Tuesday, May 6, 2014

Has It Already Been a Year? The IRS, C4s, and Politics

IRSA year ago this week (or 362 days ago, according to Paul Caron) then IRS Exempt Organizations Division Director Lois Lerner apologized for the EO Division using criteria during the exemption application process that were "wrong," "incorrect," insensitive," and "inappropriate."  We all know what has followed since those comments at the May 2013 ABA Tax Section meeting.  Several recent developments are worth highlighting, however.

First, the IRS mess has become a political football disconnected from the facts of what actually happened.  This result is illustrated not only by the recent Committee on Oversight and Government Reform (Darrell Issa, Chairman) report and the recent Committee on Ways and Means (Dave Camp, Chairman) letter to Attorney General Eric Holder, both focusing on Ms. Lerner's alleged actions, but also by the often testy exchanges between members of the Ways and Means Committee as they debated the latter document in executive session a month ago before voting along party lines to refer the letter to the full House.  This is not to say the exchanges were not without their lighter moments (including during the related open session Chairman Camp telling the Ranking Minority Member Sandy Levin "Just chill out." and Levin responding "I am very chilled out.").  The contrasting views of the situation taken by the members on each side of aisle during the executive session illustrate how much political spin is now applied to accounts of this mess.  (And later today the House Committee on Rules (Pete Sessions, Chairman) plans to take up a resolution that Ms. Lerner be held in contempt of Congress and a resolution calling for the appointment of special counsel.)  (UPDATE:  The political spin continues with a new report from Ranking Member Elijah Cummings of the Committee on Oversight and Government Reform titled "No Evidence of White House Involvement or Political Motivation in IRS Screening of Tax-Exempt Applicants.")

Second, the issue of what information relating to tax-exempt organizations is and should be protected from public disclosure by obscure Internal Revenue Code section 6103 has become a hot topic.  ProPublica reports that the nonprofit Freedom Path recently sued the IRS over its alleged treatment by the agency, with the most viable claim likely relating to the IRS' mistaken release of the organization's pending exemption application to ProPublica in alleged violation of section 6103.  The Ways and Means letter discussed above also raises concerns under section 6103, asserting that Ms. Lerner may have risked violating this section by having confidential information  sent to her personal email account (although even the Wall Street Journal feels that claim is a bit of a stretch).  

Ironically, there are concerns that by making its letter and related exhibits public Ways and Means may itself have violated section 6103 (see Did Ways and Means' EO Data Dump Break the Law? in Tax Notes Today (subscription required)).  I think Ways and Means did not violate section 6103, essentially for the reasons stated in advice the Committee apparently received on this issue.  At the same time, I also think the public release of the exhibits creates  a dangerous precedent, especially since it was not done, as the advice recommended, in a collegial fashion as reflected by unanimous consent or vote.

Relatedly, George Yin (UVA) has proposed increasing the amount of information the IRS can release relating to tax-exempt organizations in order to both enhance public trust and help counter allegations of wrongdoing by the agency.  In Reforming (and Saving) the IRS by Respecting the Public's Right to Know, he argues for removing the protections of section 6103 for exemption applications and materials as soon as they are filed with the IRS and relaxing those protections for audit developments, closing agreements, and final determinations.  

Third and finally, this mess is sparking useful discussions regarding not only the appropriate role of the IRS and the federal tax laws with respect to political activity, but also with respect to oversight of tax-exempt organizations more generally.  While it is not clear if the proposed new section 501(c)(4) regulations relating to political activity will go anywhere (see earlier post on this blog by Darryll Jones), if there is any silver lining to this mess it is that it may lead to some constructive debates on the hard issues relating to IRS oversight of exempt organizations. 

Lloyd Mayer

http://lawprofessors.typepad.com/nonprofit/2014/05/has-it-already-been-a-year-the-irs-c4s-and-politics.html

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