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6th Cir. Has No Patience for IRS Delay in Tea Party Suit

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By Casey C. Sullivan, Esq. on March 24, 2016 6:59 AM

Three years ago, the Internal Revenue Service revealed that it had created a "Be on the Lookout" lists, identifying certain organizations for extra scrutiny. Many of those organizations shared one key feature: they had Tea Party in their name. When they applied for tax-exempt status, they were allegedly met with excessive delays and unreasonable IRS demands.

Now, after the politically targeted groups sued, the IRS is employing those same unjustified tactics in court, according to a very harshly worded opinion from the Sixth Circuit. This was a serious benchslap. IRS lawyers, you might want to rethink your litigation strategy.

The IRS's BOLO Lists

After the IRS's "Be on the Lookout" list was revealed, the NorCal Tea Party Patriots and similar groups sued, alleging that the IRS discriminated against them on political grounds, taking four times as long to process tax-exemption applications for Tea Party groups, and issuing "crushing demands for what the Inspector General called 'unnecessary information.'"

The Tea Partiers, naturally, sought production of the BOLO lists. Despite the IRS's objections, the district court ordered the Service to produce the lists. Instead of handing them over, the IRS sought a writ of mandamus from the Sixth Circuit. The circuit court was not amused.

Hurry It up, IRS

The Sixth Circuit opinion, authored by Judge Raymond Kethledge, doesn't waste any time before tearing into the Service. The second paragraph begins by declaring that "in this lawsuit, the IRS has only compounded the conduct that gave rise to it."

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... [A]lmost 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.

Judge Kethledge is not amused.

Hello Circuit Split?

To be fair to the IRS, they had good reason to challenge the district court's ruling. According to the IRS, information included on the "Be on the Lookout" lists, such as names, addresses, and taxpayer identification numbers, was "return information" that the Internal Revenue Code prohibits the IRS from sharing.

The Sixth Circuit acknowledged that a 2001 case from the D.C. Circuit seemed to be in conflict with their holding. In Landmark Legal Foundation v. IRS, the D.C. Circuit held that names of applications for tax-exempt status count as "return information." But, the Sixth said, that holding is unpersuasive, if not simply wrong:

The Landmark court stated that the names of applicants for tax-exempt status are "return information" because § 6103(b)(2)(A) "specifically covers 'a taxpayer's identity.'" But the court never referenced Congress's express definition of that term in § 6103(b)(6) -- the IRS apparently failed to mention it there too-and thus the court seemed unaware throughout that "taxpayer's identity" includes only names on a return, not on an application. [Emphasis in the original.]

With that, the Sixth Circuit warned that the conduct of the IRS's attorneys "falls outside" the government's tradition of "defending the nation's interests and enforcing its laws. "We expect the IRS will do better going forward," the court wrote.

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