Paul L. Caron

Wednesday, August 10, 2016

The IRS Scandal, Day 1189

IRS Logo 2The Surly Subgroup:  DC Circuit Seems to have Decided IRS Violated Constitution Before Trial in True the Vote Appeal, by Philip Hackney (LSU):

In 2014, a District Court dismissed (based on 12(b)(6) and 12(b)(1) motions) the complaint of a number of conservative organizations who alleged that the IRS “targeted” them by subjecting them to greater scrutiny in their applications for tax exemption. The lead organization, True the Vote, sought 501(c)(3) charitable organization status; the others primarily sought 501(c)(4) social welfare organization status. The world became aware of this targeting controversy in May 2013 when Lois Lerner, the head of the Exempt Organizations division of the IRS apologized to the Tea Party and other conservative groups for how the IRS treated their applications. To this day Taxprof Blog continues the IRS Scandal post over three years later dedicated at least in part to this controversy.

The primary complaints were the second and fifth claims:  (2) the IRS violated the organizations First Amendment rights to freedom of speech, and (5) the IRS violated the Administrative Procedures Act. The District Court concluded that because the IRS had granted exempt status to these organizations, the complaints were moot. True the Vote appealed this dismissal to the DC Circuit Court of Appeals.

Last week the Circuit Court breathed new life into claims 2 and 5. Though the Court found that some of the complaints were moot (including Bivens complaints against IRS employees and a claim of violation of 6103 disclosure rules), it allowed claims 2 and 5 forward because it found that the IRS had not voluntarily ceased its unlawful actions.

In reading the opinion, I find astonishing that the Circuit Court appears to have already concluded, without trial, that the IRS acted unconstitutionally. I recognize that for a 12(b)(1) motion the court is to assume the complaint true, but the court appears to have done much more than make assumptions. I focus on this issue.

Frankly a trial testing this situation seems to me the right thing for two reasons. First, many people in our country genuinely believe the IRS behaved unconstitutionally (as is evidenced by the continuing coverage given in places like Taxprof Blog). Second, the IRS failed numerous organizations in how it processed this group of applications that touched on First Amendment issues. These two factors suggest to me that the organizations involved deserve a real hearing and not just a pre-trial dismissal.

What worries me is that the DC Circuit Court judges appear to have already judged the case; I find that as problematic as what the DC Circuit Court judges find problematic in the IRS actions at issue. Remember, the issue before the appeals court is a 12(b)(1) motion to dismiss for lack of subject matter jurisdiction because the IRS had approved the applications for tax exemption and there was no case to be decided by the court. Thus, no one has presented evidence or law in a trial on the substantive issues before the court. The court is to take the allegations as true for purposes of the motion but should give those claims close scrutiny. The DC Circuit though seems to do much more than assume the complaint is true.

The court starts its opinion stating: “Instead of processing these applications in the normal course of IRS business, as would have been the case with other taxpayers, the IRS selected out these applicants for more rigorous review on the basis of their names, which were in each instance indicative of a conservative or anti-Administration orientation.” Later in the opinion it continues: “It being plain to the Inspector General, the district court, and this court that the IRS cannot defend its discriminatory conduct on the merits, the governing issue is now whether the controversy is moot.” There is a lot of nonsense in those statements.

Because I don’t believe that the IRS failed by using names to screen applicants nor in picking out the conservative groups’ applications for closer scrutiny (as I discussed in an article called Should the IRS Never ‘Target’ Taxpayers), and I don’t believe any credible evidence has been put forward establishing that IRS employees acted with any intent to harm conservative causes, I feel like I am living in bizarro world to read a US appeals court opinion that states without a trial fairly establishing the law and facts that the these actions violated the constitution. I will take a look at separate parts of the statements to explain what I mean. ...

Perhaps the court’s opinion is nothing but dicta except for the holding that the case is not moot. But it is not at all clear that this is the way this opinion will be used. It is fine if the DC Circuit Court wants to see this case go forward, but it should let this case go forward without judging the case before it hears any evidence or law in a trial. The IRS, just like the conservative organizations, deserves to be treated with respect and fairness.

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Mr. Rasmusen: There can be no monetary liability assessed in this case, based on the D.C. Circuit’s decision. The Court of Appeals affirmed the dismissal of the Bivens counts against the individuals, along with the wrongful disclosure counts against the U.S. The former would have permitted money damages against the individuals, while the latter would have permitted claims for “actual” damages against the United States. Both sets of counts were dismissed. Slip op. 5, 7, 10. What survived are the APA claims for declaratory and injunctive relief, i.e., requests for equitable relief requiring the IRS to cease from using BOLO lists and to complete the processing of the various plaintiffs’ IRC 501(c)(4) claims. It is not clear how declaratory relief would lie, since the Declaratory Judgment Act, by its terms does not pertain to federal taxes.

As for FRCP 11 sanctions, perhaps you would be kind enough to cite a case where a litigant or its lawyers have been sanctioned for defending a district court decision on appeal.

Posted by: Publius Novus | Aug 11, 2016 12:48:59 PM

I don’t believe any credible evidence has been put forward establishing that IRS employees acted with any intent to harm conservative causes

Except the IRS admitted they did and apologized for doing so right before they began obstructing and lying to the courts, congress, and the American people.

And regardless of intent to harm, there was intent to target and use process as punishment, and the effects of Obama's IRS's program of persecution were harmful.

Posted by: wodun | Aug 10, 2016 9:16:45 PM


You still haven't answered key statutory questions put to you:

Your reputation as an authority on federal law hangs in the balance...

Posted by: MM | Aug 10, 2016 7:03:44 PM

Professor Hackney needs to pay a visit to Judicial Watch and read the documentation obtained from the FBI Investigation before he tarnishes his spotty reputation for honesty and accuracy.

Posted by: Joe R | Aug 10, 2016 3:16:22 PM

The court shouldn't have said, “It being plain to the Inspector General, the district court, and this court that the IRS cannot defend its discriminatory conduct on the merits, the governing issue is now whether the controversy is moot.”, but of course it is dictum. The plaintiffs can't use this statement to tell the trial judge that they've already won the case. The statement is true, of course. It's plain to everyone that the IRS can't defend its actions, generally speaking, and it hasn't even tried. Instead, it halted them and the Commissioner was fired. On the other hand, what isn't perhaps so plain, and what the trial court must formally rule on, is whether those indefensible actions induce monetary liability to the plaintiffs.
The appeals court was impatient with the IRS for bringing a frivolous mootness argument (it's frivolous even if the trial judge agreed with it). So the court was brusque, and perhaps careless, because the law was so obvious. But it would have been better if the court had imposed rule 11 penalties instead.

Posted by: Eric Rasmusen | Aug 10, 2016 2:40:08 PM

OMG Prof. Hackney, what haaaaaave you done? Heads will surely explode.

Posted by: Publius Novus | Aug 10, 2016 7:46:16 AM