Paul L. Caron

Sunday, April 3, 2016

The IRS Scandal, Day 1060

IRS Logo 2Stuart Bassin (Bassin Law Firm, Washington, D.C.; former Senior Litigation Counsel, U.S. Department of Justice Tax Division), Sixth Circuit Requires IRS to Disclose Return Information of Non-Parties in Tea Party Exempt Organization Litigation:

Last week, the Sixth Circuit rejected a government mandamus petition seeking to overturn a trial court discovery order requiring the Service to disclose the names of non-party organizations whose applications for tax exempt status were allegedly treated improperly because of the organization’s political views. In re United States; United States v. NorCal Tea Party Patriots, Case No. 15-3793 (March 22, 2016).

The underlying case arose out of allegations that the Service discriminated against conservative organizations in reviewing applications for tax-exempt status.  According to the plaintiffs, the Service gave increased scrutiny to some organizations in reviewing their applications and, in some cases, requested additional and unnecessary information from the applicants to delay review of their applications.  Substantively, the plaintiffs’ legal claims assert violations of the First Amendment and the Section 6103 prohibition against disclosure of taxpayer return information.  Earlier this year, the trial court certified the case as a class action, a development I discussed in an earlier post in Procedurally Taxing.

The dispute before the Court of Appeals involved a discovery order issued by the trial court requiring the Service to identify other taxpayers whose applications for exempt status received comparable scrutiny–information the taxpayers sought in hopes of identifying additional class action plaintiffs. The Service resisted, contending that the disclosure was barred by Section 6103. The district court, expressing exasperation with the Service’s interference with the case’s development, ordered production of the information, ruling that disclosure was authorized under Section 6103(h)(4)(B) because the information was reflected in a return “directly related to the resolution of an issue” in litigation. The Government then filed its petition for writ of mandamus.

The Court of Appeals ultimately affirmed the order allowing the discovery, taking several opportunities to criticize the Service’s actions and the Justice Department’s advocacy. ... [T]he tone of the opinion should be of great concern to the Government. Both the appellate panel and the trial court have made clear their impatience with, and distaste for, the Government’s procedural challenges to the taxpayer’s claims. Every indication is that the courts are willing to rule against the Government if the taxpayers’ assertions of disparate treatment are proven at trial, although it will be interesting to see what remedy will be allowed. The Government can continue fighting, but that seems to be an uphill battle and a battle which may produce further precedent that the Service will not like.

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Not exactly Mr. wodun. The discovery issue was whether the confidentiality provisions of 26 U.S.C. prohibits the IRS from disclosing to the putative class reps the identities of the potential class. The Sixth Circuit, in a novel and unprecedented interpretation of the applicable law, concluded that section 6103 does not provide protection to the taxpayers who may or may not wish to have their identities revealed to the public through class discovery. The issue had nothing to do with traditional notions of standing.

Posted by: Publius Novus | Apr 4, 2016 11:08:23 AM

Lol Publius. They were claiming the IRS has no standing to use privacy rules to prevent the court or the plaintiffs from finding out who was on the IRS's list of victims targeted for persecution for belonging to groups the Democrats view as enemies.

Posted by: Wodun | Apr 3, 2016 3:20:52 PM

In the original blog on this article, Jack Townsend makes the rather astute observation that the Sixth Circuit's ruling may have eliminated the plaintiffs' second claim, which alleges violations of 26 U.S.C. 6103. The Sixth Circuit seems to have said that applications for exempt status are not protected either by secs. 6103 or 6104. This is plainly wrong under a substantial amount of prior precedent. Nevertheless, if the applications are not protected from public disclosure, then how could they be protected from internal IRS disclosure (the apparent claim in the complaint, to the extent it can be understood)? Very interesting Mr. Townsend. Thank you.

Posted by: Publius Novus | Apr 3, 2016 9:44:58 AM