Taxable Talk

An appeals court decision today should end speculation on Democrats’ claims that the IRS scandal is a non-event. The Sixth Circuit Court of Appeals heard an appeal last week. The NorCal Tea Party Patriots had filed a class action suit regarding the IRS’s conduct in dealing with applications for non-profit status as a 501(c)(4) organization. The District Court had ordered the IRS to comply with discovery requests. The IRS asked for a “writ of mandamus;” basically, an order to stop the discovery. The first two paragraphs of the decision get to the crux of the matter:

Among the most serious allegations a federal court can address are that an Executive agency has targeted citizens for mistreatment based on their political views. No citizen—Republican or Democrat, socialist or libertarian—should be targeted or even have to fear being targeted on those grounds. Yet those are the grounds on which the plaintiffs allege they were mistreated by the IRS here. The allegations are substantial: most are drawn from findings made by the Treasury Department’s own Inspector General for Tax Administration. Those findings include that the IRS used political criteria to round up applications for tax-exempt status filed by so-called tea-party groups; that the IRS often took four times as long to process tea-party applications as other applications; and that the IRS served tea-party applicants with crushing demands for what the Inspector General called “unnecessary information.”

Yet in this lawsuit the IRS has only compounded the conduct that gave rise to it. The plaintiffs seek damages on behalf of themselves and other groups whose applications the IRS treated in the manner described by the Inspector General. The lawsuit has progressed as slowly as the underlying applications themselves: at every turn the IRS has resisted the plaintiffs’ requests for information regarding the IRS’s treatment of the plaintiff class, eventually to the open frustration of the district court. At issue here are IRS “Be On the Lookout” lists of organizations allegedly targeted for unfavorable treatment because of their political beliefs. Those organizations in turn make up the plaintiff class. The district court ordered production of those lists, and did so again over an IRS motion to reconsider. Yet, almost a year later, the IRS still has not complied with the court’s orders. Instead the IRS now seeks from this court a writ of mandamus, an extraordinary remedy reserved to correct only the clearest abuses of power by a district court. We deny the petition.

Oh, but hasn’t the IRS cooperated with the lawsuit? Hardly. “On the record before us here, the IRS’s response has been one of continuous resistance.” The Court is also making a point by the speed of the decision. This case was heard on March 16th; the decision was released on March 22nd. The Court is sending a message to the IRS: Stop the delaying tactics!

There’s a lot more in this decision, and I hope some tax blogger with far more free time than I do opines on the decision. I’ll end with the Court’s conclusion:

In closing, we echo the district court’s observations about this case. The lawyers in the Department of Justice have a long and storied tradition of defending the nation’s interests and enforcing its laws—all of them, not just selective ones—in a manner worthy of the Department’s name. The conduct of the IRS’s attorneys in the district court falls outside that tradition. We expect that the IRS will do better going forward. And we order that the IRS comply with the district court’s discovery orders of April 1 and June 16, 2015—without redactions, and without further delay.

Case: United States v. NorCal Tea Party Patriots, et al

Yes, I’m still on vacation. But twin developments in the IRS scandal force me to post. Yesterday, the IRS released documents to Judicial Watch regarding the IRS scandal. Judicial Watch had sued the IRS under the Freedom of Information Act (FOIA) to obtain the documents.

I need to be brief (I am on vacation), so I’ll just include the summary page:

“These recovered Lois Lerner emails had to be dragged out of the Obama IRS, which is still resisting a federal court order requiring disclosure of Lerner’s ‘lost’ emails,” said Judicial Watch President Tom Fitton. “This material shows that the IRS’ cover-up began years ago. We now have smoking-gun proof that top officials in the Obama IRS unlawfully harassed taxpayers just to keep them from complaining to Congress about IRS’ targeting and abuse. No wonder the Obama IRS has had such little interest in preserving or finding Lois Lerner’s emails.”

Yes, the IRS lied to Congress. There’s no other way of putting it. And to me it seems more and more likely that someone in the Administration ordered the targeting.

Today was a scheduled “status hearing” in Judicial Watch’s FOIA lawsuit. Judge Sullivan was not happy with the IRS. He issued the following order:

At the July 29, 2015 status hearing, the Government agreed that the Court’s July 1, 2015 oral order from the bench was clear and enforceable. Nonetheless, the Government reasoned it inappropriate to file a motion for reconsideration until a written order was issued. As expressed at the hearing, the Government’s reasoning is nonsensical. Officers of the Court who fail to comply with Court orders will be held in contempt. Also, in the event of non-compliance with future Court orders, the Commissioner of the IRS and others shall be directed to show cause as to why they should not be held in contempt of Court. The Court’s July 1, 2015 ruling from the bench stands: (1) the Government shall produce relevant documents every Monday; (2) the Government’s document production shall be accompanied by a status report that indicates (a) whether TIGTA has turned over any new documents to the IRS, (b) if so, the number of documents, and (c) a timeframe for the IRSs production of those documents. Signed by Judge Emmet G. Sullivan on July 29, 2015.

Judge Sullivan is definitely annoyed with the IRS and the Department of Justice’s conduct in this case. I’ll again note Judicial Watch’s summary as it really says it all:

“In a dramatic court hearing today, Judge Sullivan made it clear he would personally hold accountable the IRS Commissioner Koskinen and Justice Department attorneys for any further contempt of his court orders in Judicial Watch FOIA lawsuit,” said Judicial Watch President Tom Fitton. “The missing and-then-not missing Lois Lerner saga is a stark example of the Obama administration’s contempt for a federal court and the rule of law. That Obama administration officials would risk jail rather than disclose these Lerner documents shows that the IRS scandal has just gotten a whole lot worse.”

I now return to my regularly scheduled vacation.

Remember the IRS Scandal? Well, the nuggets continue to drip out. On Friday, Judicial Watch announced that “New Documents Show IRS Used Donor Lists to Target Audits.” Here’s an excerpt:

But then, in February 2011, at least five donors of an unnamed organization were audited.

The documents show that Crossroads GPS, associated with Republican Karl Rove, was specifically referenced by IRS officials in the context of applying the gift tax. Seemingly in response to the Crossroads focus, on April 20, IRS attorney Lorraine Gardner emails a 501(c)(4) donor list to former Branch Chief in the IRS’ Office of the Chief Counsel James Hogan. Later, this information is apparently shared with IRS Estate Gift and Policy Manager Lisa Piehl while Gardner seeks “information about any of the donors.”

Needless to say, the IRS is supposed to ignore politics. Given an unnamed IRS official stating, “The U.S. Chamber of Commerce is a 501(c)(6) organization and may find itself under high scrutiny. One can only hope[,]” the reality is different.

Since the IRS and the Obama Administration is stonewalling Congress in telling what happened, what is Congress to do but cut the IRS’s budget. Frankly, it’s the only action they can do. I don’t like the choice, but it’s the only option available. If and when the IRS and the Obama Administration open up, hopefully the IRS’s budget will be increased but until then the taxpaying public (including tax professionals) is paying the price for the Obama Administration’s obfuscation.

It’s a topic that, frankly, bores the media. It’s a topic that the current Administration would love to go away. It’s a topic that should never have arisen. It’s a topic that underlies the current crisis that impacts the IRS. It’s the IRS scandal.

It’s not something that you will see often in the newspapers. Surprisingly, today’s Las Vegas Review-Journal carried an op-ed from Victor Davis Hanson (that first appeared in the National Review) titled “America’s Politicized Tax Enforcement Is a Harbinger of Decline.” Mr. Hanson argues that when the law becomes negotiable civilization collapses. The IRS scandal is yet one way that we are not a nation of laws–and that appears to be the direct result of the current Administration.

Earlier this week the Wall Street Journal had an editorial titled, “The IRS Goes to Court.” You usually can’t tell how an appellate court will rule from oral arguments; that wasn’t the case here. As noted by the Journal,

Poor Ms. McLaughlin was sent to argue the indefensible so the IRS can delay discovery until the waning days of the Obama Administration. “If I were you, I would go back and ask your superiors whether they want us to represent that the government’s position in this case is that the government is free to unconstitutionally discriminate against its citizens for 270 days,” said Judge Garland.

Ms. McLaughlin replied, “Well, I will take that back.” The Beltway media may be bored, but the IRS scandal is a long way from over.

Have you tried to call the IRS lately? I have to as part of my job. I even get through–sometimes. I have to call tomorrow and maybe I’ll get lucky. Coincidentally, Karen Hawkins, Director of the IRS’s Office of Professional Responsibility, recently submitted her resignation. In her letter to the tax professional community, she said (in part):

I have had the pleasure to meet and talk with literally thousands of you at this juncture. I know you are solid ethical and professional people making every effort to serve your clients and tax administration in appropriate ways. It is important as you continue in your profession that you remain mindful of the overriding broad ethical principles contained in Circular 230 and resist the temptations to “get away with” the behavior less scrupulous individuals use to lure and keep clients. The recent litigation setbacks associated with tax return preparer regulation have been discouraging for all of us. Unfortunately, I have no crystal ball on the topic. I do know, however, that it is crucial for those of you who believe an ethical, fair, transparent and credible tax administration system is absolutely essential to this country to continue to practice your trade at the highest level and to press others for the same.

I agree with Ms. Hawkins that an ethical, fair, transparent and credible tax administration is essential. That said, I believe the IRS’s priorities should change to help implement that:

– Why is the IRS engaging in a “Washington Monument” strategy with their declining budget? (A “Washington Monument” strategy is to cut the most visible areas or most appreciated areas first.)
– Why is the IRS having employees while on the clock doing work for the employees’ union?
– Why is the IRS deliberately engaging in actions that are not fair, transparent, and credible such as the Z Street litigation?
– Why have many actions of the IRS impinged on tax professionals ability to service clients? Not only does this increase the workload for tax professionals, it increases the workload for the IRS.

The IRS’s budget isn’t going to be increased until the root cause of the IRS scandal is known. That’s a fact. It’s now been over 730 days (Monday will be day 732) that the scandal has been ongoing. If a Republican wins the White House in 2016, we’ll likely know what happened by day 1460. Otherwise, who knows.

I wonder if this sounds familiar to anyone: An organization is looking for key information stored on IRS computers. A lawsuit ensues, and the hard drives were allegedly wiped clean.

No, I’m not talking about the IRS Scandal, Lois Lerner, and the Freedom of Information Act lawsuits. Rather, I’m talking about a tax fight between NetJets and the IRS. NetJets sued the IRS for $643 million alleging, according to the Columbus Dispatch, that a ticket tax was misapplied. The IRS countersued for $366 million, alleging that NetJets hasn’t paid all their taxes. Both sides have petitioned for summary judgement.

I’ll let the first two paragraphs of the Dispatch story state what’s going on:

In the midst of a lawsuit with the federal government over tax payments, NetJets claims that the Internal Revenue Service destroyed documents important to the case.

The Columbus-based private-jet company, in a motion filed with U.S. District Judge Edmund A. Sargus Jr., said the IRS “wiped clean a number of computer hard drives containing emails and other electronic documents that the Government was required to produce.”

Most of the time, I wouldn’t believe that the IRS would do this. As of 18 months ago, I wouldn’t believe that the IRS would lie to Congress, would target conservative applicants for nonprofit status, and that the hard drive of any computer (or other electronic device) touched by Lois Lerner would be magically erased.

On a serious note, the fact that the IRS has done these things (even if it’s just a coincidence that the hard drive of any computer Ms. Lerner touched died) will make judges highly skeptical of the IRS. I have no idea who is right on the NetJets vs. IRS fight. I do know that the IRS’s position sure sounds fishy to me.

That quote is from IRS Commissioner John Koskinen during his testimony from earlier this week on Capitol Hill. I have a simple question for Commissioner Koskinen: Why doesn’t that quote read, “I’ve told you the truth every time I’ve been here”?

The obfuscation coming from the IRS hurts the entire US population. The IRS’s budget has been (rightfully) cut: Republicans are not willing to fund what appears to be a partisan office being used against the GOP.

We don’t know with certainty what Lois Lerner’s role is in the IRS scandal. However, let’s give credit to Ms. Lerner in exposing something that definitely is wrong with the IRS.

It turns out that Ms. Lerner was upset with an unnamed IRS employee who was paid $138,136 a year and was doing “nothing.” The Washington Examiner reported on this in an article on a letter written by House Ways & Means Subcommittee on Oversight Chairman Charles Boustany (R-LA) to IRS Commissioner John Koskinen. Here’s an excerpt of the Examiner’s article:

In a 2011 email recently uncovered by the committee, Lerner wrote to colleagues that she “learned than [an] employee who is assigned to a special project has spent most of the last year doing nothing and reporting to her manager on on timesheets that she has been working on the project full time.” The worker was paid $106,263-$138,136.

Lerner said that “We can’t do anything” about the worker, though some argued for termination, explained Boustany’s letter. Instead, the unnamed worker was given a lower performance rating.

While this will do nothing to help the IRS’s reputation, kudos to Ms. Lerner for trying to stop such activities. As for Congressman Boustany’s letter to Commissioner Koskinen, I’m not holding my breath for any results.

Shock of shocks, another Friday and we get more revelations on the IRS Scandal. Of course, if one believes the IRS and the Obama Administration, Lt. Frank Drebin had it right:

Let’s get to the updates:

First, the IRS announced that five of the 82 individuals being questions on the scandal had emails that disappeared. This included Judy Kindell, a former senior adviser to Lois Lerner.

Next, we discover that Lois Lerner’s Blackberry was wiped clean after the IRS was told that the emails were wanted.

Do you know Andrew Strelka–the Andrew Strelka who used to work for the Department of Justice? If you do, Jim Jordan, Congressman from Ohio, would like to hear from you. The DOJ refuses to assist Congressman Jordan and the House Oversight and Government Reform Committee in finding Mr. Strelka. Congressman Jordan gave the DOJ until Friday to send a forwarding address for Mr. Strelka.

Finally, Judicial Watch reports that the IRS had a ‘Secret Research Project’ for conservative donor lists. An excerpt:

Sure enough, these latest emails are treasure trove for truth-seekers about this Nixonian scandal. Contained in the newly released IRS documents is an email from Deputy Associate Chief Counsel Margo L. Stevens that was sent in response to a question from Lerner concerning attempts to return donor lists the IRS had inappropriately obtained. In Stevens’ May 21, 2012, email to Lerner, she wrote:

Lois, I wanted to get back with you with respect to your question whether TEGE [Tax Exempt & Government Entities] could return to those organizations from whom donor names were solicited in questionnaires following their submission of applications for recognition of their tax exempt status (under 501(c)(4)), now that TEGE has reviewed those files and determined that such information was not needed across-the-board and not used in making the agency’s determination on exempt status.

For those who want to say there’s nothing to see here, Lt. Drebin and the Obama Administration thank you. The rest of us owe a debt of gratitude to Judicial Watch; their lawsuit against the IRS has done more to get to the truth then the current Congressional investigations.

Let’s assume you’re under a court order to find some emails. Your hard drive crashed, but you think that some of them are saved on your Blackberry. Would you:
(a) Try to find them on the Blackberry,
(b) Do nothing, or
(c) Erase the Blackberry.

If you’re the IRS, the answer is (c). After the IRS was on notice about the missing Lois Lerner emails the IRS then wiped clean Ms. Lerner’s Blackberry. The Washington Post notes,

In response to the judge’s order, a top IRS official said in a signed declaration that the agency has no record of attempting to recover data from the mobile device.

IRS attorney Thomas J. Kane said in a separate declaration that the agency “removed or wiped clean” information from the Blackberry in June 2012, shortly after congressional staffers questioned Lerner about the targeting allegations and in the same month that the IRS inspector general began examining the issue.

Kane offered no explanation for why the IRS “removed or wiped clean” the data, and the IRS did not respond to the same question when asked by The Washington Post on Wednesday.

As Reason.com stated,

There may be a reasonable explanation for all this. But if there is, the IRS has yet to provide it, and in fact has refused when asked to do so. Combined with all the other suspicious and convenient omissions, lapses, and losses related to this case, it does make one wonder if perhaps there isn’t a reasonable explanation to be offered.

There’s nothing to add to Reason’s conclusion.

“There’s no such thing as Lois Lerner’s missing emails. It’s all been a big lie. They’ve been lying to the courts, to the American people, and to Contgess. It is really outrageous.” That’s Tom Filton, President of Judicial Watch:

The reason that the IRS allegedly hasn’t attempted to recover the missing emails? “It would be too difficult.”

Now, I do need to point out that all we have at this point is Mr. Filton’s stating that Department of Justice attorneys stated this (along with a statement released by Judicial Watch). It’s possible that this isn’t true. That said, it makes sense that there are backup systems in place. I backup information and I have nowhere near the critical needs of the government.

Assuming that what Mr. Filton stated is true, both Congress and the Courts have been lied to by the current IRS Commissioner John Koskinen and by various attorneys. This isn’t deceit, this isn’t misstatements; this is out-and-out lying. If I were a federal judge being told today that the emails exist (after telling you they didn’t) but it’s too hard to get them, I know what my reaction would be. I suspect most judges will have the same reaction.

The next court hearing involving this scandal should be mighty interesting….