March 23, 2016; Washington Post
A three-judge panel of the Sixth Circuit U.S. Court of Appeals has unanimously rejected arguments by the IRS and U.S. Justice Department that a trial judge acted improperly and, further, ordered the IRS to disclose the names of nonprofit organizations that might be eligible to join a class action lawsuit. The appeals court was especially harsh in criticizing the government’s lawyers, saying, “In this lawsuit, the IRS has only compounded the conduct that gave rise to it.”
The basis for the class action is the disparate treatment by the IRS of “Tea Party” and other “conservative-sounding” applications for tax exemption beginning in 2010, collectively referred to as the “IRS scandal.” The scandal was first made public in May 2013 just before an inspector general’s report was released, titled “Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review.”
The IRS had argued that it was prohibited from disclosing the names because Section 6103 of the Internal Revenue Code (IRC) protects the confidentiality of taxpayer information. However, in the opinion of the appeals court judges, “Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.”
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This isn’t the first time Section 6103 has hampered investigation and prosecution in the IRS scandal. NPQ reported in 2013 that investigators discovered the identity of the IRS employee who leaked tax information for the National Organization for Marriage (NOM) to ProPublica. Despite NOM’s stated desire for federal prosecution, the IRS argued that the investigation itself was protected from disclosure under Section 6103 because it was considered part of the taxpayer’s—NOM’s—confidential information.
The Sixth Circuit isn’t the only appeals court to take a dim view of the government’s response to the IRS scandal. President Obama’s pick to succeed Antonin Scalia on the Supreme Court, D.C. Court of Appeals Chief Judge Merrick Garland, believed the IRS’s view that pro-Israel nonprofit Z Street could not sue the IRS until a 270-day waiting period has expired was ridiculous. “You don’t really mean that, right? Because the next couple words would be the IRS is free to discriminate on the basis of viewpoint, religion, race [for 270 days]. You don’t actually think that?”
It’s too early to know what the potential outcome of the class action lawsuit might be, but one thing is very likely. Attorneys for the nonprofits will have the opportunity to conduct depositions of current and former IRS officials and others involved in the targeting scandal. Moreover, those depositions are likely to become public, either in court or in other ways. The government will likely demand tight controls on the depositions. Even if restrictions are granted by the trial court, there is no guarantee against unauthorized disclosures—leaks—of transcripts or even video of the depositions. Hardly the preferred way to promote governmental accountability and transparency (not to mention redressing wrongs against nonprofits applying for tax exemption as identified by the government’s own inspector general), but this is another example of the power of class action lawsuits.—Michael Wyland