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NorCal Tea Party Order

NorCal Tea Party Order

Page 1: NorCal Tea Party Order

Category:Legal Document

Number of Pages:11

Date Created:April 1, 2015

Date Uploaded to the Library:April 09, 2015

Tags:NorCal, Tea Party, IRS Scandal, Department of the Treasury, IRS


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Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2975 THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OHIO
WESTERN DIVISION
NorCal Tea Party Patriots, al.,
Plaintiffs,
The Internal Revenue Service, al.,
Defendants.
Case No. 1:13-cv-341
Judge Susan Dlott
Order Compelling Discovery
This matter before the Court the United States Motion for Protective Order
Prevent Disclosure Non-Party Tax Return Information (Doc. 141) and Plaintiffs Motion
Discover the Identity the Putative Class (Doc. 142).1 For the reasons that follow, the Court
will deny protective order and compel limited discovery.
BACKGROUND
This lawsuit was filed ten Plaintiffs, organizations comprised individual citizens
who have joined together exercise their rights freedom speech and expression and who
share philosophy dissent from the policies ideology the Executive Branch the
United States Government under its current Administration. (Doc. 114 PageID 1983.)
Plaintiffs refer themselves, and the members the class which they seek represent,
dissenting groups. (Id.) Plaintiffs allege that Defendants the United States,2 the Internal
Revenue Service IRS and individual IRS officers and employers subjected the dissenting
groups, the basis their beliefs, delays and intrusive scrutiny during the tax-exempt status
application process. (Id. PageID 1983 84.)
Plaintiffs captioned their motion Brief Support Discovering the Identity the Putative Class, but
treated motion the court docket and has been re-captioned here reflect that fact.
Plaintiffs substituted the United States America for the Department the Treasury named Defendant
October 2014. (Doc. 114 PageID 1983).
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2976
Plaintiffs filed the Second Amended Class Action Complaint January 23, 2014 and
then filed corrected version October 2014. Plaintiffs asserted three substantive causes
action:
Count One: Violation the Privacy Act, U.S.C. 552;
Count Two: Violations the First and Fifth Amendments the United States
Constitution; and
Count Three: Violation U.S.C. 6103, statute which protects the
confidentiality tax return information.
(Id. PageID 2034 48.) Plaintiffs also sought certify class that would include generally
all dissenting groups targeted for additional scrutiny the IRS from January 20, 2009 through
July 15, 2013. (Id. PageID 2049.)
Defendants moved dismiss the Second Amended Class Action Complaint. (Doc. 177.) Order dated July 17, 2014, the Court dismissed all claims alleged against individual IRS
officers and employees. (Doc. 102.) The Court also dismissed the Privacy Act claim against the
United States and the IRS (collectively, the Government The Court allowed the claims
against the Government for constitutional violations and violations 6103 forward. (Id. PageID 1657, 1678.)
The parties currently are engaging discovery related class certification. the
Court understands the parties positions date, Plaintiffs will seek certify class consisting
largely exclusively organizations identified list 298 applicants for tax-exempt status
provided the IRS the Treasury Inspector General for Tax Administration TIGTA The
current dispute concerns whether the Government can and must produce discovery about the
putative class member organizations Plaintiffs. The Government contends that cannot
provide discovery obtained from based upon the putative class member organizations tax
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2977
returns tax return information because that information shielded from disclosure
U.S.C. 6103.
II. U.S.C. 6103
Internal Revenue Code 6103 protects the confidentiality tax returns and tax return
information. U.S.C. 6103(a). The wrongful disclosure returns and return information
can punishable criminally civilly. U.S.C. 7213, 7431. The terms return and
return information are defined broadly. U.S.C. 6103(b). return defined follows:
any tax information return, declaration estimated tax, claim for refund
required by, provided for permitted under, the provisions this title which filed with the Secretary by, behalf of, with respect any person, and any
amendment supplement thereto, including supporting schedules, attachments, lists which are supplemental to, part of, the return filed. U.S.C. 6103(b)(1). Return information defined relevant part follows:
(A) taxpayer identity, the nature, source, amount his income, payments,
receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability,
tax withheld, deficiencies, overassessments, tax payments, whether the
taxpayer return was, being, will examined subject other
investigation processing, any other data, received by, recorded by, prepared
by, furnished to, collected the Secretary with respect return with
respect the determination the existence, possible existence, liability (or
the amount thereof) any person under this title for any tax, penalty, interest,
fine, forfeiture, other imposition, offense[.] U.S.C. 6103(b)(2). Pursuant the Haskell Amendment, the term return information does
not include data form which cannot associated with, otherwise identify, directly
indirectly, particular taxpayer. Id.
Two statutory exceptions the confidentiality protection contained 6103(a) have
been relevant the parties discovery disputes.
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2978
Disclosure the Department Justice Exception
Subsection 6103(h)(2) provides for the disclosure returns and return information
Department Justice officials civil suits follows: matter involving tax administration, return and return information shall
open inspection disclosure officers and employees the Department Justice (including United States attorneys) personally and directly engaged any proceeding before any Federal State court, but only if-(A) the taxpayer may party the proceeding, the proceeding arose
out of, connection with, determining the taxpayer civil criminal liability, the collection such civil liability respect any tax imposed under this
title;
(B) the treatment item reflected such return may related the
resolution issue the proceeding investigation;
(C) such return return information relates may relate transactional
relationship between person who may party the proceeding and the
taxpayer which affects, may affect, the resolution issue such
proceeding investigation. U.S.C. 6103(h)(2); see also Internal Revenue Manual 11.3.22.12.1 The IRS may disclose
returns and return information Department Justice officials engaged preparation for
proceeding before any Federal State court long the treatment the item
reflected such return may related the resolution issue the proceeding
investigation.
Disclosure Judicial and Administrative Tax Proceedings Exception
Subsection 6103(h)(4) provides more narrow exception for disclosure tax returns and
return information judicial and administrative proceedings related tax administration
certain circumstances: return return information may disclosed Federal State judicial
administrative proceeding pertaining tax administration, but only-(A) the taxpayer party the proceeding, the proceeding arose out of, connection with, determining the taxpayer civil criminal liability, the
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2979
collection such civil liability, respect any tax imposed under this title[
the party test
(B) the treatment item reflected such return directly related the
resolution issue the proceeding[ the item test
(C) such return return information directly relates transactional
relationship between person who party the proceeding and the taxpayer
which directly affects the resolution issue the proceeding[ the
transaction test
(D) the extent required order court pursuant section 3500 title 18,
United States Code, rule the Federal Rules Criminal Procedure, such
court being authorized the issuance such order give due consideration
congressional policy favoring the confidentiality returns and return information set forth this title.
However, such return return information shall not disclosed provided
subparagraph (A), (B), (C) the Secretary determines that such disclosure
would identify confidential informant seriously impair civil criminal tax
investigation. U.S.C. 6103(h)(4).
III.
ANALYSIS
Discovery Requested
The parties did not succinctly define the scope their dispute their written briefs.
Plaintiffs stated that the Government has not responded Plaintiffs Second through Sixth
Requests for Production Documents RFPs (Doc. 142-1 PageID 2531 86; Doc. 142
produce the tax-exempt status application files the putative class member organizations
Plaintiffs violation U.S.C. 6103(a). (Doc. 141 PageID 2507.) Plaintiffs denied that
they sought the tax-exempt status application files the putative class member organizations.
(Doc. 142 PageID 2519 20.) Instead, they stated that they sought obtain the names the
putative class member organizations from spreadsheets case listings that were specifically
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2980
created the IRS collect and track these groups. (Doc. 142 2520; Doc. 144 PageID
2616.) the oral argument held March 24, 2015, Plaintiffs narrowed the scope their
requests. They sought responses three requests for production:
56. Please produce all charts, lists, spreadsheets, indexes groups who had
their Applications for Tax Exemption selected flagged the IRS for
heightened review based the Emerging Issues tab the BOLO.
63. Please produce the document titled 501c4 Cases for TIGTA(1).xls, which
the IRS sent TIGTA June 11, 2012.
64. Please produce the document titled Advocacy Case Tracking Sheet
06052012.xls, which the IRS sent TIGTA June 11, 2012.
(Doc. 142 PageID 2520.) They also requested that the Government authenticate, respond
that cannot authenticate, the so-called USA Today document referenced Exhibit
CM/ECF Doc. 142 and filed CM/ECF Doc. 142-2 PageID 2588 99. The Government again
objected the narrowed discovery requests the basis that responding would require them
violate 6103(a). Both parties agree that the discovery Plaintiffs seeks qualifies return
information pursuant 6103(b)(2).
Application the Item Test
The Supreme Court has instructed that 6103(a) lays down general rule that returns
and return information defined therein shall confidential. Church Scientology Cal. I.R.S., 484 U.S. (1987). The mere redaction information identifying particular
taxpayer from return from return information does not deprive the return return
information confidentiality protection. Id. 18.
Plaintiffs allege that the information they seek discoverable pursuant the item test
exception contained 6103(h)(4)(B). Section 6103(h)(4)(B) permits the disclosure third
party returns and return information where the item the third party return directly relates
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2981
the elements for defending proving the civil cause action crime issue the tax
proceeding but not [for] things such impeaching witness creditability. Chief Counsel
Advisory, IRS CCA 201250020, 2012 6217390 (Dec. 14, 2012) (emphasis added).3 The
issue which the return return information relates need not limited matters
concerning the taxpayer tax liability despite that suggestion the legislative history. See
Tavery U.S., F.3d 1423, 1429 (10th Cir. 1994).4 Nowhere does the statute limit
disclosure instances where taxpayer liability issue and the disclosed information relates
thereto. Id. 1429 (emphasis added). The information disclosed also need not
directly related every issue proceeding, but only one issue. See Lebaron U.S., 794
Supp. 947, 952 (C.D. Cal. 1992). The item must affect the resolution germane
element the claim, but need not dispositive the issue. Chief Counsel Advisory, IRS
CCA 201250020. Plaintiffs assert that the spreadsheets and case listings they seek are directly
related the issue class certification.
The Government responds that the information Plaintiffs seek not discoverable for two
related reasons. First, the Government asserts that 6103(h)(4)(B) should strictly construed.
The Government asserts that discoverable item reflected such return definition must
information provided the taxpayer and filed with the IRS. See U.S.C. 6103(b)(1). The
statute states that return and return information can disclosed[,] but only the treatment item reflected such return directly related the resolution item the
The advisory opinion includes reference U.S.C. 6110(j)(3) and disclaimer that the opinion should not used cited precedent. Section 6110 does not contain subsection (j)(3). However, different subsection
the statute states that written determination may not used cited precedent. U.S.C. 6110(k)(3). The
Court does not cite the advisory opinion precedent. However, the advisory opinion cited for its well-reasoned
analysis. Senate Report stated that [t]he disclosure third party return tax proceeding (including the United
States Tax Court) will subject the same item and transaction tests described above, except that such items and
transactions must have direct relationship the resolution issue the taxpayer liability. Rep. No. 938,
94th Cong., Sess. 326 (1976), reprinted 1976 U.S.Code Cong. Admin.News 3439, 3755 (emphasis added).
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2982
proceeding. U.S.C. 6103(h)(4)(B) (emphasis added). The Government relies 2012
decision the Federal Circuit support its narrow interpretation 6103(h)(4)(B). The
court stated that 6103(h)(4)(B) analysis should focused the relevance the treatment
the item the return being sought the issue the proceeding and not the relevance
the return information sought the issue the proceeding. U.S., 669 F.3d 1333, 1340
(Fed. Cir. 2012). The Federal Circuit explained that the phrase reflected such return
properly understood referring what shown the face the return submitted the
taxpayer whose return return information being sought. Id. 1339 40. The information
Plaintiffs seek falls into the category return information because information collected generated the IRS. See U.S.C. 6103(b)(1). Applying United States, the
Government asserts that Plaintiffs erred focusing whether the return information the
putative class member organizations opposed the treatment item reflected
return directly related issue this case.
Second, the Government contends that the IRS handling putative class member
organizations tax exempt status applications, fact, not directly related issue the
present case. The Federal Circuit the United States case addressed split other circuit
courts appeal whether the directly related requirement met when party seeks discover
the tax treatment similarly situated third parties. 669 F.3d 1337 (comparing, inter alia,
Shell Petroleum, Inc. U.S., Fed. Cl. 812, 817 (2000) (using the Federal Rules
Evidence helpful guide broadly construe 6103(h)(4)(B) allow discovery tax
treatment similarly situated third parties), with Vons Cos., Inc. U.S., Fed. Cl. (2001)
(relying exclusively legislative history narrowly construe 6103(h)(4)(B) deny
discovery for similarly situated third parties)). The Federal Circuit relied the legislative
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2983
history conclude that the item test exception should narrowly interpreted preclude
discovery third party tax return information. Id. 337 39. [T]he treatment item third party return not related, never mind directly related, the resolution taxpayer
issue when the only link between the third party and taxpayer the same tax treatment for
similar item liability, income, deduction, credit. Id. 339. Based this understanding the item test exception, the Federal Circuit refused allow taxpayer, who had been
assessed excise tax based audit results, discover the audit results non-party taxpayer
entities who were similarly audited. Id. 1334. The Government contends that the IRS
treatment the third party organizations who applied for tax exempt status not directly related the treatment Plaintiffs applications.
Not all authorities have interpreted the item test 6103(h)(4)(B) narrowly the
Federal Circuit did United States. Instead, they have read the introductory clause
6103(h) permitting return return information disclosed into the item test
6103(h)(4)(B) permit disclosure when return information directly related issue the
judicial proceeding. For example, the Tenth Circuit applied the item test asking whether
the treatment item reflected return information was related issue the tax
administration proceeding. See Tavery, F.3d 1429 30. The court Tavery found that the
Government was permitted disclose the tax return information criminal defendant wife
because her return information was directly related the issue whether the criminal defendant
was indigent and entitled have counsel appointed. Id. 1430. Similarly, the Court Federal
Claims applied the item test permit discovery after observing that the requested return
information would resolve this tax administration matter. Confidential Informant 92-95-932X
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2984 U.S., Fed. Cl. 556, 559 (Fed. Cl. 2000). The courts both cases analyzed whether return
information was directly related issue the judicial proceedings.
Non-judicial authorities also have broadly applied the item test. The IRS Chief
Counsel stated advisory opinion that information about unrelated but similarly situated
taxpayers could disclosed pursuant the item test directly relate[s] proving
issue the specific case question. Chief Counsel Advisory, IRS CCA 201250020. The IRS
Chief Counsel further suggested that directly related standard can satisfied items
return information, not simply items return itself. [E]ven though the documents this
case are not items from tax return, there other return information, such the extrinsic
evidence the documents, that may provide pattern evidence that satisfies the item test
directly related the resolution issue the proceeding. Id. The IRS Chief Counsel also
instructed published reference guide that disclosure return information was authorized
where the item the third party return return information directly relates the elements
for defending proving the civil cause action crime issue the tax proceeding.
(Disclosure Privacy Law Reference Guide, IRS Chief Counsel, Proc. Admin., (Rev. 102012), Doc. 144-1 PageID 2733 (emphasis added).)5 Similarly, leading treatise states that
documents constituting third party return information can satisfy the item test the documents
directly relate element proven the case. Mertens Law Fed. Income Tax
50:87.
Finally, United States, and the Vons Companies decision upon which relies, are
distinguishable material respect because they are not putative class actions. Those decisions not address the application the item test exception when the return information third
The Court aware that the Disclosure Privacy Guide advises its readers use the guide for reference only and
not cite the guide authority for legal position. (Doc. 144-1 2628.) However, the Court finds the analysis
the guide instructive.
Case: 1:13-cv-00341-SJD Doc 147 Filed: 04/01/15 Page: PAGEID 2985
parties might directly relate the issue whether those third parties can joined class
members class action.
The Court concludes that the return information sought directly related the issue
class certification this federal court proceeding. The names the putative class member
organizations and their control dates the date which the putative class member organizations
submitted their applications for tax exempt status the IRS are directly related the issue
class certification. Plaintiffs seek the return information the putative class members prove the Court that the Federal Rule Civil Procedure 23(a) and 23(b) requirements such
typicality, commonality, and whether the IRS acted grounds that applied generally the
putative class are satisfied.
IV.
CONCLUSION
For the foregoing reasons, the Government Motion for Protective Order (Doc. 141)
DENIED and Plaintiffs Motion Discover (Doc. 142) GRANTED. The Court orders the
Government respond requests for production 56, 63, and 64. The Court further orders the
Government authenticate, respond that unable authenticate, the so-called USA
Today document referenced Exhibit CM/ECF Doc. 142. ORDERED.
____s/Susan Dlott_______
Judge Susan Dlott
United States District Court