Tag Archives: internal revenue service

Demanding Trump’s tax returns is congressional overreach

By David B. Rivkin Jr. and Lee A. Casey

17 May 2019 in The Hill

Democrats in Congress long have demanded that President Trump make his tax returns public. Many promised voters that, if given the House majority in the 2018 elections, they would force public disclosure of Trump’s returns. Indeed, they’ve demanded access to the president’s returns, but Treasury Secretary Steven Mnuchin has refused to give Congress that access. He was right to refuse. His action is firmly grounded in federal statute and the Constitution.

In April, House Ways and Means Committee Chairman Richard Neal (D-Mass.) demanded Trump’s tax returns from 2013 to 2018, invoking a federal statute (26 U.S.C. § 6103) that makes federal tax returns confidential. Other statutory sections, including 26 U.S.C. § 7213, make it a felony to disclose information in federal tax returns without proper authorization.

There are narrowly drawn exceptions to the general rule of confidentiality, including one that allows congressional tax committees to demand copies of individual tax returns. That information, however, cannot be made public without the taxpayer’s written consent. Secretary Mnuchin must have a well-grounded fear that one or more members of Congress would make the president’s returns public, hiding behind the Constitution’s speech or debate clause to escape prosecution. This factor alone can preclude the release of tax information.

There are, however, even more fundamental problems with the request. The committee’s stated purpose is to investigate how the IRS enforces tax laws against sitting presidents. That is an obvious pretext. Even if the Democrats’ posturing could be ignored, the fact that only Trump’s returns are sought — and not those of former presidents — makes the game clear.

Former presidents have disclosed some tax information, but their full returns and all supporting documents were not released. And since the ostensible oversight focus is how the IRS audits tax returns of sitting presidents, that type of information is not publicly available. In addition, even if Secretary Mnuchin were to ignore the politics involved, he would be justified in withholding the president’s tax returns on constitutional grounds.

Congressional demands for information must be grounded in proper constitutional powers. Congress does not have general investigative authority, let alone a mandate to enforce federal law, both of which are vested in the president. Nor does it have adjudicative power, which is reserved to the judiciary. Its proper investigative power is broad but limited to the purposes of legislation or oversight. And Congress’s oversight powers can be exerted only over matters that plausibly can be reached through the exercise of congressional legislative powers.

As the Supreme Court stated in Watkins v. United States (1957), with respect to a McCarthy-era demand by the House Un-American Activities Committee for information from a private citizen, “there is no general authority to expose the private affairs of individuals without justification in terms of the functions of the Congress,” and “investigations conducted solely for the personal aggrandizement of the investigators or to ‘punish’ those investigated are indefensible.”

With this in mind, the proper tailoring of tax information-related requests by Congress is essential. For example, it may well be that looking at how the IRS audits tax returns of sitting presidents is a worthwhile legislative pursuit; however, assembling all available tax returns of former presidents and arranging the information so that the congressional review does not include ascertaining the identity of the president to whom a given set of tax returns belongs and then ensuring that even this randomized information cannot be publicly disclosed would serve all legitimate legislative needs. Everything else is simple harassment.

To ascribe to Congress greater authority in this area would produce a situation where, under the guise of enacting tax laws, congressional committees could gain access to the tax information of individual Americans, including those regarded by specific members of Congress as political or ideological enemies. This would result in unprecedented abuses of the most sensitive personal information about U.S. citizens that would render Nixon-era IRS abuses tame by comparison.

And, even putting aside partisanship, enabling Congress to snoop on Americans at will is not to be countenanced. What seemingly has eluded Chairman Neal’s supporters is that due process requirements operate with equal vigor on all branches of government, including Congress. Basic due process requirements prevent the executive branch from obtaining private information on U.S. citizens merely because it wants this data.

Instead, when seeking access to financial and other information, law enforcement agencies must demonstrate, usually to a judge, why such information can be legitimately obtained. Improperly gained information is routinely suppressed, and executive branch officials who have obtained it often are reprimanded and even prosecuted. The congressional statute in issue has to be construed with these constitutional imperatives in mind.

There is an additional consideration: Although Congress has oversight authority over the executive branch generally, it has no such authority over the president himself — any more than the president has oversight authority over Congress or the judiciary. Each branch of the federal government is constitutionally equal; none is subordinate. Trump’s business activities before he entered office, and his refusal to make public his tax returns, are not proper subjects of congressional investigation. Although presidential candidates usually release their tax returns as a matter of campaign strategy, Congress could not compel such a release by statute. The Constitution sets qualifications for the presidency, and Congress cannot alter that list.

The fact that Trump’s tax returns are being sought pursuant to a statute that ordinarily would require the Treasury secretary to provide the returns, does not alter the constitutional balance involved. Indeed, the use of Congress’s oversight powers and legislative powers are cabined by the same constitutional principles. The request is based upon an unconstitutional application of a statute — unconstitutional as applied to the situation.

Even if Congress were acting within its constitutional authority, an effort to use its legitimate powers to force disclosure of the president’s tax returns — with the clear goal of debilitating the presidency — would have to be balanced by the courts against the stated congressional need. In balancing otherwise legitimate, but conflicting, assertions of power by the two political branches, courts have looked at their respective needs and the harm that would be inflicted on their respective institutional authorities if one branch were to give way. If Congress does need President Trump’s tax returns for some legitimate legislative purpose, that need will be equally served by providing his returns after he leaves office.

Congress has many powers that can thwart a president’s policy or personnel choices, but only impeachment can personally hold a president responsible for his actions. Even here, it is not clear what relevance a president’s pre-inauguration personal tax returns could have to the question whether he has committed high crimes and misdemeanors while in office.

What Chairman Neal seeks cannot be granted. What is really at stake are not President Trump’s political fortunes but the preservation of the constitutionally required balance of powers between two political branches. Secretary Mnuchin is defending the ability of presidents to function without fear of congressionally driven debilitation. There is every reason to believe that he will prevail in the courts of law as well as in the court of public opinion.

David B. Rivkin Jr. and Lee A. Casey practice appellate and constitutional law in Washington. They served in the White House Counsel’s Office and the Department of Justice under former Presidents Reagan and George H.W. Bush.

Source: https://thehill.com/opinion/white-house/444231-demanding-trumps-tax-returns-is-congressional-overreach

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Another IRS free-speech scandal

By David B. Rivkin and Randall John Meyer

November 23, 2018, in the Wall Street Journal

The Internal Revenue Service infamously targeted dissenters during President Obama’s re-election campaign. Now the IRS is at it again. Earlier this year it issued a rule suppressing huge swaths of First Amendment protected speech. The regulation appears designed to hamper the marijuana industry, which is still illegal under federal law although many states have enacted decriminalization measures. But it goes far beyond that.

The innocuously named Revenue Procedure 2018-5 contains a well-hidden provision enabling the Service to withhold tax-exempt status from organizations seeking to improve “business conditions . . . relating to an activity involving controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act) which is prohibited by federal law.” That means that to obtain tax-exempt status under any provision of the Internal Revenue Code’s Section 501—whether as a charity, social-welfare advocacy group or other type of nonprofit—an organization may not advocate for altering the legal regime applicable to any Schedule I or II substance.

Marijuana is a Schedule I substance, meaning the Food and Drug Administration has found it has “no currently accepted medical use and a high potential for abuse.” Schedule II drugs include such widely prescribed medications as Adderall, Vyvanse, codeine and oxycodone. The IRS can deny tax-exempt status to any organization that seeks to improve the “business conditions” of a currently prohibited activity involving these medications. That could include simply advocating for a change in the law or regulation forbidding the possession, sale or use of marijuana or other Schedule I substances. It would also encompass advocacy for relaxing the regulatory regime currently governing the production, distribution or prescription of Schedule II medications.

The rule does not apply to all speech dealing with the listed substances, only that involving an “improvement” in “business conditions,” such as legalization or deregulation. Efforts to maintain restrictions or impose additional ones are fine by the IRS. This is constitutionally pernicious viewpoint discrimination. As the Supreme Court stated in Rosenberger v. University of Virginia (1995): “When the government targets not subject matter, but particular views taken by speakers on a subject, the violation of the First Amendment is all the more blatant.”

Defenders of the IRS may argue that tax-exempt status is a privilege, not a right. But the court has held that the government cannot require recipients of governmental largess to relinquish constitutional rights in return—particularly free-speech rights.

The IRS may point to Bob Jones University v. U.S. (1983), in which the high court upheld the denial of tax-exempt status to a private school with racially discriminatory practices that were “contrary to settled public policy.” But public policy on drugs, especially marijuana, is far from settled. A majority of states have enacted legalization measures contrary to federal law; Michigan, Missouri and Utah all did so this month. And Congress has already defunded Justice Department prosecutions of medical cannabis businesses that are legal under state law.

More important, Bob Jones involved not advocacy but action—discriminatory policies that constrained the university’s students. The case would likely have come out differently if the schools complied with public policy while arguing that it should change.

Although no constitutional right is absolute, governmental policies that burden First Amendment rights are strictly scrutinized by the courts and will be upheld only if based upon a compelling governmental interest.

The framers of the Bill of Rights had experienced the full brunt of British antisedition laws, which were used to punish political advocacy. They were determined that this never happen again. Banning or even burdening the freedom to advocate for changing governmental policies, no matter how unpopular or odious the message may be, violates not only the First Amendment but the idea of government by the people. Impeding such advocacy cannot have any legitimate governmental purpose, much less a compelling one.

Accordingly, while government has been able to justify limiting activities or conduct even when it has an expressive or religious component, the Supreme Court has sanctioned limits on the content of speech only in extreme circumstances. In Holder v. Humanitarian Law Project (2010), for instance, the justices upheld a ban on policy advocacy undertaken under the direction of, or in coordination with, certain terrorist groups. This narrow prohibition was constitutional only because the coordinated speech amounted to a “material support” to terrorist groups. The same speech, if conducted independently, would have been fully protected.

Here, by contrast, the IRS seeks to control independent policy advocacy. That’s something the federal government may not do. Yet it’s the second time this decade for the IRS.

Messrs. Rivkin and Meyer practice appellate and constitutional law in Washington.

Source: https://www.wsj.com/articles/another-irs-free-speech-scandal-1542918151

The True Lesson of the IRS Scandal

There should be less federal regulation of political speech.

By David B. Rivkin Jr. and Lee A. Casey

President Obama and his political allies have dismissed as “phony scandals” mounting evidence that the Internal Revenue Service and other federal agencies hindered and punished conservative advocacy groups. Meanwhile, efforts are under way to impose even more regulation on core political speech.

The government’s abuses are very real, but the scandal’s lessons are not appreciated: The federal regulation of political speech has already gone further than can be justified by existing law, let alone the Constitution.

The debate about political speech has so far focused on a particular type of nonprofit entity: social-welfare organizations exempt from federal income tax under section 501(c)(4) of the Internal Revenue Code. A group qualifies for this exempt status if it is “operated exclusively for the promotion of social welfare.” This means its efforts cannot inure to the benefit of specific individuals, members or private clubs.

On Wednesday, Rep. Chris Van Hollen (D., Md.) filed a federal lawsuit seeking to force the IRS to tighten the eligibility rules for politically active groups seeking 501(c)(4) status. Yet “social welfare” is a capacious term that includes many policy and political goals—from preserving historic battlefields to repealing laws for or against same-sex marriage.

The IRS has long recognized this by permitting such groups, if consistent with their stated social-welfare purpose, to engage primarily or even wholly in public-issue advocacy or lobbying. In other words, they are permitted to engage in political speech directed at government officials. At the same time, however, the IRS says that political campaign activities cannot account for more than half of a 501(c)(4)’s expenditures. But the statute itself contains no such limitation. In short, the IRS effectively robs social-welfare organizations of one half of their potential political speech.

This distinction between lobbying and election advocacy is entirely arbitrary. Electing candidates who support an organization’s principles and goals may be the most effective (and in some cases the only) means of achieving that organization’s social-welfare purpose. Yet the IRS rules here are consistent with the federal government’s overall approach to regulating elections since at least the 1970s. Bizarre as it may be in the world’s leading democracy, federal election laws treat the most effective form of political speech as the most disfavored. Stricter regulations like those sought by Rep. Van Hollen and others would only worsen the problem.

Until recently, the Supreme Court largely supported this system, interpreting the Constitution’s free-speech guarantees to permit these limitations in order to avoid corruption or its appearance. Even so, the court rejected efforts to control political activities, including expenditures, in support of a candidate but made independently of a candidate’s own campaign organization. The exception was corporations, which could not make independent expenditures.

In Citizens United v. FEC (2010), a majority of the court more sensitive to the First Amendment invalidated restrictions on independent political campaign expenditures by corporations, associations and labor unions. Since Citizens United, the use of 501(c)(4) organizations to engage in political speech has burgeoned—largely because such groups need not disclose their donors as purely political organizations still must. Calls for the IRS to close this supposed “loophole” also have multiplied.

That is a bad idea, not supported by the statutory language, and it is unconstitutional to boot. Although the Supreme Court has held that there is no duty to subsidize political speech through tax exemptions, there is no plausible basis on which the IRS (or Congress) can limit tax-exempt status to groups that eschew independent campaign spending while permitting other forms of political speech, such as lobbying.

Where the potential for corruption—for example, giving money to a candidate in exchange for favors—is absent, as the Citizens United ruling found with regard to independent expenditures, treating one form of political speech differently than others is not rational. It fails even the most deferential judicial review standard, much less the more exacting compelling governmental interest ordinarily applied under the First Amendment. The IRS-created 50% limit is vulnerable to challenge on the same grounds. It should make no difference under the existing statutory language what form the political speech of a 501(c)(4) takes; the organization should be able to spend 100% of its funds on independent campaign spending.

There also are sound policy reasons to cut 501(c)(4)s loose from such regulations. Such groups allow ordinary people to compete with the better-funded media industry, political parties, celebrities and other wealthy players, in the marketplace of ideas. Constraining the activities of 501(c)4s would not, as “progressives” claim, protect the little guy and level the playing field. Instead it would protect entrenched interests and, most of all, incumbents who can raise money simply because they hold public office.

Congress could abolish the 501(c)(4) status entirely. However, neither the IRS nor Congress can produce a result in which some groups, whose social-welfare purposes can be advanced through nonpolitical speech (such as promoting botany or historical research), can use 100% of their resources to do so, while others groups, whose social-welfare purposes can be advanced only through political speech, cannot.

To conclude otherwise would enable the government to engage in content-based restrictions on speech that have always been viewed as the most insidious violation of the First Amendment. The Supreme Court also has long made clear that Congress cannot deploy tax subsidies as a means of suppressing “dangerous ideas.”

The IRS scandal is a moment of reckoning. It offers the country a unique opportunity to free a substantial portion of political speech from government regulation.

This is an opportunity not to be wasted. Republicans should broaden their oversight inquiries into the constitutional and statutory basis on which the IRS has limited 501(c)(4) expenditures in the past—and force the agency to justify any plans it has to continue or expand those limits.

Messrs. Rivkin and Casey served in the Justice Department during the Reagan and George H.W. Bush administrations. They are partners in the Washington, D.C., office of Baker & Hostetler LLP.

Source: http://online.wsj.com/article/SB10001424127887323477604579001263134291446.html

The IRS and the drive to stop free speech

Such a scandal was bound to happen after the government started trying to rule the expression of political views.

By David B. Rivkin and Lee A. Casey

The unfolding IRS scandal is a symptom, not the disease. For decades, campaign-finance reform zealots have sought to limit core political speech through spending limits and disclosure requirements. More recently, they have claimed that it is wrong and dangerous for tax-exempt entities to engage in political speech.

The Obama administration shares these views, especially when conservative, small-government organizations are involved, and the IRS clearly got the message. While the agency must be investigated and reformed, the ultimate cure for these abuses is to unshackle political speech by all groups, including tax-exempt ones, from arbitrary and unconstitutional government regulation.

Beginning in March 2010, the IRS engaged in an unprecedented campaign of harassment against conservative groups, either through denials or delays in approving their tax-exempt-status applications, or through endless and burdensome audits.

In notable contrast, liberal and “progressive” organizations got approvals with remarkable speed. The most conspicuous example involves the Barack H. Obama Foundation, which was approved as tax exempt within a month by the then-head of the IRS tax-exempt branch, Lois Lerner. From media reports and firsthand accounts, we also know that the IRS disproportionately audited donors to conservative causes and leaked confidential tax information concerning conservative groups in violation of federal law.

This IRS politicization is not an isolated problem. It is an inevitable result of the broader efforts to regulate and, in fact, suppress political speech.

The IRS crackdown on tax-exemption approvals for conservative groups was directed at nonprofit social-welfare groups, often called 501(c)(4)s after the Internal Revenue Code section granting them tax-exempt status. Such groups do not have to disclose their donors and are exempt from most taxation, although donations to them generally aren’t tax deductible.

Social-welfare organizations are permitted to engage in a range of political activities promoting their causes or beliefs, so long as these activities aren’t their “primary purpose.” This has been generally understood to mean that they must spend less than 50% of their total resources on political activities.

The IRS had little interest in 501(c)(4) political activities until the 2002 McCain-Feingold campaign-finance reform. That law barred dedicated political-advocacy groups from soliciting and spending soft money—funds that aren’t subject to tight federal campaign-contribution limits and are used for issue advocacy and party-building.

This IRS restraint was doubtless reinforced by the fact that virtually all politically active (c)(4)s, mostly labor and environmental groups, were ideologically liberal and their activities were not attacked in the mainstream media or by the political establishment. Meanwhile, Republicans financed their political activities largely through candidate-specific campaigns and party and congressional committees.

Yet McCain-Feingold had the unintended effect of making 501(c)(4) political activities far more important than they had been, since the law’s ban on soft money doesn’t apply to such groups. Thus, it prompted the creation of conservative 501(c)(4)s—although there is little hard evidence of improper political activities by any such groups, whether liberal or conservative.

The Supreme Court’s 2010 decision in Citizens United further increased the importance of the groups by invalidating the restrictions against much political speech by corporations. This freed 501(c)(4) groups, which ordinarily are organized as corporations, to engage in the express advocacy of political causes and candidates.

The Obama administration made clear its deep dislike of Citizens United and of the various new conservative groups spawned by the “tea party” movement. The IRS bureaucrats took the hint. No express order from senior administration officials would have been necessary. Like other federal enforcement agencies, the IRS has always been well-attuned to even subtle guidance from the White House, Congress and the political establishment.

Thus, the IRS crackdown on conservative organizations was a direct and inevitable consequence of political and policy messaging by the Obama administration, and by the campaign-finance reformers who share these views. Congressional Democrats are also to blame, since many of them have publicly—as with Max Baucus, chairman of the Senate Finance Committee, which oversees the IRS—or privately urged the IRS to go after conservative tax-exempt organizations.

Ignoring their own share of responsibility, campaign-finance reformers and their allies are now pressing to broaden the IRS crackdown to apply to all tax-exempt organizations. In their view, the problem is not only with express political advocacy, but with all tax-exempt activities that might have political overtones, or be related to political issues. Indeed, many argue that such organizations should be conspicuously apolitical.

This is wrong as a matter of law and policy. Congress doesn’t have to provide tax-exempt status to social-welfare organizations, but having done so it cannot discriminate by the kind of advocacy in which such groups engage. To say that such activities can have no political implications is an insult to common sense. In a vibrant democracy, every major policy debate has political implications.

The spirited debate about policy issues should be at the core of social-welfare organizations. Politics is how we govern ourselves and political speech is essential to self-governance. The fact that 501(c)(4) group contributors aren’t subject to campaign disclosure requirements is a good thing.

There is nothing inherently evil about anonymous political speech. It is firmly anchored in our political and legal culture and was used by the Framers during the founding. Hamilton, Madison and Jay published their Federalist Papers under a pseudonym. The fact that the IRS was able to target conservative donors—similar to the way donors to the NAACP were targeted at the height of the civil-rights battles—shows how disclosure can lead to speech-suppressing government actions.

The courts have long held that the IRS cannot use subjective, “value-laden” tests in administering nonprofit status. As the Court of Appeals for the D.C. Circuit stated in one leading case, Big Mama Rag, Inc. v. United States (1980): “although First Amendment activities need not be subsidized by the state, the discriminatory denial of tax exemptions can impermissibly infringe free speech.”

The proper lessons of the unfolding IRS scandal are twofold. First, any effort to have the IRS police advocacy activities of social-welfare organizations is bound to be clumsy and prone to degenerate into either selective or broad witch hunts. Second, the remedy is not to further limit political speech by nonprofit entities—which would certainly raise significant constitutional issues—but to encourage such speech by imposing fewer restrictions.

Messrs. Rivkin and Casey served in the Justice Department during the Reagan and George H.W. Bush administrations. They are partners in the Washington, D.C., office of Baker & Hostetler LLP.

Source: http://online.wsj.com/article/SB10001424127887323582904578489690187015294.html