In re UNITED STATES of America
No. 15-3793
United States Court of Appeals, Sixth Circuit
March 22, 2016
817 F.3d 953
For these reasons, I respectfully dissent. I would affirm the judgment of the district court.
United States of America, Petitioner, v. NorCal Tea Party Patriots, et al., Respondents.
Argued: March 16, 2016.
Decided and Filed: March 22, 2016.
Before: KEITH, McKEAGUE, and KETHLEDGE, Circuit Judges.
OPINION
KETHLEDGE, Circuit Judge.
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.
I.
A.
Every year, thousands of non-profit groups—churches, schools, charities, and other actors in what Tocqueville called America‘s “civil life“—apply for exemption from federal taxes under
Most groups apply for
Applicants for tax-exempt status submit standardized forms: Form 1023 for aspiring
Both forms say at the top of page one that the applications, if successful, will be “open for public inspection.” That is by Congressional design. The Internal Revenue Code requires that the application of every exempt organization be available for inspection by the general public at the national office of the IRS, as well as at the major offices of the organization. See
Once the IRS has approved an application, the exempt organization must file a yearly information return, using a Form 990. This form asks about the group‘s governance; the salaries or benefits paid to its employees and members; the amount of contributions and grants it received that year; and the amount it spent on furthering its mission. The form also asks for a detailed report of the group‘s revenues, expenses, and balance sheet. Often, the group must attach a Schedule B, a list of the names and addresses of its major donors that year. Similar to Form 1023 and Form 1024, Form 990 is marked at the top of its first page, “Open to Public Inspection.” The IRS and the group itself must make the group‘s return publicly available, with the proviso that the IRS must not—and each group need not—disclose the names or addresses of the group‘s donors as revealed on Schedule B. See
Congress thus created a regime in which all of the information demanded in a successful application for
B.
In 2010, the IRS began to pay unusual attention to
Applicants whom the IRS flagged with the “Be On the Lookout” criteria were sent to a so-called “team of specialists,” where the applicants “experienced significant delays and requests for unnecessary information[.]” IG Report at 7. As for the delays, “the IRS‘s goal for processing all types of applications for tax-exempt status was 121 days in Fiscal Year 2012[.]” Id. at 1. “In comparison, the average time a potential political case [i.e., an application from one of the groups targeted with these criteria] was open as of December 17, 2012, was 574 calendar days[.]” Id. at 15. Thus, as of that date, “many organizations had not received an approval or denial letter for more than two years after they submitted their applications. Some cases have been open during two election cycles (2010 and 2012)“—and, as of December 2012, some had been open “for more than 1,000 days.” Id. at 11, 14. These delays themselves brought adverse consequences for the applicant groups: the IG observed that, for ”
The IRS‘s application forms for tax-exempt status themselves request detailed information from every applicant group. For groups subject to the IRS‘s inappropriate criteria, however, the IRS also demanded what the IG called “unnecessary information.” Among other things, the IRS demanded that many of these groups provide the following: “the names of donors“; “a list of all issues that are important to the organization[,]” and the organization‘s “position regarding such issues“; “the roles and activities of the audience and participants” at the group‘s events (typically over a 12-18 month period), and “the type of conversations and discussions members and participants had during the activity“; whether any of the group‘s officers or directors “has run or will run for public office“; “the political affiliation of the officer, director, speakers, candidates supported, etc.“; “information regarding employment” of the group‘s officers or directors; and “information regarding activities of another organization—not just the relationship of the other organization to the applicant.” Id. at 20. These demands, according to the IG, “created [a] burden on the organizations that were required to gather and forward information that was not needed by the [IRS] and led to delays in processing the applications.” Id. at 18. Moreover, “[f]or some organizations, this was the second letter received from the IRS requesting additional information, the first of which had been received more than a year before[.]” Id. This second round of letters also warned that the IRS would close the applicant‘s case if the IRS did not receive all of the requested information within 21 days—“despite the fact that the IRS had done nothing with some of the applications for more than one year.” Id.
The experience of the lead plaintiff in this case, NorCal Tea Party Patriots, provides an example. NorCal applied for tax-exempt status in April 2010. In July 2010, the IRS sent NorCal a letter requesting additional information to process its application. NorCal promptly replied with 120 pages of responsive material. Eighteen months passed without further word from the IRS. Then, in a letter dated January 27, 2012, the IRS demanded more information from NorCal. The IRS‘s “Additional Information Requested” ran five pages single-spaced and comprised 19 separate requests, almost all of which had subparts,
The IRS‘s own Taxpayer Advocate seconded many of the findings in the IG‘s Report. But the response of IRS Management was muted. Although the IRS acknowledged—in the classically passive formulation—certain “mistakes that were made in the process by which these applications were worked[,]” the IRS asserted that “centralization was warranted” in processing the requests, because “[c]entralization of like cases furthers quality and consistency.” IG Report at 44-45.
C.
One week after the release of the Inspector General‘s report, the plaintiffs brought this lawsuit against the IRS and certain IRS officials. The plaintiffs asserted claims under the Privacy Act,
To that end, the plaintiffs sought discovery in the form of basic information relevant to class certification, including the names of IRS employees who reviewed the groups’ applications for tax-exempt status and the number of applications from similar groups that had been granted, denied, withdrawn, or were still pending. On the record before us here, the IRS‘s response has been one of continuous resistance. For example, the IRS asserted that the names of IRS employees who worked on the groups’ applications were taxpayer “return information” protected from disclosure by
Eventually the district court‘s patience wore thin. The court began a discovery conference in December 2014 by stating: “It looks like everything in this case seems to be turning into an argument on discovery. I think we‘ve already had more discovery conferences in this case than I‘ve had in any other case this whole year.” In the same conference the court admonished the IRS: “this is class discovery, but you‘re not willing to give any discovery on the putative class . . . you‘re just running around in circles and not answering the questions.” Those admonitions appeared to have little effect. In October 2015, the court stated as follows:
My impression is the government probably did something wrong in this case. Whether there‘s liability or not is a legal question. However, I feel like the government is doing everything it possibly can to make this as complicated as it possibly can, to last as long as it possibly can, so that by the time there is a result, nobody is going to care except the plaintiffs. . . . I question whether or not the Department of Justice is doing justice.
The document requests specifically at issue here concern the plaintiffs’ requests for any lists of organizations that the IRS flagged for special attention using the “Be On the Lookout” criteria, as well as two spreadsheets that the IRS provided to the Inspector General in connection with his report. The plaintiffs specified that they wanted “the names of class members as shown on the IRS‘s internal lists” so that plaintiffs could identify fellow members of the putative class. The IRS refused to produce the lists and instead moved for a protective order from the district court. In support, the IRS argued that any information contained in an application for tax-exempt status, including the applicant‘s name, is confidential “return information” that the IRS is barred from disclosing to the district court. The district court, for its part, agreed that the plaintiffs’ requests encompassed “return information“; but the court held that the IRS could disclose the documents nonetheless under an exception allowing disclosure where “the treatment of an item reflected on such return is directly related to the resolution of an issue” in a judicial proceeding.
The IRS then filed this petition for a writ of mandamus.
II.
A.
The writ of mandamus is a “drastic and extraordinary remedy reserved for really extraordinary causes.” Cheney v. U.S. Dist. Court, 542 U.S. 367, 380, 124
The IRS argues that the “names and other identifying information of” organizations that apply for tax-exempt status—along with the applications themselves—are confidential “return information” under
B.
In this country taxpayer privacy has a checkered history. The nation‘s first federal income-tax statute did not keep taxpayer information confidential. To the contrary, when Congress passed an income tax to finance the Civil War, courthouses and newspapers published household tax information as a way of encouraging ordinary citizens to police their neighbors’ compliance with the new law. See Office of Tax Policy, Dep‘t of the Treasury, Scope & Use of Taxpayer Confidentiality & Disclosure Provisions, Vol. I at 15 (2000). In the early twentieth century, Congress continued to classify tax returns as public records open to general inspection, subject to regulations promulgated by the Treasury Department. Id. at 17-18. Eventually those regulations made individual and corporate tax returns generally available to federal agencies and committees of Congress, but unavailable to the general public. Id. at 20.
The dangers of that regime became clear when Congress investigated President Richard Nixon‘s alleged abuses of power in connection with his 1972 reelection campaign. Congressional committees heard testimony that the White House had obtained from the IRS sensitive tax information on political opponents, and moreover had directed IRS personnel to audit the returns of particular taxpayers. The House Judiciary Committee thereafter approved an Article of Impeachment alleging that President Nixon had, among other things, “endeavored . . . to cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.”
In the wake of President Nixon‘s resignation, Congress enacted the Tax Reform Act of 1976, which overhauled the rules governing disclosure of taxpayer information. No longer would the Executive have free rein over the handling of sensitive taxpayer records; instead, as the Treasury Department‘s Office of Tax Policy acknowledged, “Congress undertook direct responsibility for determining the types and manner of permissible disclosures.” Office of Tax Policy, Taxpayer Confidentiality Provisions, Vol. I at 22.
1.
At the core of this statutory regime is the general rule that “[r]eturns and return information shall be confidential[.]”
Here, the parties and the district court agree—as do we—that applications for tax-exempt status are not “returns.” See
(4) Disclosure in judicial and administrative tax proceedings. A return or return information may be disclosed in a Federal or State judicial or administrative proceeding pertaining to tax administration, but only—
(B) if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding[.]
The IRS argues that the district court‘s application of this subsection was mistaken because
The plaintiffs respond that this interpretation reads the words “or return information” out of the so-called prefatory language of
A return or return information may be disclosed in a Federal or State judicial or administrative proceeding, but only—
(B) if the treatment of an item reflected on such return is directly related to the resolution of an issue in the proceeding; [or]
(C) if such return or return information directly relates to a transactional relationship between a person who is a party to the proceeding and the taxpayer which directly affects the resolution of an issue in the proceeding[.]
It was Congress‘s prerogative to authorize broader disclosure of taxpayer information under the circumstances described in subsection (C) than in the circumstances described in subsection (B). And the mere existence of subsection (C), not to mention (A) and (D), shows that the words “or return information[,]” as used in the prefatory language, have plenty of meaning in
We therefore hold that
2.
But that does not mean the IRS is entitled to the extraordinary relief it seeks here. For
a.
As discussed above, the IRS contends in its petition that the “names and other identifying information of” applicants for tax-exempt status are generally barred from disclosure under
b.
That leaves the names of organizations whose applications remain pending, or who withdrew their applications, or whose applications the IRS rejected. Presumably none of the applications reflected on the “Be On the Lookout” lists are still pending, since those applications were filed over four years ago. But there are likely some groups who chose to withdraw their applications rather than contend with the IRS‘s long delays and requests for “additional information.” For the most part the information submitted in those applications remains confidential “return information.” See
Yet the prospect of any pending, withdrawn, or denied applications only leads us back to a more fundamental question: whether the names and identifying information of applicants for tax-exempt status are “return information” in the first place. As noted above, “return information” as defined by
The IRS responded at oral argument—as it always seems to respond when seeking to withhold documents in cases involving
Still more support for our interpretation comes from the D.C. Circuit‘s opinion in Ryan v. Bureau of Alcohol, Tobacco & Firearms, 715 F.2d 644 (D.C.Cir.1983) (Scalia, J.). There the court considered a situation analogous to the one presented here: whether a member of the public could access a list of the names of manufacturers that had submitted Forms 4328, which provided notice of intent to engage in the manufacture of domestic liquor bottles. The ATF resisted disclosure on the ground that the names were return information under
We recognize that, in another case, the D.C. Circuit held that the names of applicants for tax-exempt status are “return information.” See Landmark Legal Foundation v. IRS, 267 F.3d 1132, 1135
For all of these reasons, we hold that the names, addresses, and taxpayer-identification numbers of applicants for tax-exempt status are not “return information” under
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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.
The petition is denied.
SOUTHERN FOREST WATCH, INC.; John Walton Quillen; Earl Rob Cameron; Gregory D. Bostick, Plaintiffs-Appellants, v. Sally JEWELL, Secretary of the Interior, et al., Defendants-Appellees.
No. 15-5413.
United States Court of Appeals, Sixth Circuit.
Argued: Dec. 3, 2015.
Decided and Filed: March 23, 2016.
Rehearing En Banc Denied May 9, 2016.