background on our investigation can be found here and here.

###
Media Contact: Matt Frendewey, matt.frendewey@causeofaction.org | 202-699-2018

 

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03/1/2019

D.C. Court of Appeals Puts Free Speech, Media at Risk

Court refuses to rehear anti-SLAPP decision, exposing media outlets and nonprofits to defamation lawsuits

After a lengthy two-year delay, today the D.C. Court of Appeals denied the Competitive Enterprise Institute’s (“CEI”) motion for rehearing en banc asking the full court to review a decision that will expose media and nonprofit organizations throughout D.C. to lawsuits claiming their stories and commentary are defamatory.

The original decision arose from a lawsuit filed by Michael Mann, a climate scientist embroiled in the scandal to “hide the decline” in the Earth’s temperature record, against CEI and others who criticized his work.  CEI moved to dismiss the case under D.C.’s Anti-SLAPP statute, a law designed to prevent frivolous lawsuits that are used to harass people exercising their free-speech rights; in this case, their First Amendment right to debate important issues of public policy.  The D.C. trial court refused to dismiss the lawsuit, and CEI appealed.  The appellate court upheld the initial ruling and refused to dismiss the case.

CEI then moved for rehearing en banc and dozens of amici from across the ideological spectrum urged the D.C. Court of Appeals to rehear the case because of the significant impact on First Amendment rights and the huge amount of public policy debate that occurs in the District.  Cause of Action Institute filed one of those amicus briefs on behalf of Dr. Judith Curry, a climate scientist who Michael Mann has consistently harassed using methods similar to those he complains CEI used against him.  Today, the court refused to rehear the case, without a single judge asking for rehearing.  The court’s decision in effect declares open season on media and nonprofit organizations located in the District of Columbia.

It would appear the two options available to CEI now are either to ask the U.S. Supreme Court to hear the case or to go back to the trial court and fight the case on the merits.

James Valvo is counsel and senior policy advisor at Cause of Action Institute.

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10/23/2018

CoA Institute Files Brief in Support of Effort to Make Georgia Legislature Comply with Open Records Act

Files 50-state survey with Georgia Appeals Court

Cause of Action Institute (CoA Institute) filed an amicus brief today in support of a lawsuit requiring Georgia’s legislature to comply with the state’s open records act. The brief includes a 50-state survey on whether other state legislatures are subject to open records laws. The results of the survey show that 38 states provide the public with access to legislative records, while only a small minority, 11 states, exclude their legislatures from public-disclosure laws. Of those that exclude their legislature, eight states do so in express statutory terms.

The brief is in support of a lawsuit brought by the Institute for Justice (IJ) after they sent a series of public records requests to offices of the Georgia legislature seeking access to information about the state’s licensure requirement for music therapists. Yes, you read that correctly, licensure requirements for music therapists. The legislature claimed it was categorically exempt from Georgia’s open records law, and the superior court agreed. The case is now before the Georgia Court of Appeals.

CoA Institute’s survey reveals three important trends that should inform the Court’s decision:

  • When a state’s open records law does not cover the legislature, it’s usually explicitly statutorily exempt. Georgia law does not explicitly exempt the legislature;
  • In the absence of an express exclusion, broad terms are commonly interpreted to include the legislature, either in whole or in part; and
  • When there is any remaining ambiguity, the presence of statutory exemptions concerning specific legislative offices or records implies that the legislature must be covered; Georgia has these exemptions.

When IJ filed its requests, and the court below issued its order, the Georgia Open Records Act included two exemptions for legislative records. The first of these provisions exempted records from a series of legislative offices: the Legislative and Congressional Reapportionment Office, the Senate Research Office, and the House Budget and Research Office. The second provision, which is still in force, exempts certain records from the Office of Legislative Counsel. These offices are all contained within the legislative branch. Neither exemption would make any sense if the General Assembly were not, by default, covered by the Open Records Act.

To accept Georgia’s position, as adopted by the court, would render the Act’s explicit, narrow exemptions mere surplusage, violating a core canon of statutory construction. Therefore, the Court of Appeals should recognize that the presence of the exemptions for certain legislative offices as means that the broader legislature must be covered. This interpretation would conform Georgia’s approach to the broad trends that Cause of Action Institute identified in the 50-state survey.

The full amicus brief is available here.

James Valvo is Counsel & Senior Policy Advisor at Cause of Action Institute. You can follow him on Twitter @JamesValvo.

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10/15/2018

Cause of Action Institute Lawsuit Seeks to Overturn DOJ’s restrictive FOIA guidance

CoA seeks to correct the definition of a “record” to prevent federal agencies from unnecessarily redacting public information

Washington, D.C. (Oct. 15, 2018) – Cause of Action Institute (CoA Institute), a government watchdog organization, today filed a lawsuit against the U.S. Department of Justice (DOJ), challenging the Department’s definition of a “record” under the Freedom of Information Act (FOIA). DOJ’s guidance document classifies “records” only as the material requested in a FOIA request. This allows agencies to break a single record into multiple smaller records, redacting information that would otherwise be public and not meet allowable exemptions under the FOIA statute (e.g. releasing a single paragraph while redacting the rest of an email as a “nonresponsive record”). DOJ’s policy unnecessarily restricts public information that should not be redacted.

James Valvo, counsel and senior policy advisor at CoA Institute, issued the following statement:

“DOJ’s FOIA policy and misreading of the definition of a record under FOIA actively seeks to restrict access to public information beyond the scope of federal law. This is poor public policy, and an attempt to undermine laws that require the government remain transparent and accountable.”

Background:

  • The U.S. Department of Justice FOIA guidance document allows the agency, and others that rely on its guidance, to segment unified records into multiple smaller records to avoid disclosure.
  • This case seeks to establish, for the first time, a binding definition of a “record” under the FOIA.
  • Courts have held numerous times that FOIA contains only nine exemptions and agencies may not use “nonresponsive” as a tenth. (for example, personal identifying information, records that pertain to national security, etc.)
  • For more background on the legal issue, click here.

Attachments:

About Cause of Action Institute

Cause of Action Institute is a 501(c)(3) non-profit working to enhance individual and economic liberty by limiting the power of the administrative state to make decisions that are contrary to freedom and prosperity by advocating for a transparent and accountable government.

Media Contact:
Matt Frendewey
matt.frendewey@causeofaction.org
202-699-2018

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08/22/2018

OMB Grants CoA Institute Petition for Rulemaking, Begins Work to Update Its FOIA Regulations

Today, the White House Office of Management and Budget (“OMB”) published a notice of proposed rulemaking in the Federal Register to begin the process of updating its Freedom of Information Act (“OMB”) regulations.  By doing so, OMB has effectively granted a 2016 Cause of Action Institute (“CoA Institute”) petition for rulemaking.

In the June 2016 petition, CoA Institute urged OMB to update its 30-year-old FOIA fee guidelines, which now conflict with the statute and numerous judicial decisions and to which agencies across the government are required to conform.  We also asked OMB to update its own FOIA regulations, which had not been revised since 1998.  Congress has made at least two important amendments to the FOIA since then that OMB has not incorporated into its regulations.[1]  The impetus for CoA Institute sending this petition was to urge OMB to remove the anachronistic “organized and operated” standard from both the guidance and its own regulations’ definition of a “representative of the news media.”[2]

After being ignored for two years, CoA Institute filed suit claiming OMB had violated the Administrative Procedure Act by failing to respond to the petition.  Spurred to action by that litigation, on June 29, 2018, OMB finally responded.  Although the agency denied the petition to update its 30-year-old FOIA fee guidelines, it stated that it was “in the process of updating its FOIA regulations, including fee regulations, to reflect statutory changes and recent judicial decisions.”

Today, the agency published those proposed updates.  OMB has removed the “organized and operated” standard from its regulations and adopted the statutory definition for a “representative of the news media.”  However, it failed to heed CoA Institute’s advice that “OMB should clarify that, while a fee waiver may focus on the substance of a particular request, the news media fee status analysis “focus[es] on requesters, rather than requests[.]”  CoA Institute also asked OMB to embrace the D.C. Circuit opinion clarifying that the so-called middleman standard, which allowed agencies to deny preferential fee status if they felt the requester was only a middleman between the agency and the ultimate publishing source, was inappropriate.  OMB did not include any mention about the validity of the middleman standard in its new regulations.

Although CoA Institute is gratified that OMB has finally begun the process of updating its own FOIA regulations, it will continue the fight in its ongoing lawsuit to challenge OMB’s refusal to bring its 30-year-old FOIA fee guidelines—to which agencies across the federal government are required to conform—into compliance with the statute.

James Valvo is Counsel and Senior Policy Advisor at Cause of Action Institute.  You can follow him on Twitter @JamesValvo.

[1] See generally FOIA Improvement Act of 2016 and OPEN Government Act of 2007.

[2] See Cause of Action v. Fed. Trade Comm’n, 799 F.3d 1108 (D.C. Cir. 2015).

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07/6/2018

OMB Confirms Agencies Required to Disclose Earmarks, Declines to Enforce

The White House Office of Management and Budget (“OMB”) has confirmed that all executive branch agencies are required to disclose attempts by congressional and other outside force to influence the merit-based decision-making process for federal spending.  These efforts to earmark federal spending must be disclosed on agency websites within thirty days of their receipt.  But OMB has refused to issue new guidelines directing agencies to comply with the rule.

OMB’s reaffirmation came in a letter during litigation declining Cause of Action Institute (“CoA Institute”) and Demand Progress’s 2015 petition for rulemaking that asked the agency to enforce President George W. Bush’s Executive Order 13,457.

Background

In 2008, during the congressional debate over the earmark ban, President Bush issued EO 13,457, both to take a position in the ongoing debate and in an attempt to foreclose members of Congress from evading the ban by going directly to agencies.  Part of the order relied on transparency as a tool to dissuade these “executive branch earmarks” by requiring agencies to publish efforts to influence their decision making on their website within thirty days of receiving such communications.  The order also directed agencies not to fund these “non-statutory” earmarks.  Shortly after, OMB issued a memorandum instructing agencies how to comply with the order while implementing recent appropriations law.

CoA Institute had concerns that agencies were not complying with the order and conducted an investigation into which agencies were properly disclosing executive branch earmarks; only the Departments of Justice and Energy had published any meaningful content on their website.

In 2015, CoA Institute joined with Demand Progress and asked President Obama’s White House to depoliticize federal spending decisions by upholding the order.  We filed a petition for rulemaking asking the Obama OMB “to issue a rule ensuring the continuing force and effect of Executive Order 13457[.]”

In November 2017, after two years of not receiving a response, CoA Institute sued OMB over its failure to act on the petition.  With a new administration now in the White House, we urged President Trump’s OMB to issue updated guidance ensuring that agencies followed the order and disclosed earmarking efforts.

OMB Declines Petition, Confirms Executive Order Still in Effect

Due to the lawsuit, OMB has finally responded.  Although OMB declined to issue a new memorandum, it confirmed that “EO 13457 Remains In Force [because] No Executive Order has been issued that displaces, alters, or withdraws EO 13457 and [because] OMB is also not aware of any judicial decision vacating EO 13457.”


Therefore, agencies are still obligated both to refuse to fund non-statutory earmarks and disclose any attempts to influence their decisions within thirty days.  The Trump Administration, however, refuses to make them live up to their responsibilities.

James Valvo is Counsel and Senior Policy Advisor at Cause of Action Institute.  You can follow him on Twitter @JamesValvo.

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