Tuesday, May 14, 2013



Scandal  Could  Leave  IRS  'Gun Shy'  With Political  Groups

A growing controversy in Washington involving the Internal Revenue Service could mean big changes in the way the agency regulates the political activity of tax-exempt organizations, according to election law experts.
At the White House and on Capitol Hill, President Obama and members of both political parties expressed outrage Monday at reports that the IRS had used political criteria to target conservative groups for extra scrutiny on 501(c)4 applications.
Robert Kelner, chairman of Covington and Burling's election and political law practice, said the IRS is going to be "gun shy" as a result of the scandal. And it's likely the agency would back away from close scrutiny of political activities for some time.
Less likely, but also possible, is that Congress might take away the IRS's oversight of political activity of tax-exempt organizations, he said.
"I think there is a growing body of thought that suggests it was a mistake to ever let the IRS regulate the political activity of tax-exempt organizations," Kelner said. "The IRS has trouble doing that well in the best of times, and in the worst of times there is a temptation for IRS personnel to put their thumb on the scale."
Trevor Potter, who heads Caplin & Drysdale's political law practice in Washington, said there are still a lot of unknowns, but it is clear the IRS has a mess on its hands. "They're saying they have thousands of applications that are unprocessed, and a broken method of determining which groups to select" for review, Potter said. "It is clear they are overwhelmed and underorganized." 

The situation will prompt review of the IRS's subjective, multipart test of what is too much political activity for a 501(c)4 group, he continued, which might have contributed to the agency looking at the name of a group and trying to divine what political activity that group might be up to.

Portions of an Inspector General for Tax Administration report containing the findings have been leaked to the news media, and the full report is due this week. A top IRS official apologized and said on Friday that dozens of organizations were singled out because they included the words "tea party" or "patriot" in their applications, the Associated Press reported.
The category of tax-exempt groups has been at the center of debate about regulating political speech and "social welfare organizations" since the U.S. Supreme Court decision in Citizens United v. Federal Elections Commission. In 2010, for example, congressional Democrats called on the IRS to crack down on activists' use of tax-exempt groups as cover for political advocacy.

The political fallout from the new revelation has been swift in Washington. During a press conference on Monday afternoon, Obama said that while he is waiting for the full report, "I can tell you that if you've got the IRS operating in anything less than a neutral and non-partisan way, then that is outrageous, it is contrary to our traditions."
On Capitol Hill, the chairman of the House Oversight and Government Reform Committee, Representative Darrell Issa (R-Calif.), said he would hold hearings about the report. He asked the inspector general to look into the matter last June after receiving complaints from conservative groups that they were undergoing closer scrutiny than were liberal groups.
The fact that Americans were targeted by the IRS because of their political beliefs is unconscionable," Issa said.
House Minority Leader Nancy Pelosi called for more clarity in the law regarding the activities of tax exempt organizations, along with greater disclosure and transparency. "We must overturn Citizens United, which has exacerbated the challenges posed by some of these so-called 'social welfare' organizations," Pelosi said in a written statement.

Perkins Coie partner Bob Bauer, a former White House counsel and Obama's presidential campaign lawyer, posted a blog on Monday offering a detailed analysis of possible reforms to avoid this kind of "indefensible" selective enforcement, such as requiring 501(c)4 organizations to conduct no campaign activity.

The government now must decide an unresolved issue: when does an organization pass from a social welfare function into out-and-out electioneering as its "major purpose," he wrote.

"There seems no disagreement that the IRS must stay out of politics — eschewing political judgments and giving no cause to suspect political favoritism," Bauer wrote. "Yet the law and rules as they now stand generate pressures the other way."
Neil Reiff, a founding member of the firm of Sandler, Reiff, Young & Lamb in Washington, expressed skepticism that Congress will change the law. It will be important to watch how the IRS reacts, he said. "I think it's a huge deal. Has the IRS been wounded to the point they have to pull back?" Republicans will be howling for fairness, Reiff said, and liberal groups could be girding for backlash and added scrutiny.
Jan Baran, a partner at Wiley Rein who has handled tax-exempt matters for clients for 30 years, expects that there will be heightened sensitivity to applying the tax laws evenly. And that likely will mean a delay for everybody applying for the tax-exempt status.

While surprised at the reports, Baran said they explains what he had been seeing for the past few years: applications have taken much longer and with more interference by the IRS with respect to groups that seem to be conservative.
Baran said he was in law school when President Nixon used the IRS to scrutinize his political opponents.
"It led to a long period of great sensitivity at the IRS of making sure they are not behaving in a way that is politically improper," Baran said. "My reaction was: This is the IRS, they learned their lesson with Nixon, surely."
he Justice Department secretly obtained two months of telephone records of reporters and editors for The Associated Press in what the news cooperative's top executive called a "massive and unprecedented intrusion" into how news organizations gather the news.

The records obtained by the Justice Department listed outgoing calls for the work and personal phone numbers of individual reporters, for general AP office numbers in New York, Washington and Hartford, Conn., and for the main number for the AP in the House of Representatives press gallery, according to attorneys for the AP. It was not clear if the records also included incoming calls or the duration of the calls.
In all, the government seized the records for more than 20 separate telephone lines assigned to AP and its journalists in April and May of 2012. The exact number of journalists who used the phone lines during that period is unknown, but more than a hundred journalists work in the offices where phone records were targeted, on a wide array of stories about government and other matters.
In a letter of protest sent to Attorney General Eric Holder on Monday, AP President and Chief Executive Officer Gary Pruitt said the government sought and obtained information far beyond anything that could be justified by any specific investigation. He demanded the return of the phone records and destruction of all copies.

"There can be no possible justification for such an overbroad collection of the telephone communications of The Associated Press and its reporters. These records potentially reveal communications with confidential sources across all of the newsgathering activities undertaken by the AP during a two-month period, provide a road map to AP's newsgathering operations and disclose information about AP's activities and operations that the government has no conceivable right to know," Pruitt said.

The government would not say why it sought the records. Officials have previously said in public testimony that the U.S. attorney in Washington is conducting a criminal investigation into who may have provided information contained in a May 7, 2012, AP story about a foiled terror plot. The story disclosed details of a CIA operation in Yemen that stopped an al-Qaida plot in the spring of 2012 to detonate a bomb on an airplane bound for the United States.

In testimony in February, CIA Director John Brennan noted that the FBI had questioned him about whether he was AP's source, which he denied. He called the release of the information to the media about the terror plot an "unauthorized and dangerous disclosure of classified information."
Prosecutors have sought phone records from reporters before, but the seizure of records from such a wide array of AP offices, including general AP switchboards numbers and an office-wide shared fax line, is unusual.
In the letter notifying the AP, which was received Friday, the Justice Department offered no explanation for the seizure, according to Pruitt's letter and attorneys for the AP. The records were presumably obtained from phone companies earlier this year although the government letter did not explain that. None of the information provided by the government to the AP suggested the actual phone conversations were monitored.

Among those whose phone numbers were obtained were five reporters and an editor who were involved in the May 7, 2012, story.

The Obama administration has aggressively investigated disclosures of classified information to the media and has brought six cases against people suspected of providing classified information, more than under all previous presidents combined.

The White House on Monday said that other than press reports it had no knowledge of Justice Department attempts to seek AP phone records.
"We are not involved in decisions made in connection with criminal investigations, as those matters are handled independently by the Justice Department," spokesman Jay Carney said.
Rep. Darrell Issa, R-Calif., chairman of the investigative House Oversight and Government Reform Committee, said on CNN, "They had an obligation to look for every other way to get it before they intruded on the freedom of the press."
Sen. Patrick Leahy, D-Vt., chairman of the Senate Judiciary Committee, said in an emailed statement: "The burden is always on the government when they go after private information, especially information regarding the press or its confidential sources. ... On the face of it, I am concerned that the government may not have met that burden. I am very troubled by these allegations and want to hear the government's explanation."
The American Civil Liberties Union said the use of subpoenas for a broad swath of records has a chilling effect both on journalists and whistleblowers who want to reveal government wrongdoing. "The attorney general must explain the Justice Department's actions to the public so that we can make sure this kind of press intimidation does not happen again," said Laura Murphy, the director of ACLU's Washington legislative office.
Rules published by the Justice Department require that subpoenas of records of news organizations must be personally approved by the attorney general, but it was not known if that happened in this case. The letter notifying AP that its phone records had been obtained through subpoenas was sent Friday by Ronald Machen, the U.S. attorney in Washington.
William Miller, a spokesman for Machen, said Monday that in general the U.S. attorney follows "all applicable laws, federal regulations and Department of Justice policies when issuing subpoenas for phone records of media organizations." But he would not address questions about the specifics of the AP records. "We do not comment on ongoing criminal investigations," Miller said in an email.
The Justice Department lays out strict rules for efforts to get phone records from news organizations. A subpoena can be considered only after "all reasonable attempts" have been made to get the same information from other sources, the rules say. It was unclear what other steps, in total, the Justice Department might have taken to get information in the case.
A subpoena to the media must be "as narrowly drawn as possible" and "should be directed at relevant information regarding a limited subject matter and should cover a reasonably limited time period," according to the rules.
The reason for these constraints, the department says, is to avoid actions that "might impair the news gathering function" because the government recognizes that "freedom of the press can be no broader than the freedom of reporters to investigate and report the news."
News organizations normally are notified in advance that the government wants phone records and then they enter into negotiations over the desired information. In this case, however, the government, in its letter to the AP, cited an exemption to those rules that holds that prior notification can be waived if such notice, in the exemption's wording, might "pose a substantial threat to the integrity of the investigation."

It is unknown whether a judge or a grand jury signed off on the subpoenas.
Arnie Robbins, executive director of the American Society of News Editors, said, "On the face of it, this is really a disturbing affront to a free press. It's also troubling because it is consistent with perhaps the most aggressive administration ever against reporters doing their jobs — providing information that citizens need to know about our government."
Sen. Rand Paul, R-Ky., a potential 2016 presidential candidate, said: "The Fourth Amendment is not just a protection against unreasonable searches and seizures, it is a fundamental protection for the First Amendment and all other Constitutional rights. It sets a high bar — a warrant — for the government to take actions that could chill exercise of any of those rights. We must guard it with all the vigor that we guard other constitutional protections."
The May 7, 2012, AP story that disclosed details of the CIA operation in Yemen to stop an airliner bomb plot occurred around the one-year anniversary of the May 2, 2011, killing of Osama bin Laden.
The plot was significant both because of its seriousness and also because the White House previously had told the public it had "no credible information that terrorist organizations, including al-Qaida, are plotting attacks in the U.S. to coincide with the (May 2) anniversary of bin Laden's death."
The AP delayed reporting the story at the request of government officials who said it would jeopardize national security. Once officials said those concerns were allayed, the AP disclosed the plot, though the Obama administration continued to request that the story be held until the administration could make an official announcement.
The May 7 story was written by reporters Matt Apuzzo and Adam Goldman with contributions from reporters Kimberly Dozier, Eileen Sullivan and Alan Fram. They and their editor, Ted Bridis, were among the journalists whose April-May 2012 phone records were seized by the government.
Brennan talked about the AP story and investigation in written testimony to the Senate. "The irresponsible and damaging leak of classified information was made ... when someone informed The Associated Press that the U.S. government had intercepted an IED (improvised explosive device) that was supposed to be used in an attack and that the U.S. government currently had that IED in its possession and was analyzing it," he wrote.
He also defended the White House decision to discuss the plot afterward. "Once someone leaked information about interdiction of the IED and that the IED was actually in our possession, it was imperative to inform the American people consistent with government policy that there was never any danger to the American people associated with this al-Qaida plot," Brennan told senators.

Updated 11:20 p.m.

The U.S. Justice Department is defending its review of two months of phone records for a group of reporters and editors at the Associated Press, which called the government action "a massive and unprecedented intrusion" into newsgathering.

The news agency publicly disclosed the Justice Department's review of the phone records in a protest letter to Attorney General Eric Holder Jr. "There can be no possible justification for such an overbroad collection of the telephone communications of The Associated Press and its reporters," Gary Pruitt, president and chief executive officer of the AP, wrote.

"That the Department undertook this unprecedented step without providing any notice to the AP, and without taking any steps to narrow the scope of its subpoenas to matters actually relevant to an ongoing investigation, is particularly troubling," Pruitt said. Prosecutors collected records on 20 separate phone lines.

A statement from the U.S. Attorney's Office for the District of Columbia did not reveal the nature of the investigation. The Justice Department, however, has previously disclosed that the Maryland and District of Columbia U.S. attorneys areinvestigating, among other national security matters, the leak of information that provided the substance of an Associated Press story, published in May 2012, about an alleged terrorist plot that was thwarted.
Members of Congress on Wednesday will get a chance to question Holder about the rare move to subpoena newspaper reporters' phone records. Holder is scheduled to testify at the House Judiciary Committee for an oversight hearing.

"We take seriously our obligations to follow all applicable laws, federal regulations, and Department of Justice policies when issuing subpoenas for phone records of media organizations," the DOJ statement read. "Those regulations require us to make every reasonable effort to obtain information through alternative means before even considering a subpoena for the phone records of a member of the media."

The statement concluded with this: "Because we value the freedom of the press, we are always careful and deliberative in seeking to strike the right balance between the public interest in the free flow of information and the public interest in the fair and effective administration of our criminal laws." (Click here to read the Justice Department's policy statement regarding the issuance of subpoenas to reporters.)

Civil liberties advocates urged the Justice Department to provide a fuller explanation.

"The media's purpose is to keep the public informed and it should be free to do so without the threat of unwarranted surveillance," Laura Murphy, director of the American Civil Liberties Union's legislative office in Washington, said in a formal statement. "The Attorney General must explain the Justice Department's actions to the public so that we can make sure this kind of press intimidation does not happen again."

U.S. Rep. Darrell Issa (R-Calif.), chairman of the House Oversight and Government Reform Committee, called the revelation of the Justice Department's action "disturbing." Issa said he "will work with my fellow House Chairmen on an appropriate response."

Sen. Patrick Leahy (D-Vt.), chairman of the Senate Judiciary Committee, said in a statement that he is "very troubled by these allegations" and wants to hear from the Justice Department.

“The burden is always on the government when they go after private information--especially information regarding the press or its confidential sources," Leahy said. "I want to know more about this case, but on the face of it, I am concerned that the government may not have met that burden."
Pruitt, the AP executive, asked the Justice Department to return the telephone records and destroy any copies.

"At a minimum, we request that you take steps to segregate these records and prohibit any reference to them pending further discussion and, if it proves necessary, guidance from appropriate judicial authorities," Pruitt said.

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