Paul L. Caron
Dean


Tuesday, August 2, 2016

The IRS Scandal, Day 1181

IRS Logo 2Judicial Watch Press Release, FBI Interviews with Cincinnati IRS Employees Reveal DC Headquarters Delayed Tea Party Applications:

Judicial Watch today released 105 pages of newly obtained Federal Bureau of Investigation (FBI) “302” documents revealing that, beginning in 2010 and lasting through the Obama reelection campaign in 2012, the Obama IRS orchestrated a deliberate policy of burying conservative groups’ tax exemption applications in bureaucratic delays. Interviews with numerous Cincinnati IRS employees in mid-2013 reveal that “Tea Party” group applications were automatically denied approval and assigned to a special “Group 7822” for an extended “inventory” process while waiting for decisions from IRS headquarters in Washington, DC.  One IRS manager “asked why progressive cases were not segregated similar to the Tea Party cases, but she did not get any satisfactory answers.”  FBI “302” documents are detailed narratives of FBI investigation interviews. The Obama Justice Department and FBI investigations into the Obama IRS scandal resulted in no criminal charges.

According to a Cincinnati “Group Manager” interview in July of 2013:

Group 7822 was composed of 12 to 15 people and was simply a place for the Tea Party cases to be held in inventory while the agent waited to receive guidance from the Washington office. There had been no precedence previously on these issues. If the case said it supports politics and political activity, it would be put into Group 7822. [Redacted] and then [Redacted] held the cases in inventory.

A second Cincinnati Group Manager interviewed in July 2013 told the FBI 302 interviewers a similar story, pinning the blame directly on the IRS Washington headquarters:

In the 14-month period when [Redacted] had the cases, he would ask for updates on guidance and was told they were still waiting on DC. He recalls receiving emails with contradictory guidance on whether the 501-c-3 or 501-c-4 cases should be denied. It was his understanding that a team would come and work the Tea Party cases when the guidance was provided … Nobody told him directly where the delay was in resolving the Tea Party issue. DC is like a black hole.

The FBI 302 interviews with Cincinnati IRS employees reveal that the agency adopted a series of policies assuring that Tea Party and other conservative group tax exempt applications would not be approved before the November 2012 presidential election. The strategy relied upon the IRS’ multi-tier “bucketing” system that determined from the time an application was received whether it would be quickly approved or indefinitely delayed.

https://taxprof.typepad.com/taxprof_blog/2016/08/the-irs-scandal-day-1181.html

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Comments

Here's a tidbit from the documents, taken from a July 2013 interview with a grade 12 Revenue Agent:

"When Lois Lerner recently made public statements about the IRS handling of the Tea Party cases, the 'rogue agents' comment did not make any sense to him, because he did not think anyone in Cincinnati did anything wrong. It bothered him. He believes the problem was getting a response from Washington. People developing cases would not receive feedback from Washington for a long time."

Is that a bureaucratic bug, or feature? Interesting how the "bucketing" delays which which started in mid-2012 kept going until after the election...

Posted by: MM | Aug 2, 2016 8:50:21 PM

Process as punishment.

Posted by: wodun | Aug 2, 2016 10:19:53 PM

Anyone who has ever worked against, with, or inside the IRS knows four immutable facts about the agency: 1) IRS management is obsessed with uniformity; 2) IRS employees, at least since 1976, are timid and have become increasingly so since the 1998 restructuring act; 3) “even” the IRS and Chief Counsel do not fully understand the IRC; and 4) the IRS--management, employees, and Chief Counsel--operate at glacial speed, both figuratively and literally.

Fact #1 is a good thing, except when as here, it has completely consumed the process (thank you Mr. Wodun). #2 is the result of the “10 Deadly Sins” legislation, which scared and still scares the tar out of every IRS employee who is not independently wealthy (in other words, all but one or two employees). The possible loss of an employee’s retirement pension, whether realistic or no, hangs like the sword of Damocles over middle-class IRS employees’ heads. #3 requires no explanation, as I am sure even the right-wingers reading this agree. #4 is the inevitable result of the first three, especially when underlain by chronic underfunding.

Since the beginning of the “scandal,” I have been suggesting that these four characteristics of the agency, in various combinations and permutations, explain most if not all of the “scandalous” conduct. Add in the demonstrated arrogance and incompetence of Lerner, and criminal misconduct by anyone is highly unlikely. This last batch of documents from Judicial Watch, despite Mr. Fitton’s best effort to spin them into something dark and criminal, support the foregoing.

Posted by: Publius Novus | Aug 3, 2016 8:17:30 AM

PN: Why 1976? Full disclosure, my time was 1977-1980.

Posted by: Dale Spradling | Aug 3, 2016 3:46:54 PM

Publius,

"Add in the demonstrated arrogance and incompetence of Lerner, and criminal misconduct by anyone is highly unlikely."

Could you explain how Lerner complied with 18 U.S. Code § 1905 and 26 U.S. Code § 6103 when she sent millions of pages of 501(c)(4) tax returns en masse to the Justice Department in 2010 without a specific request or referral? The law requires that such disclosures be reported to the Joint Committee on Taxation so the public can stay informed, and there's no evidence that it was ever followed.

Posted by: MM | Aug 3, 2016 7:03:28 PM

PN, your 4 points do not explain why nobody looked in the obvious places for copies of Lerner's "lost" emails. You need a fifth point, that it's perfectly acceptable to stonewall subpoenas and to abide by a code of silence that protects all employees, good or bad. Then you have a nearly complete explanation.

Posted by: AMTbuff | Aug 4, 2016 6:20:29 AM

Mr. Spradling: I chose 1976 because it corresponds to the Tax Reform Act of 1976. TRA76 included the first law designed to punish IRS/Chief Counsel employees (and other federal employees handling tax information) for negligent disclosures. The original law, IRC § 7217, allowed civil suits against individual employees. Reagan wisely had this provision modified (26 U.S.C. § 7431) to suits against the United States in his 1981 tax act. I will not quibble with you about whether it was 1976 or 1977. The latter year may be more accurate.

Mr. MM: 18 U.S.C. § 1905 has no application to the IRS or Chief Counsel, which are subject to their own anti-disclosure statute, 26 U.S.C. § 6103. As for your § 6103 issue, I have written about this several times. 26 U.S.C. § 6103(h)(2) authorizes disclosure of returns and return information by the IRS/Chief Counsel to DOJ for the purpose of tax-related criminal investigations. No DOJ request is required; the disclosures may be initiated by the IRS/Chief Counsel. In fact, the great majority of federal tax cases–civil and criminal–are initiated in this way, although most are made from Chief Counsel to the DOJ Tax Division. The Criminal Division has a more limited role in tax prosecutions, but pursuant to DOJ regs (28 C.F.R.), is responsible for some types of tax investigations. It is possible, even likely, that Lerner’s disclosures to the Criminal Division were permissible, depending on the facts. My point has always been, and continues to be, that the known facts about Lerner’s disclosures do not incontrovertibly make out a § 6103 violation. As for reporting to Congress, neither IRS nor Chief Counsel is required to report subsec. (h) disclosures. As a practical matter, subsec. (h) disclosures are far too numerous to track–tens of thousands of (h)(1) inspections and disclosures occur within the IRS and Chief Counsel every working day. The reporting requirements to which you refer are contained in subsec. (g), which is concerned with disclosures of returns and return information to the president and the WH staff. It should be clear even to the uninitiated that the Lerner-to-Criminal Division disclosures did not involve the WH.

Mr. AMT: No one looked in “obvious” places for Lerner’s emails? They looked on IRS servers and hard drives of Lerner and Lerner’s customary correspondents. Those seem like the obvious places. They also looked in less obvious places.

Posted by: Publius Novus | Aug 5, 2016 8:14:59 AM

Publius,

"18 U.S.C. § 1905 has no application to the IRS or Chief Counsel."

I see no such exemption in the U.S. Criminal Code for Treasury Dept. officials. In fact, it begins: Whoever, being an officer or employee of the United States or of any department or agency thereof...

Could you please cite the statute exempting Treasury Dept. officials from the U.S. Criminal Code dealing with unlawful disclosure of confidential tax returns?

"As for reporting to Congress, neither IRS nor Chief Counsel is required to report subsec. (h) disclosures."

As I read the statute, the requirement is that all disclosures be reported to the Joint Committee on Taxation, with an exception being for internal Treasury Dept. tax investigations under subsection (h)(1). There are no exceptions mentioned for Justice Dept. tax investigations, which are under subsection (h)(2).

I'll quote the requirements of the statute:

26 U.S. Code § 6103 (p)(3)(a)
"The Secretary shall maintain a permanent system of standardized records or accountings of all requests for inspection or disclosure of returns and return information (including the reasons for and dates of such requests) and of returns and return information inspected or disclosed."

26 U.S. Code § 6103 (p)(3)(b)
"The Secretary shall, within 90 days after the close of each calendar year, furnish to the Joint Committee on Taxation a report with respect to, or summary of, the records or accountings described."

26 U.S. Code § 6103 (p)(3)(c)
"The Secretary shall, within 90 days after the close of each calendar year, furnish to the Joint Committee on Taxation for disclosure to the public a report with respect to the records or accountings described."

Could you please show how the IRS complied with 26 U.S. Code § 6103 (p)(3) in this case? Or could you please cite the statute exempting the IRS from complying with disclosure requirements in a Justice Dept. tax investigation?

I'd really like to know, as I'm sure other concerned citizens would also...

Posted by: MM | Aug 5, 2016 6:02:43 PM

Oh, and Publius:

Could you explain how the IRS complied with 44 U.S.C. § 3106 when in Mar. 2014 backup tapes containing at least 1,000 of Lerner's emails, first subpoenaed in Aug. 2013, were disposed of?

And lest you claim authority over Federal Records Act interpretation, David Ferriero, the Archivist of the United States for the National Archives and Records Administration, testified before Congress that the IRS “did not follow the law” in this case.

Posted by: MM | Aug 5, 2016 7:50:41 PM

The most obvious place to recover lost data is the backup system. The IRS had such a system, IIRC not segregated by user so not convenient to use. But the data was there until it was erased later.

If the IRS had been hunting data it cared about, such as a taxpayer's hidden assets, it would have diligently searched. I infer that in this case management was indifferent at best to success of the effort.

Posted by: AMTbuff | Aug 6, 2016 12:11:47 AM

Mr. MM: 28 U.S.C. § 1905 also contains the following language–“except as authorized by law.” The laws that authorize the IRS and DOJ actions, with respect to tax-related cases are 26 U.S.C. §§ 6103, 6104, 6105, and a few other IRC provisions. Because of the “except as authorized by law” clause, sec. 1905 generally does not apply to IRS, Chief Counsel, and DOJ employees and officials when dealing with tax returns and return information.

As for the reporting requirements, you keep shifting your secenarios. Your scenario above is: “[Lerner] sent millions of pages of 501(c)(4) tax returns en masse to the Justice Department in 2010 WITHOUT A SPECIFIC REQUEST or referral.” (Please excuse the caps for emphasis added.)

26 U.S.C. § 6103(p)(3), as correctly quoted by you above, applies only to situations where the IRS has received a request for returns or return information (“The Secretary shall maintain a permanent system of standardized records or accountings OF ALL REQUESTS for inspection or disclosure of returns and return information . . .”). So the answer to your hypothetical is simple: you specified a situation in which there was no “specific request” that would have triggered the reporting requirement; Lerner initiated the disclosures without a request. No request, no report. As I explained above, the vast majority of disclosures of returns and return information by IRS/Chief Counsel is initiated by the Chief Counsel, without a request from DOJ.

Posted by: Publius Novus | Aug 9, 2016 6:46:40 AM

Mr. MM: Sorry, I didn’t have time for 44 U.S.C. § 3106 this morning. Basically, I don’t see the relevance of the FRA to your discussion. Yes, the IRS destroyed some backup tapes that should not have been destroyed. (I doubt this is a unique occurrence among federal agencies.) And yes, the Archivist opined that the FRA had been violated. Apparently, the Archivist was able to look into the hearts of the IRS employees who did the shredding, and determined that they did it with an intent to violate the FRA. (My tongue is in my cheek, here.) But the Archivist’s opinion, along with $4.19, will get you a nice grande, skim, cappuccino at Starbucks. (Tongue still in cheek.) Part of the problem with the FRA is that it has no direct, private cause of action attached to it; second, it also assumes and relies upon an assumption that an agency head has panoramic knowledge of the agency’s day-to-day records management; third, it has a cumbersome feature by which the agency head, equipped with her panoramic knowledge of the minutiae of daily agency records disposition, makes an enforcement request to the AG to file a suit to enjoin an imminent violation of the FRA. Which makes you wonder, why wouldn’t the agency head simply direct her subordinates to shape up?

About all an agency head can do is make sure the agency’s records handling procedures are in line with FRA requirements, and when litigation holds are appropriate, ensure that there are procedures in place to see that they are disseminated agency-wide. Commissioner Koskinen issued a timely and appropriate litigation hold and caused it to be properly disseminated it. Not everyone read the memo, obviously. Bottom line: Agency heads can’t monitor records management agency-wide on a daily basis (nor should they). BTW, in case you didn’t know it, agency records management isn’t exactly a fast-track career path to the top, nor is it attractive to the agency’s best and brightest. (Yes, mommy, when I grow up I want to be a records management specialist at the IRS!) Have you ever spoken with a GS-2?

Posted by: Publius Novus | Aug 9, 2016 12:43:43 PM

Publius,

The "except as provided by law" clause you mention in 18 U.S. Code § 1905 presupposes that other laws governing the handling of confidential tax information have been followed. So there is no exemption from the U.S. Criminal Code for IRS officials who violate other statues, as you originally claimed.

Regarding disclosures of confidential tax information to the DOJ, 26 U.S.C. § 6103 (h)(2) is quite clear. This is only permitted under specific circumstances, per the statute:

"In a matter involving tax administration, a return or return information shall be open to inspection by or disclosure to officers and employees of the Department of Justice personally and directly engaged in, and solely for their use in, any proceeding before a Federal grand jury or preparation for any proceeding, or investigation which may result in such a proceeding, before a Federal grand jury or any Federal or State court."

And: "In any case in which the Secretary is authorized to disclose a return or return information to the Dept. of Justice pursuant to the provisions of this subsection, if the Secretary has referred the case to the Department of Justice... the Secretary may make such disclosure on his own motion."

Or: "If the Secretary receives a written request from the Attorney General, the Deputy Attorney General, or an Assistant Attorney General for a return of, or return information relating to, a person named in such request and setting forth the need for the disclosure, the Secretary shall disclose return or return the information so requested."

Additionally, from the IRS Handbook (11.3.22.12.1) governing disclosure restrictions with the DOJ:

“The IRS may disclose returns and return information to officers and employees of the Dept. of Justice personally and directly engaged in, and solely for their use in, any Federal grand jury proceeding...” and if “the returns or return information pertain to a taxpayer who is or may be a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer’s civil or criminal liability, or the collection of such civil liability in respect of any tax imposed.”

As I read the law, a request from or referral to the DOJ regarding a specific tax administration case is required before disclosure of such information is permitted to officials outside the IRS. And I read no exemption for reporting such disclosures to the Joint Committee on Taxation per 26 U.S. Code § 6103 (p)(3).

So I ask you again: Could you please show how and where federal law permitted Lerner to disclose millions of pages of confidential tax information, almost every 504(c)(4) organization in existence at the time, to the DOJ without a request or referral, and without reporting the disclosures to the Joint Committee on Taxation the year after it happened?

And what was the “case” or “proceeding” here, specifically? What legal precedent is there for a Federal grand jury to be empaneled to investigate all 504(c)(4) organizations. carte blanche? That has the appearance of a fishing expedition, albeit using information that is supposed to remain confidential.

And this question I posed above to you remains unanswered:

Could you explain how the IRS complied with 44 U.S.C. § 3106 when in Mar. 2014 backup tapes containing at least 1,000 of Lerner's emails, first subpoenaed in Aug. 2013, were disposed of? David Ferriero, the Archivist of the United States for the National Archives and Records Administration, testified before Congress that the IRS “did not follow the law."

Posted by: MM | Aug 9, 2016 1:57:04 PM

Publius,

Your opinion on the FRA is noted. The President wasn't so cavalier when he signed H.R. 1233 in 2014, which granted the National Archives final say in what constitutes a federal record. You may think it's fine for unelected bureaucrats to coincidentially destroy documents being requested in an investigation, but any open-minded citizen concerned about government transparency would view that as circumstantial evidence of guilt.

The relevance to this case, which you either missed or just ignored, is that the records destroyed were under subpoena. That suggests a violation of 18 U.S. Code § 1519, similar to Clinton's email affair. Additionally, a violation of 44 U.S.C. § 3106 need not include intent as the statute merely states that the destruction of records for any reason must be reported to the Archivist, which didn't happen in this case, who would then refer the case to the DOJ for investigation, which again didn't happen in this case.

The bottom line is, contrary to your constant assertions in these parts going back years, this is no imaginary conspiracy. Federal laws have arguably been violated, and of course the only possible legal remedy, the DOJ, does nothing about it. It's also part of an extensive pattern of behavior at the IRS that has the appearance of corruption all over it...

Posted by: MM | Aug 9, 2016 8:43:14 PM

Mr. MM: I think we will have to agree to disagree. Your interpretation of the self-initiating disclosures of subsection (h)(2) is simply wrong–there is no requirement that DOJ make a request to the IRS. Think about what you are suggesting; under your interpretation, a tax case legally could not go forward unless DOJ made a request for IRS disclosures from the IRS. But it is the IRS that investigates tax cases, not the DOJ. How would DOJ know there is a case if the IRS didn’t make the referral (referrals necessarily disclose “return information,” i.e., the fact that someone was investigated by IRS for possible IRC non-compliance) in the first instance? IRS (through its Chief Counsel) requests the DOJ to initiate or defend legal actions, not vice-versa. Initial requests from DOJ to the IRS are relatively rate, generally occurring only when the DOJ uncovers potential tax fraud during a non-tax criminal investigation or court case.

28 U.S.C. § 1519 is not implicated here because the subpoena in question was issued by a congressional committee. Congress and congressional committees are not “any department or agency of the United States.”

A grand jury is a fishing expedition. The grand jury does not depend on a case or controversy for power to get evidence, but can investigate merely on suspicion that the law is being violated, or even just because it wants assurance that it is not. That is one of its purposes. The purpose of a grand jury is not to accuse, but to inquire. You probably think the IRS needs probable cause to investigate a taxpayer. It doesn’t. The IRS’ power of inquiry is analogous to that of the grand jury. U.S. v. Powell, 379 U.S. 48, 57 (1964).

As for the FRA, I didn’t write that it required intent, only my satirical comment that the Archivist must be a mind-reader. The point about the FRA is that it has no teeth (nor was it intended to). A violation of the FRA carries no penalty, even when it is violated, intentionally or otherwise. I do not suggest that document destruction is okay. But it happens in large organizations, both public and private. Sometimes such misfeasance is intentional. The vast majority of the time it is accidental or otherwise unintentional. It is always unfortunate, but you can’t get blood out of a turnip.

Posted by: Publius Novus | Aug 10, 2016 10:11:24 AM

Publius:

Last chance to clear this up:

Would you please quote the statute(s) allowing the IRS to disclose bulk *confidential tax information* to another agency without a referral or request?

Would you quote the statute(s) exempting the IRS from reporting such bulk disclosures of *confidential tax information* to the Joint Committee on Taxation?

Would you quote the statute(s) allowing the DOJ to receive such disclosures of bulk *confidential tax information* in the absence of a specific case or grand jury proceeding?

Obviously, you have no concern about the federal government violating its own civil and criminal statutes. But I imagine every citizen as skeptical as I am about how the federal government exercises its statutory powers would like to know exactly how and where such authority comes from, specifically, quoted and not paraphrased.

It's really that simple: Please quote the statute(s) that allow the IRS and DOJ to share bulk *confidential tax information* in secret and without a paper trail.

Unless you think this should never have been brought to light? If you don't think the FOIA and government transparency is a good idea, then by all means be frank about it...

Posted by: MM | Aug 11, 2016 1:51:24 PM

Pubs,

I've spent the time and done my homework on this issue, and quoted the relevant statutes. The least you can do is the same.

And on the issue of record subpoenas: A prosecutor can infer intent from the destruction of documents requests. A prosecutor can infer intent when an official pleads the 5th Amendment. A prosecutor can infer intent when an official makes false public statements.

You're quite certain that no statutes were violated. Well, I'm quite certain that no prosecutor in the DOJ was allowed to investigate this case objectively.

Can I prove that? No. And it doesn't matter, because according to your reasoning, the public has no right to know what decisions go on between the DOJ and IRS.

Ironic!

Posted by: MM | Aug 11, 2016 2:03:21 PM