Freedom Path V IRS

Case 3:14-cv-01537-D Document 1 Filed 04/28/14
Page 1 of 58 PageID 1
IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION FREEDOM PATH, INC. Plaintiff, v. LOIS G. LERNER, in her personal capacity as former Director, Exempt Organizations Division, Internal Revenue Service; UNKNOWN NAMED OFFICIALS OF THE INTERNAL REVENUE SERVICE, in their official and personal capacities as employees, Internal Revenue Service; INTERNAL REVENUE SERVICE; and UNITED STATES OF AMERICA, Defendants. ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) ) )
Civil Case No.
PLAINTIFFS VERIFIED COMPLAINT Plaintiff Freedom Path, Inc. brings this action and complains as follows: NATURE OF THE ACTION 1. This action arises out of (1) the illegal targeting of Plaintiff and the additional
and unconstitutional scrutiny of Plaintiffs pending Form 1024 Application for Recognition of Exemption as a 501(c)(4) organization (Application for Exemption) based solely on its conservative policy positions; (2) the illegal release of Plaintiffs pending Application for Exemption to a New York-based investigative news organization called ProPublica, and the apparent additional scrutiny of the application resulting from the illegal disclosure; and (3)
the use of an unconstitutional facts and circumstances test to evaluate Plaintiffs activities. 2. First, through an illegal scheme hatched and carried out by Internal Revenue
Service (IRS) officials acting under color of federal authority, a group of IRS employees pulled applications from conservative ideological organizations based upon their conservative names or policy positions, delayed processing those applications, and then made probing and unconstitutional requests for additional information. The request for additional information received by Plaintiff in February 2012, for example, attempted to force Plaintiff to disclose the names of its donors and asked multiple other questions that a Treasury Inspector General for Tax Administration report determined to be unnecessary to Plaintiffs determination of tax-exempt status. See Treasury Inspector General for Tax Administration Report Ref. Number 2013-10-053, Ex. 1 (TIGTA Report). Defendants have already admitted to their unlawful conduct of discriminatorily targeting conservative ideological organizations, which include Plaintiff, for heightened scrutiny. 3. Defendants unconstitutional targeting scheme had a dramatic impact on
Plaintiff, causing it to curtail lawful activities, unnecessarily expend considerable funds and resources on legal fees and public relations battles, lose donor support, and devote resources and countless hours of time to responding to onerous and targeted IRS information requests that were outside the scope of a conventional and legitimate inquiry into whether Plaintiffs Application for Exemption should be approved or denied. 4. Second, and compounding the constitutional injury, Defendant IRS then
illegally disclosed Plaintiffs confidential tax return information to the New York-based investigative news organization called ProPublica, which published the information in PLAINTIFFS VERIFIED COMPLAINT 2
conjunction with an article suggesting that Plaintiff had engaged in illegal activities and/or misstated its activities on tax documents. See Kim Barker, Controversial Dark Money Group Among Five That Told IRS They Would Stay Out of Politics, Then Didnt (Jan. 2, 2013), available at http://www.propublica.org/article/controversial-dark-money-group-amongfive-that-told-irs-they-would-stay-out, Ex. 2 (Jan. 2013 ProPublica Article). ProPublicas report about Defendant IRSs release of information and targeting was reposted by other media outlets, including The Washington Post and The Salt Lake Tribune, and has resulted in additional adverse publicity for the organization and damages. 5. Third, this lawsuit presents a rare opportunity to challenge Defendant IRSs
unconstitutionally vague and ambiguous facts and circumstances test used to analyze Plaintiffs activities, a test which is in direct conflict with the U.S. Supreme Courts clear guidelines relating to issue advocacy and campaign speech in Federal Election Commission v. Wisconsin Right to Life, Inc. (WRTL II), 551 U.S. 449 (2007). Given the inherent difficulties in judging issue advocacy and campaign speech, the Court eschew[ed] the open-ended rough-and-tumble of factors, in favor of a bright-line, objective standard that does not depend on the speakers intent or the listeners understanding. Id. at 469 (quoting Jerome B. Grubart, Inc. v. Great Lakes Dredge & Dock Co., 513 U.S. 527, 547 (1995) (internal quotations omitted)). 6. In stark contrast to the objective standard adopted by the U.S. Supreme Court
in 2007, the IRS has blatantly ignored the Courts applicable precedent and continues to apply the amorphous facts and circumstances test to Plaintiffs activities in a manner that unjustifiably focuses on the inherently fact-intensive and subjective nature of external contextual factors. The twenty plus factors that the IRS considers when attempting to apply PLAINTIFFS VERIFIED COMPLAINT 3
its facts and circumstances test are grossly indeterminate, and their application grossly imprecise, so that the IRS is more or less free to come to any conclusions it wishes with respect to a particular public communication. See Big Mama Rag v. United States, 631 F.2d 1030, 1034 (D.C. Cir. 1980) ([R]egulations authorizing tax exemptions may not be so unclear as to afford latitude for subjective application by IRS officials.). As such, the IRSs facts and circumstances test poses a severe restriction on speech that does not withstand Constitutional scrutiny. 7. A recently released email from Defendant Lois G. Lerner, see Email from Lois
G. Lerner to Michael C. Seto, Holly O. Paz, Darla J. Trilli, Douglas Akaisha, Diane L. Letourneau, and Judith E. Kindell (Feb. 1, 2011), Ex. 3 (Tea Party Matter Very Dangerous Email), evidences the IRSs concern that its current rules governing tax-exempt organizations will be subject to judicial challenge; however, by utilizing procedural ploys unavailable in this case, the IRS has successfully evaded, until now, review of the substance of its facts and circumstances test. As such, no court has ever had the opportunity to review those criteria. See Catholic Answers, Inc. v. United States, 438 F. Appx 640 (9th Cir. 2011) (unpublished opinion) cert. denied 132 S. Ct. 1143 (2012); Christian Coal. of Fla., Inc. v. United States, 662 F.3d 1182, 1196 n.13 (11th Cir. 2011). 8. This lawsuit seeks damages against all Defendants for the illegal targeting of
Plaintiff and the additional and unconstitutional scrutiny of its Application for Exemption, damages against Defendant United States of America for the illegal release of Plaintiffs confidential tax return information, and declaratory and injunctive relief against Defendant IRS to enjoin it from utilizing the unconstitutional facts and circumstances test to analyze Plaintiffs activities. PLAINTIFFS VERIFIED COMPLAINT 4
JURISDICTION AND VENUE 9. The Court has jurisdiction over this case under 5 U.S.C. 702 (Administrative
Procedure Act), 26 U.S.C. 7431(a) (Unauthorized Disclosure of Return Information), 28 U.S.C. 1331 (Federal Question), and 28 U.S.C 2201 (Declaratory Judgment Act). 10. Neither the Anti-Injunction Act, 26 U.S.C. 7421, nor the federal taxes
carve-out from the Declaratory Judgment Act, 28 U.S.C. 2001, bar this action because it is not being brought for the purpose of restraining the assessment or collection of any tax. Moreover, this action is properly brought because it satisfies one or more of the judiciallyrecognized exceptions to the Anti-Injunction and Declaratory Judgment Acts. In fact, there is no statutory requirement that requires the IRS to defer the consideration of Plaintiffs Application for Exemption, delay issuing a final determination regarding Plaintiffs Application for Exemption, or ultimately prevent the IRS from assessing or collecting taxes in response to this lawsuit. 11. The United States of America has waived its sovereign immunity in this
action pursuant to 5 U.S.C. 702, 26 U.S.C. 7431, and 28 U.S.C. 2201. 12. 13. Venue is proper in this Court under 28 U.S.C. 1391(e)(1)(A-C). This Court has personal jurisdiction over Defendants because Defendant
IRSs Office of Exempt Organizations, of which Defendant Lerner oversaw during times relevant herein, maintains an office in Dallas, Texas. The IRSs Dallas office is the headquarters of the Exempt Organizations Examinations Unit, which is under the umbrella of Exempt Organizations. Defendants, therefore, had continuous and systematic contacts with the IRSs Dallas office and the forum related to the claims in this lawsuit.
PLAINTIFFS VERIFIED COMPLAINT
PARTIES 14. Plaintiff Freedom Path is a nonprofit corporation organized under the Texas
Business Organizations Code. Plaintiff was formed and operates as a social welfare organization pursuant to Internal Revenue Code (I.R.C.) 501(c)(4). 15. Plaintiffs address, which is where Plaintiff is required to make its annual
returns available for inspection and copying pursuant to Section 301.6104(d)-1 of the Treasury Regulations, is located at 2101 Cedar Springs Road, Suite 1050, Dallas, Texas 75201. 16. At relevant times herein, Defendant Lois G. Lerner was the Director of the
Exempt Organizations Division of the Internal Revenue Service (EO Division) and responsible for the administration and enforcement of all rules, policies, procedures, and practices of the EO Division. Defendant Lerner is sued in her individual capacity for acts and omissions that occurred in connection with duties performed on behalf of the United States while acting under color of federal authority. 17. The Unknown Named IRS Officials are unidentified individual officials within
the Internal Revenue Service who are responsible for administration and enforcement of all rules, policies, and practices of their respective divisions of the IRS. Each Unknown Named Defendant is sued in his or her official capacity and in his or her personal capacity for acts and omissions that occurred in connection with duties performed on behalf of the United States while acting under color of federal authority. 18. Defendant Internal Revenue Service is an agency of the United States that is
responsible for administration and enforcement of provisions of the I.R.C., as well as other IRS rules, regulations, policies, procedures, and practices. PLAINTIFFS VERIFIED COMPLAINT 6
19.
The United States of America is a proper defendant pursuant to 5 U.S.C.
702, 26 U.S.C. 7431(a), and 28 U.S.C. 1346(e). STATEMENT OF FACTS 20. Plaintiff is a Texas nonprofit corporation formed to promote the social
welfare within the meaning of I.R.C. 501(c)(4). The mission of the organization is to promote and defend the causes that recognize the individual rights and liberties guaranteed to all Americans in the greatest political document ever conceived: the United States Constitution. Nothing in Plaintiffs organizational documents or in its public statements indicates that Plaintiff has the major purpose of influencing the results of an election. 21. Scott Bensing is a member of Plaintiffs Board of Directors and serves as
Executive Director of the organization. He is familiar with its operations and the events leading to this suit and verifies the facts herein that are pertinent to Plaintiff on personal knowledge. 1. Defendants Intentional And Systematic Targeting Of Conservative Organizations, Including Plaintiff Freedom Path 22. On May 14, 2013, the Treasury Inspector General for Tax Administration
(TIGTA) released the report of an IRS audit it initiated based on concerns expressed by Congress and the media about the targeting of certain conservative ideological organizations (collectively, conservative nonprofits) seeking tax-exempt status. See TIGTA Report at 3, Ex. 1. 23. The TIGTA reported that the IRS, both before and during the 2012 election
cycle, had engaged in the following:
(a) targeting of tax-exempt applications for additional scrutiny and inquiry based on inappropriate criteriaincluding organizational names and policy positions; (b) significantly delaying the processing of these applications, keeping them open over twice the length of time typically required to process taxexempt applications; and (c) requesting additional information from these applicants that was entirely unnecessary and irrelevant to the IRSs determination regarding the organizations tax-exempt status. See id. at 5-20. 24. At least as early as February 2010, the IRS began identifying for additional
scrutiny (including the issuance of letter requests for additional information) applications from organizations seeking tax exemption whose names included the terms Tea Party, Patriots, 9/12 Project, and other conservative-sounding names. See id. at 5-6, 30. By June 2011, the IRS had expanded its criteria to target organizations whose policy positions and purposes focused on government spending, government debt or taxes and educating on the constitutional and bill of rights. See id. at 6, 30. 25. The TIGTA determined that the criteria developed by the [IRSs]
Determinations Unit gives the appearance that the IRS is not impartial in conducting its mission. The criteria focused narrowly on the names and policy positions of organizations instead of tax-exempt laws and Treasury Regulations. See id. at 6-7. In other words, Defendants engaged in viewpoint-based discrimination not necessary to further a compelling government interest in violation of a clearly established constitutional right. 26. At least as early as April 2010, the Acting Manager, Exempt Organizations
Technical Unit (EO Technical Unit) (upon information and belief, Steven Grodnitzky), was
aware of the selective targeting of and discrimination against the conservative nonprofits. See id. at 31. 27. In April 2010, the Acting Manager, EO Technical Unit (upon information and
belief, Steven Grodnitzky) directed the preparation of a Sensitive Case Report regarding these conservative nonprofits, which was prepared by the EO Technical Unit in mid-April 2010. See id. at 31-32. 28. Upon information and belief, according to the usual and custom practice, the
Sensitive Case Report was shared with then-Director, Rulings and Agreement Office (upon information and belief, Robert Choi), and a summary of the Report was provided to Defendant Lerner. See id. at 32. 29. Between April and June 2011, the Acting Manager, EO Technical Unit (upon
information and belief, Steven Grodnitzky and Michael Seto) and their team worked with other IRS agents and officials, including the Unknown Named IRS Officials, to discriminatorily identify additional applications from conservative nonprofits and to review letters requesting additional information from such applicants. See id. at 32-35. 30. Upon information and belief, Cindy Thomas, Carter Hull, and Steven
Gronitzky provided direct oversight and instruction to IRS employees regarding the handling of the applications from conservative nonprofits, including specific questions they should ask of those seeking tax exempt status. 31. As further evidence of the unlawful discrimination against Plaintiff,
identification of these applications was based in part on what the IRS officials internally referred to as a Be on the Lookout, or BOLO, list. See id. at 6; see also, e.g., EOD Political Advocacy Cases Screened by EO Technical (11/16/11), at 8, Ex. 4. PLAINTIFFS VERIFIED COMPLAINT 9
32.
During the period from August 2010 through July 2012, the criteria on the
BOLO list included, at various times, the following: . . . various local organizations in the Tea Party movement and political action type organizations involved in
limiting/expanding Government, educating on the Constitutional and Bill of Rights, social economic reform/movement. See TIGTA Report at 6, 32-33, 35, 38. 33. At least as early as June 2011, Defendant Lerner and, upon information and
belief, Holly Paz, David Fish, Carter Hull, Steven Grodnitzky, and the Unknown Named IRS Officials, were aware of the use of the following discriminatory criteria in identifying applications for further IRS scrutiny: (a) reference to Tea Party, Patriots, or 9/12 Project in the case file; (b) issues in the case included Government spending, Government debt, or taxes; (c) the applicant was engaged in [e]ducation of the public via advocacy/lobbying to make America a better place to live; and (d) the case file included statements criticizing how the country is being run. See id. at 35. 34. The EO Technical Unit developed written guidelines to be used by IRS
officials and employees who were processing the conservative nonprofits applications. See id. at 36-37. The development of such specific criteria was not the unintended consequence of bureaucracy; rather, the criteria were intentionally developed by Defendants to single out Plaintiff and other organizations based solely on their viewpoints. 35. Based on these guidelines, IRS officials and employees, including, upon
information and belief, Defendant Lerner, Holly Paz, David Fish, Carter Hull, Steven Grodnitzky, and other Unknown Named IRS Officials, then prepared, reviewed, and issued PLAINTIFFS VERIFIED COMPLAINT 10
letters requesting additional information to the conservative nonprofits, including Plaintiff. See id. at 18, 38. As was the case with Plaintiff, the requests for additional information were often delayed almost one full year and sometimes more after the organizations initially filed their applications for tax-exempt status. See id. at 12. In contrast, in Fiscal Year 2012, 70 percent of all closed applications for tax-exempt status were approved during an initial review with little or no additional information from the organizations. See id. at 1. 36. After issuance of the additional information requests, media outlets began
publicizing complaints from various organizations about the request letters, and Congress began to show concern about the IRSs discriminatory treatment of organizations based on ideology. See id. at 18-19, 39. 37. Following the onslaught of this congressional and media attention, Defendant
Lerner finally halted the issuance of further letters requesting additional information until new guidelines were developed and provided to those officials processing the applications of these conservative nonprofits. Defendant Lerner did not, however, take any action at that time to ensure that the letter previously sent to Plaintiff, which contained unconstitutional and inappropriately intrusive information, was retracted. See id. at 19. 38. In or around March 2012, IRS officials and employees created a list of
template questions to be included in future letters requesting additional information from the conservative nonprofits. This list was provided to members of the Guidance Unit in Washington, D.C., and still included inappropriate and unconstitutional requests for donor information. See id. at 39. 39. At least as early as March 2012, then Deputy-Commissioner for Services and
Enforcement (upon information and belief, Steven Miller) was aware that the additional PLAINTIFFS VERIFIED COMPLAINT 11
information being requested from the conservative nonprofits included donor information. Rather than halt such requests, however, Mr. Miller indicated that IRS officials and employees processing these applications should permit those applicants who complained about the request to refrain from sending in the donor information for the time being, but only with the clarification that the IRS might later require the applicant to provide such information. See id. at 39. 40. Between March and May 2012, the IRS, through various officials, including,
upon information and belief, Defendant Lerner, Steven Miller, Holly Paz, David Fish, Carter Hull, Steven Grodnitzky, and Defendant Unknown Named IRS Officials, continued to review the applications of the conservative nonprofits and the additional information requests issued to the applicants, and provided further guidance to the IRS employees regarding the process of the applications. 41. According to the TIGTA Report:, [T]he inappropriate and changing criteria may have led to inconsistent treatment of organizations applying for taxexempt status. For example, we identified as some organizations applications with evidence of significant political intervention that were not forwarded to the team of specialists for processing but should have been. See id. at 5. 42. The conservative nonprofits experienced significant processing delays of
their applications, and some (including Plaintiff) are still awaiting their determination years later. The TIGTA Report summarized the harm caused by such delays as follows: [T]his means that potential donors and grantors could be reluctant to provide donations or grants. . . . The delays may have also prevented some organizations from receiving certain benefits of the tax-exempt status. For example, if organizations are approved for tax-exempt status, they may receive exemption from certain State taxes and reduced postal rates. For PLAINTIFFS VERIFIED COMPLAINT 12
organizations that may eventually be denied tax-exempt status but have been operating while their applications are pending, the organizations will be required to retroactively file income tax returns and may be liable to pay income taxes for, in some cases, more than two years. See id. at 12. 43. During the same time that Defendants were carrying out their illegal
targeting scheme, Defendant Lerner and other IRS officials were concerned about insulating the IRSs facts and circumstances test from legal challenge. In a February 1, 2011, email to five IRS colleagues, Defendant Lerner wrote: Tea Party Matter very dangerous. This could be the vehicle to go to court on the issue of whether Citizens [sic] United overturning the ban on corporate spending applies to tax exempt rules. Counsel and Judy Kindell need to be in on this one pl ease needs to be in this [sic]. Cincy should probably NOT have these cases --Holly [Paz] please see what exactly they have please. See Tea Party Matter Very Dangerous Email at 3, Ex. 3. 44. The concern conveyed in Defendant Lerners email is consistent with the
IRSs previous and ongoing efforts to intentionally insulate its facts and circumstances test from judicial review. In fact, the IRS has never defended the substance of the facts and circumstances test in its Revenue Rulings (specifically, Rev. Rul. 2004-6, 2004-1 C.B. 328 and Rev. Rul. 2007-41, 2007-1 C.B. 1421) in litigation, and no court has ever had the opportunity to review those criteria. 45. Recently, the courts began to recognize the IRSs evasive efforts. See Catholic
Answers, Inc. v. United States, 438 F. Appx 640 (9th Cir. 2011) (unpublished opinion) cert. denied 132 S. Ct. 1143 (2012); see also Christian Coal. of Fla., Inc. v. United States, 662 F.3d 1182 (11th Cir. 2011). In Catholic Answers, Inc., the Ninth Circuit found that the suit was moot because the IRS had abated Catholic Answers tax. The Court noted, however, with obvious suspicion: PLAINTIFFS VERIFIED COMPLAINT 13
This set of facts may be capable of repetition, given Catholic Answers' assertion that it will engage in similar political speech in the future...However, should this set of facts recur, the case will not evade review because it will be clear then, while it is not now, that the IRS has intentionally maneuvered to avoid judicial scrutiny and will not be permitted to engage in evasion of this kind. Catholic Answers, Inc. 438 F. Appx at 641 (emphasis added). In Christian Coalition of Florida, Inc., the Eleventh Circuit found that a similar challenge to the facts and circumstances test was moot because IRS had refunded the plaintiffs disputed taxes in full. The court cautioned: This point also highlights the possibility that, should a similar dispute over CC-FLs tax exempt status arise in a future tax refund suit, the voluntary cessation exception to mootness may have a role to play if the IRS fails to refund the disputed taxes within the six month statutory period, and then later refunds the taxes after litigation begins, solely to deprive the court of jurisdiction and without any independent basis for granting the refund. We offer no opinion on the merits of a voluntary cessation claim presented under such circumstances, as those circumstances do not describe the case currently before us. Christian Coal. of Fla., Inc., 662 F.3d at 1196 n.13 (emphasis added). 2. Defendants Discriminatory Targeting Of Plaintiff 46. Plaintiff was formed in January 2011, and the Texas Secretary of State issued
a Certificate of Filing evidencing the existence of Plaintiff as a newly created nonprofit corporation under the Texas Business Organizations Code effective January 18, 2011. 47. On March 7, 2011, Plaintiff submitted to the IRS its Application for
Exemption as a Section 501(c)(4) organization. The Application for Exemption contained all requisite documentation and information in order for the IRS to determine whether to approve or deny Plaintiffs application for tax-exempt status.
14
48.
On or about June 15, 2011, Plaintiffs counsel spoke with Ronald Bell, an IRS
employee in the Cincinnati office, who confirmed that Plaintiffs Application for Exemption had been assigned to him on March 30, 2011. 49. Despite the fact that Plaintiffs Application for Exemption was promptly
assigned to Mr. Bell, the IRS did not process the application or seek additional information from Plaintiff for nearly one full year. 50. In contrast, Plaintiffs counsel submitted a Form 1024 Application for
Recognition of Exemption for another Section 501(c)(4) organization in August 2011 that was reviewed and approved by the IRS in less than forty days. See Open Land Alliance Form 1024 Application for Recognition of Exemption, Ex. 5; see also Letter from Lois G. Lerner (Sept. 15, 2011), Ex. 6 (We are pleased to inform you that upon review of your application for tax-exempts status we have determined that you are exempt from Federal income tax under section 501(c)(4) of the Internal Revenue Code.). This particular application for taxexempt status was presumably processed by the IRS in a prompt manner because the organization did not confess conservative ideological views in its application. 51. An even worse example of disparate treatment of Plaintiff is the IRSs
approval of the Barack H. Obama Foundation (the Foundation), which from its establishment in 2008 until May 2011, solicited tax deductible contributions yet had never filed either a tax return, a Form 990, or an application to be treated as a tax-exempt organization. When this Foundation finally filed for tax-exempt status, its application was granted in only six weeks and, amazingly, made retroactive to April 30, 2008, the date of its incorporation. The favorable determination letter for the Foundation was signed by Defendant Lerner. PLAINTIFFS VERIFIED COMPLAINT 15
52.
The Foundation did not qualify for any of the exceptions that are required to
be present when retroactive tax status is granted. Moreover, the Foundation engaged in activities in a foreign country (Kenya) and had the name of a presidential candidate in its name, both factors that would ordinarily have triggered requests for additional information from the IRS rather than the expedited determination it received. 53. Instead of the prompt review received by most organizations, Plaintiff was
sent voluminous and probing requests for additional information in a letter dated February 13, 2012, from Stephen Seok, an IRS employee in the Cincinnati office. The letter attempted to force Plaintiff to disclose the names of its donors and asked multiple other questions that the TIGTA Report determined to be unnecessary to Plaintiffs determination of tax-exempt status. 54. As outlined more fully above, similar requests were noted by the press and
by a group of United States Senators and Representatives for their length, for the fact that they raised questions that do not directly bear on an organizations exempt status, and for the fact that the requests for information were directed primarily at organizations with a conservative ideological perspective. The TIGTA Report ultimately concluded that the IRS issued the foregoing letters to these organizations, including Plaintiff, based on their viewpoints rather than the applicable criteria set forth in the tax-exempt laws or Treasury Regulations. See TIGTA Report at 7. 55. Despite the intrusive and unprecedented nature of the requests, Plaintiff
cooperated with the IRS by providing comprehensive responses to the questions on June 3, 2012; however, the IRS did not respond to Plaintiffs response or seek additional information from Plaintiff until February 20, 2013. Notably, during this intervening period PLAINTIFFS VERIFIED COMPLAINT 16
of time, Defendant IRS illegally disclosed Plaintiffs confidential tax return information to a New York-based investigative news organization called ProPublica. This disclosure is discussed more fully in section 3 below. 56. In a letter dated February 20, 2013, Joseph Herr, an IRS employee in the
Cincinnati office, sent Plaintiff additional requests for information regarding Plaintiffs communications and activities. Plaintiff provided some additional information in response but largely declined responding to the IRSs questions because the IRS had already illegally disclosed Plaintiffs confidential tax return information to the press. Plaintiff noted that the IRSs previous disclosures of pending applications and unredacted tax returns had resulted in administrative complaints being filed against victims of these crimes, and they have had a chilling effect on the First Amendment rights of law-abiding citizens. Plaintiff further noted that the IRS was aware of this ongoing problem, but it had clearly failed to address these issues promptly and forcefully. 57. Counsel for Plaintiff co-signed a letter with other attorneys who represent
tax-exempt organizations, which was addressed to Steven Miller and dated March 21, 2013. See Letter from Heidi K. Abegg, et al. (Mar. 21, 2013), Ex. 7. This letter expressed grave concern about the unlawful disclosures of pending applications and unredacted tax returns of certain tax-exempt organizations, and it also requested that the IRS take immediate steps to determine how these disclosures of confidential taxpayer information occurred, to take any and all necessary steps to prevent similar disclosures in the future, and to make a detailed public statement describing these steps to reassure the tax-exempt community. 58. In a letter dated April 24, 2013, Holly Paz sent Plaintiff a follow-up letter,
whereby she reattached Mr. Herrs letter dated February 20, 2013, and stated that Plaintiff PLAINTIFFS VERIFIED COMPLAINT 17
was required to provide the additional information or we will close your case and you may lose your right to ask a court for a declaratory judgment of your exempt status. 59. Shortly thereafter, on May 10, 2013, Defendant Lerner apologized during an
American Bar Association speech for a pattern of misconduct whereby the IRS intentionally and systematically targeted conservative organizations applying for tax exemption for additional and unconstitutional scrutiny. 60. In a letter dated June 26, 2013, Mr. Herr sent Plaintiff a letterwith no
reference to or without withdrawing the previous letters dated February 20 or April 24 stating that the IRS was instituting a new optional expedited process for certain organizations applying for recognition of exemption under Section 501(c)(4). The specific parameters governing this expedited process were outlined in the Internal Revenue Services Letter 5228 (Rev. 9-2013). See Ex. 8. 61. Pursuant to the new optional expedited process, Plaintiff was permitted to
receive approval of its pending application if it made certain representations regarding the organizations past, current, and future spending on political activities. Notably, the IRSs definition of political activities for the optional expedited process is unconstitutionally broad. Worse, the IRS mandates entities to promiseunder penalty of perjury no less that the entity will relinquish these constitutionally guaranteed rights to speak about salient public policy issues. See, e.g., WRTL II, 551 U.S. 449 (2007). 62. For example, in the instructions for the Optional Expedited Process for
Certain Applications Under Section 501(c)(4), the IRS explicitly states that the definition utilized for direct or indirect participation or intervention in any political campaign on behalf of (or in opposition to) any candidate applies solely for purposes of determining PLAINTIFFS VERIFIED COMPLAINT 18
an organizations eligibility under the optional expedited process. (emphasis added). Based on applicable case law, this is a blatant attempt by the IRS to compel groups like Plaintiff to sign away their constitutional rights guaranteed under the First Amendment of the Constitution as articulated by the U.S. Supreme Court in WRTL II, 551 U.S. 449. While the Court has repeatedly reaffirmed the First Amendments protection of speech concerning public policy issues, especially by 501(c)(4) organizations such as Plaintiff, the IRS is simultaneously condemning such speech as prohibited (or at least limited) campaign activity. Yet the IRS attempts to compel entitles like Plaintiff to relinquish their constitutional rights with a stroke of a pen. 63. Refusing to relinquish its constitutional rights, Plaintiff understandably
declined to participate in the optional expedited process. 64. Seemingly in response to Plaintiffs decision not sign away its constitutional
rights, Karen Schiller, Acting Director of Exempt Organizations Rulings and Agreements, sent Plaintiff a letter dated September 30, 2013 (September 2013 Letter), detailing the facts and circumstances test and analyzing Plaintiffs activities, which is discussed more fully in section 5 below. 3. Defendants Illegal Disclosure Of Plaintiffs Confidential Tax Documents and Relationship of the Illegal Release to the Plaintiffs Tax Determination 65. On or about November 15, 2012, ProPublica filed a request with Defendant
IRS seeking access to any public records related to Plaintiff. 66. On or about November 28, 2012, Defendant IRS sent a copy of Plaintiffs
pending Application for Exemption to ProPublica in violation of 26 U.S.C. 6103.
19
67.
The information contained in a still-pending (or withdrawn or denied) Form
1024 Application for Recognition of Exemption constitutes tax return information pursuant to 26 U.S.C. 6103. 68. Upon information and belief, various employees and officials within the
Department of Treasury inspected and/or disclosed the information produced by Plaintiff in response to the IRSs requests for additional information. 69. Plaintiffs Application for Exemption would be subject to public disclosure
after recognition of the organizations tax-exempt status, but still-pending (or withdrawn or denied) applications are not. This restriction recognizes that pending applications are often incomplete, and, after discussion with an IRS determination agent, may be amended. 70. On or about December 17, 2012, Defendant IRSs counsel notified Plaintiffs
counsel that the pending application may have been illegally or improperly released to a third party. 71. On December 27, 2012, counsel for Plaintiff was contacted by ProPublica
asking questions about Plaintiffs Application for Exemption. The questions were based on the confidential tax return information the IRS had sent to ProPublica illegally. 72. On January 2, 2013, ProPublica published on its website an article entitled
Controversial Dark Money Group Among Five That Told IRS They Would Stay Out of Politics, Then Didnt. See Jan. 2013 ProPublica Article, Ex. 2. The article analyzed the disclosed applications of five conservative ideological organizations, including Plaintiffs pending Application for Exemption. 73. ProPublicas report about Defendant IRSs release of information and
targeting was reposted by other media outlets, including The Washington Post and The Salt PLAINTIFFS VERIFIED COMPLAINT 20
Lake Tribune. The initial ProPublica report and the various subsequent news stories have resulted in adverse publicity for the organization because they identify Plaintiff as one of the key organizations caught up in the IRS targeting scandal. Even worse, much of the commentary that resulted from the illegal disclosure suggests that Plaintiff was engaged in illegal activities and/or misstated its activities on tax documents. Such suggestions are unfounded, but they are also the predictable result of news organizations being provided only a portion of the confidential tax return information that Plaintiff provided to the IRS during the application process. 74. On May 13, 2013, ProPublica published on its website an article entitled IRS
Office That Targeted Tea Party Also Disclosed Confidential Docs From Conservative Groups, which again mentioned Plaintiff. See Kim Barker, IRS Office That Targeted Tea Part Also Disclosed Confidential Docs From Conservative Groups (May 13, 2013), available at http://www.propublica.org/article/irs-office-that-targeted-tea-party-also-disclosedconfidential-docs, Ex. 9. In the article, ProPublica confirmed that the IRS disclosed Plaintiffs confidential application to ProPublica on or about November 28, 2012, along with approximately thirty other conservative organizations applications, nine of which were not yet approved. 75. As a result of the release of this confidential tax return information, Plaintiff
suffered actual damages in the form of significant harm to its reputation and its board members reputations. 76. As a result of the release of this confidential tax return information, Plaintiff
suffered actual damages to its ability to raise additional funds from existing donors and new funds from prospective donors. PLAINTIFFS VERIFIED COMPLAINT 21
77.
Furthermore, the U.S. House of Representatives Committee on Ways and
Means (Ways and Means Committee) recently released confidential tax documents that suggest Plaintiff sustained additional damages due to the illegal disclosure of its Application for Exemption, but the extent of such damages will be more fully known after the completion of discovery. 78. On April 9, 2014, the Ways and Means Committee voted to release
confidential tax documents as part of a request for a criminal investigation into Defendants IRS and Lerner. According to a referral letter transmitted to the U.S. Department of Justice, the Ways and Means Committee determined that Lerner used her position to improperly influence agency action against only conservative organizations, denying these groups due process and equal protection rights under the law as guaranteed by the U.S. Constitution, in apparent violation of 18 U.S.C. 242. See Letter from The Honorable Dave Camp, Chairman, Committee on Ways and Means, U.S. House of Representatives (Apr. 9, 2014), Ex. 10 (Ways & Means Committee Report). The referral letter also included the following assertions: As EO Director, Lerner had authority to act on behalf of the IRS. Lerner willfully used her authority to subject specific organizations to adverse treatment in defiance of IRS controls. Lerner directed subordinates to subject specific right-leaning groups to increased scrutiny and audits, and even the denial of exempt status. ... Documents produced to the Committee further link Lerners actions with complaints from Democracy 21. These complaints chiefly focused on Crossroads Grassroots Policy Strategies (Crossroads), and other rightleaning groups. ...
22
Lerners plan to deny the Crossroads application is evident from the work log for the Cincinnati-based revenue agent assigned to the case, as after her January 4, 2013 meeting with Democracy 21, the agent sprung into action. In the seven business days following the meeting, the revenue agent Joseph Herr, logged more time on the application than the entire year preceding. But more, the log shows that Herr was directed to reach a particular result with Crossroads. Herrs log shows in part: On January 4, 2013, Herr notes a conference call with EOT [Exempt Organizations Technical Division] in DC where specific guidance is given to him on how to best proceed with the [Crossroads] case. On January 7, this guidance from EOT was memorialized in Herrs time sheet, [b]ased on conference begin reviewing case information, tax law, and draft/template advocacy denial letter, all to think about how to best compose the denial letter. In the next journal entry from Herr, he notes, [w]rite-up summary of idea on how I plan to make denial argument and share with Sharon Light, the Special Advisor to EO Director in Washington DC, for her opinion on whether the idea seems valid. Nowhere in his 2012 log is there any [previous] discussion of denial. In fact, in an analysis of the Crossroads application in November 2011, among many others, EO Technical lawyer Hillary Goehausen makes no recommendation for denial. ... Evidence discovered by the Committee suggests that Lerner targeted other right-leaning groups. On January 2, 2013, ProPublica separately published an article titled, Controversial Dark Money Groups Among Five That Told IRS They Would Stay Out of Politics, Then Didnt that circulated within the IRS. Forwarding the ProPublica article, Lerner asked Holly Paz, David Fish, and Sharon Light to meet on the status of these applications please. Can we talk Friday? See Ways and Means Committee Report at 2, 3, 5-6, and 7. 79. Because Plaintiff was one of the five groups identified in the ProPublica
article referenced in the Ways and Means Committees referral letter, it was presumably one of the groups that Defendant Lerner later discussed with other IRS officials within days
23
of Mr. Herr being directed to reach a particular result with respect to Crossroads application for tax-exempt status. 80. Although the documents released by the Ways and Means Committee did not
include extensive information regarding Plaintiff, it should be noted that the IRS was only required to produce documents related to six specific organizations other than Plaintiff; however, the released documents still suggest that Plaintiff sustained additional damages from additional scrutiny of its Application for Exemption resulting from the illegal disclosure, but the extent of such damages will be more fully known after the completion of discovery. Such discovery may also provide evidence that Plaintiffs Application for Exemption, like Crossroads application, has been pre-determined to be denied by Defendant Lerner. 81. As a result of the release of this confidential tax return information and the
additional scrutiny of its Application for Exemption that ensued, Plaintiff suffered actual damages in the form of legal fees associated with its communications with Defendant IRS and ProPublica, as well as public relations costs associated with the news articles resulting from the disclosure. 4. The IRSs Facts And Circumstances Test 82. The conduct of Defendant IRS complained of herein, including the
discriminatory targeting of Plaintiffs Application for Exemption, the improper requests to Plaintiff for intrusive and irrelevant information, and the consequent delay in the processing of Plaintiffs application, is not solely the result of intentional and unlawful viewpoint discrimination. Rather, it is also the consequence of the IRSs subjective facts
24
and circumstances test that is vague, ambiguous, and ultimately unconstitutional for the purpose of analyzing Plaintiffs activities. 83. Section 501(a) states that An organization described in subsection (c) or (d)
. . . shall be exempt from taxation under this subtitle unless such exemption is denied by section 502 or 503. I.R.C. 501(a). 84. Section 501(c)(4) provides that an organization may qualify for exemption if
it is not organized for profit but operated exclusively for the promotion of social welfare. I.R.C. 501(c)(4); however, the IRS has stated that an organization is operated exclusively for the promotion of social welfare under Section 501(c)(4) if it is primarily engaged in promoting in some way the common good and general welfare of the people of the community. Treas. Reg. 1.501(c)(4)-1(a)(2)(i) (as amended in 1990). See also Rev. Rul. 81-95, 1981-1 C.B. 332 (stating that an organization must be primarily engaged in activities that promote social welfare). 85. As the IRS has previously explained:
Although the promotion of social welfare within the meaning of section 1.501(c)(4)-1 of the regulations does not include political campaign activities, the regulations do not impose a complete ban on such activities for section 501(c)(4) organizations. Thus, an organization may carry on lawful political activities and remain exempt under section 501(c)(4) as long as it is primarily engaged in activities that promote social welfare. Rev. Rul. 1981-95, 1981-1 C.B. 332. A Section 501(c)(4) organization may, however, face certain tax consequences for making exempt function expenditures, which include influencing (or attempting to influence) the selection, nomination, election, or appointment of an individual to a federal, state, or local public office. I.R.C. 527(e)(2).
25
86.
With respect to the IRSs review process as it relates to the evaluation of an
organizations expenses for public communications, the IRS examines the communications to determine whether a given communication constitutes issue advocacy (or other socialwelfare-related activity) or an expenditure for political campaign intervention that constitutes an exempt function under 527(e)(2). 87. Pursuant to two recent Revenue Rulings, however, this determination of
whether the communication constitutes issue advocacy or an exempt function is not made with reference to any clearly defined bright-line rules, but rather, based upon a highly subjective evaluation of all the facts and circumstances of each case. See Rev. Rul. 2007-41, 2007-1 C.B. 1421 (Whether an organization is participating or intervening, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office depends on all the facts and circumstances of each case.); Rev. Rul. 2004-6, 2004-1 C.B. 328 (All the facts and circumstances must be considered to determine whether an expenditure for an advocacy communication relating to a public policy issue is for an exempt function under 527(e)(2).).1 88. Revenue Ruling 2004-6 lists eleven factors to be considered, but very clearly
indicates that other factors that are not listed may also be taken into consideration. In facts and circumstances such as those described in the six situations, factors that tend to
Revenue Ruling 2004-6 is addressed to Section 501(c)(4), 501(c)(5), and 501(c)(6) organizations. Revenue Ruling 2007-41 is addressed to 501(c)(3) organizations. However, the exempt function analysis undertaken in Revenue Ruling 2004-6, and the political intervention analysis undertaken in Revenue Ruling 2007-41 are generally believed to be substantially similar. Furthermore, the two rulings use some of the same examples. Specifically, Scenario 2 in Revenue Ruling 2004-6 is the same as Situation 14 in Revenue Ruling 2007-41, and Scenario 4 in Revenue Ruling 2004-6 is the same as Situation 15 in Revenue Ruling 2007-41.
1
26
show that an advocacy communication on a public policy issue is for an exempt function under 527(e)(2) include, but are not limited to, the following: a) The communication identifies a candidate for public office; b) The timing of the communication coincides with an electoral campaign; c) The communication targets voters in a particular election; d) The communication identifies that candidates position on the public policy issue that is the subject of the communication; e) The position of the candidate on the public policy issue has been raised as distinguishing the candidate from others in the campaign, either in the communication itself or in other public communications; and f) The communication is not part of an ongoing series of substantially similar advocacy communications by the organization on the same issue. Rev. Rul. 2004-6, 2004-1 C.B. 328 (emphasis added). 89. On the other hand, [i]n facts and circumstances such as those described in
the six situations, factors that tend to show that an advocacy communication on a public policy issue is not for an exempt function under 527(e)(2) include, but are not limited to, the following: a) The absence of any one or more of the factors listed in a) through f) above; b) The communication identifies specific legislation, or a specific event outside the control of the organization, that the organization hopes to influence; c) The timing of the communication coincides with a specific event outside the control of the organization that the organization hopes to influence, such as a legislative vote or other major legislative action (for example, a hearing before a legislative committee on the issue that is the subject of the communication); d) The communication identifies the candidate solely as a government official who is in a position to act on the public policy issue in connection PLAINTIFFS VERIFIED COMPLAINT 27
with a specific event (such as a legislator who is eligible to vote on the legislation); and e) The communication identifies the candidate solely in the list of key or principal sponsors of the legislation that is the subject of the communication. Rev. Rul. 2004-6, 2004-1 C.B. 328. 90. In sum, Revenue Ruling 2004-6 presents a series of factors that may or may
not (tend to) indicate that a communication is for an exempt function under 527(e)(2), and the IRS reserves the right to apply factors not listed. No single factor is determinative or predominates. The eleven factors are not weighted against each other, and the ruling acknowledges that other unspecified facts and circumstances may be equally relevant, varying on a case-by-case basis. 91. In addition, Revenue Ruling 2004-6 presents six hypothetical situations.
Each situation, however, simply lays out an isolated set of facts and states a result in those circumstances; there is little reasoning provided for in the result beyond a simple restatement of the applicable factors. 92. For example, language in Scenario 1 of Revenue Ruling 2004-6 suggests that
one object of the facts and circumstances evaluation may be to determine if the expenditure supports or opposes a candidacy based on an issue. See Rev. Rul. 2004-6, Situation 1 (Therefore, there is nothing to indicate that Senator As candidacy should be supported or opposed based on this issue.). The other five scenarios, however, do not include such language. 93. At best, Revenue Ruling 2004-6 indicates what might be considered relevant
in some circumstances, leaving a reader to guess at the rulings meaning more generally. The ruling fails to provide the real-world, objective guidance needed by both those who PLAINTIFFS VERIFIED COMPLAINT 28
form and operate social welfare organizations and by IRS employees who are charged with enforcing the law. 94. Revenue Ruling 2007-41 lists seven [k]ey factors in determining whether a
communication results in political campaign intervention. These seven key factors are not divided into categories as are the factors in Revenue Ruling 2004-6. The factors identified in Revenue Ruling 2007-41 are: a) Whether the statement identifies one or more candidates for a given public office; b) Whether the statement expresses approval or disapproval for one or more candidates positions and/or actions; c) Whether the statement is delivered close in time to the election; d) Whether the statement makes reference to voting or an election; e) Whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office; f) Whether the communication is part of an ongoing series of communications by the organization on the same issue that are made independent of the timing of any election; and g) Whether the timing of the communication and identification of the candidate are related to a non-electoral event such as a scheduled vote on specific legislation by an officeholder who also happens to be a candidate for public office. Rev. Rul. 2007-41, 2007-1 C.B. 1421. 95. Under this version of the test, the public is not informed which factors tend
to show that an organization participated or intervened in a political campaign on behalf of, or in opposition to, a candidate for public office. Instead, Revenue Ruling 2007-41 warns that Section 501(c)(3) organizations may take positions on public policy issues, including issues that divide candidates in an election for public office. However, section 501(c)(3) PLAINTIFFS VERIFIED COMPLAINT 29
organizations must avoid issue advocacy that functions as political campaign intervention (emphasis added). A message favoring or opposing a candidate puts a section 501(c)(3) organization at risk of violating the political campaign intervention prohibition.2 96. Similar to Revenue Ruling 2004-6, Revenue Ruling 2007-41 presents three
situations in great detail. Again, however, the ruling at most informs readers what considerations might be important given certain highly-specific facts and leaves readers to guess at the rulings meaning in anything but the exact same circumstances. 97. Recent decisions of the U.S. Supreme Court indicate that the use of the multi-
factor test employed in Revenue Rulings 2004-6 and 2007-41 are constitutionally infirm and that specific factors identified in the two Revenue Rulings may not be valid gauges of the presence or absence of political or campaign activity. As the Court explained in Citizens United v. Federal Election Commission: In fact, after this Court in WRTL adopted an objective appeal to vote test for determining whether a communication was the functional equivalent of express advocacy, . . . the FEC adopted a two-part, 11-factor balancing test to implement WRTLs ruling. . . . This regulatory scheme may not be a prior restraint on speech in the strict sense of that term, for prospective speakers are not compelled by law to seek an advisory opinion from the FEC before the speech takes place. . . . As a practical matter, however, given the complexity of the regulations and the deference courts show to administrative determinations, a speaker who wants to avoid threats of criminal liability and the heavy costs of defending against FEC enforcement must ask a governmental agency for prior permission to speak. . . . This is precisely what WRTL sought to avoid. WRTL said that First Amendment standards must eschew the open-ended rough-and-tumble of While Section 501(c)(4) organizations are not subject to the political campaign intervention prohibition, the test described in Revenue Ruling 2007-41 for classifying communications as either issue advocacy and campaign intervention is (presumably) applicable to a Section 501(c)(4) organizations communications.
2
30
factors, which invit[es] complex argument in a trial court and a virtually inevitable appeal. . . . Government officials pore over each word of a text to see if, in their judgment, it accords with the 11-factor test they have promulgated. This is an unprecedented governmental intervention into the realm of speech. Citizens United v. Fed. Election Commn, 558 U.S. 310, 334-36 (2010). 98. Specific factors identified in the two facts and circumstances tests are also
of questionable validity. First, the U.S. Supreme Court has specifically held that the fact that a communication coincides with an electoral campaign or is delivered close in time to the election is irrelevant to determining whether the communication is or is not genuine issue advocacy. In WRTL II, the Court considered the Bipartisan Campaign Reform Acts restrictions on electioneering communications, which by definition air just before a primary or general election. WRTL II, 551 U.S. at 471. The Court found the timing of advertisements to be unpersuasive with respect to determining whether a communication should be deemed the functional equivalent of express advocacy. The Court emphasized that a group can certainly choose to run an issue ad to coincide with public interest rather than a floor vote. Id. The unmistakable message, which fully comports with common sense, is that both officeholders and citizens are most engaged in issue debates, and paying the most attention to substantive policy matters, during periods of time close to elections. As a result, it makes perfect sense that issue advocacy messages would be delivered during these time periods, when the relevant actors are most engaged and most receptive to issue advocacy. Finally, the Court made clear that a groups decision not to continue running advertisements on an issue after an election does not support an inference that the ads were the functional equivalent of electioneering, because in that
31
case, the debate had changed. It is often the case that elections change the terms of a debate; this is one of their purposes. 99. The question of whether a communication is part of an ongoing series of
substantially similar communications appears to favor established, single-issue interest groups, and suggests that a communication made by an established, single-issue interest group may be presumed to be issue advocacy, while the exact same communication made by either a new organization or a broad-based advocacy organization is more likely to be treated as political campaign intervention. Neither the identity of a speaker, nor that speakers past communications, has any bearing on whether a given communication is issue advocacy or political/campaign advocacy. Additionally, the U.S. Supreme Court recently warned that the Government may commit a constitutional wrong when by law it identifies certain preferred speakers. Citizens United, 558 U.S. at 340. This factor appears to do precisely this. 100. The IRSs treatment of discussion of issues on which candidates differ
(whether the issue addressed in the communication has been raised as an issue distinguishing candidates for a given office) appears to serve no purpose other than to discourage non-profit organizations from discussing the most important issues. There is little purpose in communicating about issues on which everyone already agrees. The most important and consequential policy and legislative issues almost always involve matters on which officeholders and candidates disagree, sometimes strongly, and the fact that they may disagree on an issue raised in an advocacy communication has no bearing on whether that communication is genuine issue advocacy. Discussion of issues cannot be suppressed simply because the issues may also be pertinent in an election. WRTL II, 551 U.S. at 474. PLAINTIFFS VERIFIED COMPLAINT 32
101.
Supposedly relevant factors identified in Revenue Ruling 2004-6 are not
mentioned in Revenue Ruling 2007-41. For example, Revenue Ruling 2004-6 asks whether a communication is targeted at voters in a particular election. It is very difficult to draw any conclusions about how this factor is relevant based on the IRSs treatment of it in Revenue Ruling 2004-6. In all six examples, the expenditures described are targeted to voters, but in Scenarios 1, 2, and 5 the expenditure is not deemed to be for an exempt function, while in Scenarios 3, 4, and 6 the expenditure is deemed to be for an exempt function. These examples, even when taken together, fail to indicate how the targeted to voters factor matters one way or another in the analysis. We note that targeted to voters is not one of the factors listed in Revenue Ruling 2007-41. Perhaps the IRS recognized that genuine issue advocates are silenced if they are not permitted to encourage an elected officials own constituents to urge that official to change his or her position on a matter of public importance. Elected representatives are only accountable to their own voters, and it is those voters who must be reached if an organization hopes to change the officials position. This factor, if it is still used, suggests a failure to understand the basic nature of grassroots issue advocacy. 102. To the extent that most of the factors used by the IRS focus on contextual or
external considerations, as opposed to objectively examining the communication within its own four corners, those factors are constitutionally suspect. The U.S. Supreme Court has stated very clearly that contextual factors . . . should seldom play a significant role in the inquiry. Courts need not ignore basic background information that may be necessary to put an ad in context . . . but the need to consider such background should not become an excuse for discovery or broader inquiry of the sort we have just noted raises First Amendment PLAINTIFFS VERIFIED COMPLAINT 33
concerns. WRTL II, 551 U.S. at 473. Furthermore, regulations authorizing tax exemptions may not be so unclear as to afford latitude for subjective application by IRS officials. Big Mama Rag, 631 F.2d at 1034. 103. WRTL II was decided shortly after the IRS released Revenue Ruling 2007-41,
and the IRS has never defended the substance of the criteria set forth in either Revenue Ruling 2004-6 or Revenue Ruling 2007-41 in litigation, and no court has ever had the opportunity to review those criteria. Recently, it has even been suggested that the IRS has intentionally sought to avoid judicial review of these subjects. See Catholic Answers, Inc., 438 F. Appx 640 (9th Cir. 2011). In Catholic Answers, Inc., the Ninth Circuit noted with obvious suspicion, However, should this set of facts recur, the case will not evade review because it will be clear then, while it is not now, that the IRS has intentionally maneuvered to avoid judicial scrutiny and will not be permitted to engage in evasion of this kind (emphasis added). See also Christian Coal. of Fla., Inc., 662 F.3d at 1196 n.13 (This point also highlights the possibility that, should a similar dispute over CC-FLs tax exempt status arise in a future tax refund suit, the voluntary cessation exception to mootness may have a role to play if the IRS fails to refund the disputed taxes within the six month statutory period, and then later refunds the taxes after litigation begins, solely to deprive the court of jurisdiction and without any independent basis for granting the refund. We offer no opinion on the merits of a voluntary cessation claim presented under such circumstances, as those circumstances do not describe the case currently before us.) (emphasis added). 104. Revenue Ruling 2004-6 and Revenue Ruling 2007-41 essentially establish the
IRSs position with respect to campaign intervention activity as we know it when we see it. Social welfare organizations must guess how much of each kind of activity is allowed and PLAINTIFFS VERIFIED COMPLAINT 34
whether they should track their activities based on the amount of dollars spent, the amount of time spent, or any of a number of other measures. See, e.g., Judith E. Kindell & John Francis Reilly, Election Year Issues, 2002 EO CPE Text, Ch. I, Sec. C, Question 1, pp. 350-52. 105. Indeed, even the IRS has publicly acknowledged that the facts and
circumstances test is ambiguous and confusing. See Notice of Proposed Rulemaking, REG134417-13, 2013-52 I.R.B. 856 (In addition, [t]he distinction between campaign intervention and social welfare activity, and the measurement of the organizations social welfare activities relative to its total activities, have created considerable confusion for both the public and the IRS in making appropriate section 501(c)(4) determinations. The
Treasury Department and the IRS recognize that both the public and the IRS would benefit from clearer definitions of these concepts.) (quoting Daniel Werfel, Charting a Path Forward at the IRS: Initial Assessment and Plan of Action, at page 28 (June 24, 2013)). 106. The Constitution does not allow this degree of vagueness, particularly when
First Amendment rights are involved. The void-for-vagueness doctrine requires the law to be so clear that men of common intelligence need not guess as to its meaning. See Hynes v. Mayor & Council of Borough of Oradell, 425 U.S. 610, 620 (1976). 107. The facts and circumstances test does not meet that standard, and it should
not be used by the IRS to analyze Plaintiffs activities.3
A large number of knowledgeable observers agree that the facts and circumstances test is unconstitutional. See, e.g., Laura W. Murphy, Director, and Marvin J. Johnson, Legislative Counsel, ACLU Letter to the IRS Expressing Concerns about Revenue Ruling 2004-6 with Regard to Political Speech and the Definition of What Is or Is Not an Exempt Function (Jan. 26, 2004), https://www.aclu.org/free-speech/aclu-letter-irs-expressing-concerns-aboutrevenue-ruling-2004-6-regard-political-speech- (last visited Apr. 22, 2014). For the seminal historical overview of the void-for-vagueness doctrine, see Anthony G. Amsterdam, Note, The Void-For-Vagueness Doctrine in the U.S. Supreme Court, 109 U. Pa. L. Rev 67
3
35
5. The IRSs Unconstitutional Facts And Circumstances Test As Applied to Plaintiffs Communications 108. Plaintiff and its agents developed policy objectives and messaging consistent
with its mission and in furtherance of its exempt purpose, including the ultimate creation of six television advertisements that Plaintiff distributed in Utah. 109. In the September 2013 Letter, the IRS details the facts and circumstances
test and analyzes Plaintiffs activities, including two television advertisements that the IRS deems to be campaign activity. These advertisements are discussed in detail below. 110. Plaintiff aired its first television advertisement in July 2011 on the subject of
the Balanced Budget Amendment. This advertisement encouraged passage of a Balanced Budget Amendment and called for an end to runaway spending. Plaintiff later aired this same advertisement from May 21 to May 25, 2012. 111. Plaintiff aired its second television advertisement, Repeal It, statewide in
Utah in late January and early February 2012. 112. stated: Audio ObamaCare. A trillion dollars in new government spending On-Screen Visuals and Text Visual: Photo of President Obama next to a massive stack of paperwork and stethoscope. Text: ObamaCare $1.5 TRILLION New Government Spending Press Release, National Federation of Independent Business Nov. 9, 2011 (1960); see also, e.g., Keyishian v. Bd. of Regents, 385 U.S. 589 (1967); Baggett v. Bullitt, 377 U.S. 360 (1964); Joseph Burslyn, Inc. v. Wilson, 343 U.S. 495 (1952). PLAINTIFFS VERIFIED COMPLAINT 36 The on-screen visuals/text and audio for Plaintiffs Repeal It advertisement
Audio and devastating to small business.
On-Screen Visuals and Text Visual: Sign that says CLOSED Text: ObamaCare Devastating to Small Business Visual: Photo of President Obama next to a massive stack of paperwork and stethoscope. Text: ObamaCare CAN STILL BE STOPPED Visual: Photo of Senator Orrin Hatch and photo of U.S. Capitol. Text: U.S. Senator Orrin Hatch: ObamaCare REPEAL IT S. 192 Repeal the Job-Killing Health Care Act Visual: Photo of Senator Orrin Hatch and photo of U.S. Constitution. Text: U.S. Senator Orrin Hatch: ObamaCare UNCONSTITUTIONAL Democrats Shred Constitution, Investors Business Daily, Oct. 2009 Visual: Photo of Senator Orrin Hatch and photo of hand signing document. Text: U.S. Senator Orrin Hatch: ObamaCare NULLIFY IT Democrats Shred Constitution, Investors Business Daily, Oct. 2009 Visual: Photo of Senator Orrin Hatch Text: Tell Senator Hatch: Keep leading the fight! Call (202) 224-3121 LEADING THE FIGHT AGAINST ObamaCare Paid for by Freedom Path
But ObamaCare can still be stopped.
Utahs Orrin Hatch has sponsored a bill to repeal it. The first to call it unconstitutional, Hatch has even personally signed a brief to have the courts nullify it.
Declaring ObamaCare unconstitutional,
Senator Hatch has personally signed a brief to have the courts nullify it.
Orrin Hatch, leading the conservative charge to repeal ObamaCare.
37
113.
In the September 2013 Letter, the IRS deems the Repeal It advertisement to
be campaign activity in support of Senator Hatchs candidacy under the facts and circumstances test. 114. Notably, Senator Hatch is a member of two committees with important
oversight responsibilities involving the Affordable Care Act. He is the ranking member of the Senate Finance Committee, which oversees the IRS, which is tasked with implementation of many aspects of the Affordable Care Act. He is also a member of the Health, Education, Labor and Pensions Committee, which has oversight over the Department of Health and Human Services. 115. The Repeal It advertisement finished airing more than sixty days before the
Utah Republican State Convention4 and more than four months before the Republican primary election.5 In contrast, the Repeal It advertisement aired immediately before several important legislative developments relative to the Affordable Care Act and involving either votes or possible legislative actions on the part of the U.S. Senate and Senator Hatch. For example: (i) on February 1, 2012, Senator Hatch signed on as a cosponsor of legislation repealing certain aspects of the Affordable Care Act; (ii) on February 9, 2012, Senator Hatch was an original co-sponsor of an amendment to amend the Affordable Care Act to protect rights of conscience with regard to requirements for coverage of specific items and services; (iii) on February 17, 2012, the Senate voted on a budget compromise bill that would have offset new spending by reducing funds for certain programs tied to the 2010 healthcare overhaul; (iv) on March 1, 2012, the Senate voted on The 2012 Utah Republican State Convention was held on April 21, 2012. It was attended by approximately 4,000 delegates selected by local party committees in Utah. 5 The State of Utahs 2012 primary election was held on June 26, 2012.
4
38
an amendment that would allow health insurance plans to deny coverage to provisions for medical services that run counter to the plan sponsors or employers religious beliefs and would also establish a private right of legal action for enforcement of the coverage exemptions; (v) on May 16, 2012, the Senate voted to consider a plan to repeal the Affordable Care Act and overhaul of the Medicare and Medicaid programs; and (vi) on May 24, 2012, the Senate voted on an amendment that would repeal certain aspects of the Affordable Care Act. 116. Beginning March 21, 2012, Plaintiff distributed another television
advertisement, Three Men, that also aired statewide in Utah. The on-screen visuals/text and audio for Plaintiffs Three Men advertisement stated: Audio On-Screen Visuals and Text Debt. More than 15 trillion dollars that Visual: Image of a running National Debt will cripple our next generation. Clock with debt increasing by the second; overlaying a background photo of the White House But conservative Utah Senators Orrin Visual: Photos of Senators Orrin Hatch Hatch and Mike Lee have authored the and Mike Lee; photo of the U.S. Balanced Budget Amendment to stop Constitution; photo of stop sign with the Washingtons runaway spending. text STOP RUNAWAY SPENDING Text: SENATOR ORRIN HATCH SENATOR MIKE LEE Authors of the BALANCED BUDGET AMENDMENT STOP RUNAWAY SPENDING Visual: Photo of Mitt Romney; photo of the American flag Text: BALANCED BUDGET AMENDMENT BOLD CONSERVATIVE PLAN Visual: Photos of Senator Orrin Hatch, Senator Mike Lee, Mitt Romney Text: Tell SENATORS HATCH and LEE: KEEP LEADING THE FIGHT! PLAINTIFFS VERIFIED COMPLAINT 39
Its the bold conservative plan supported by Mitt Romney to get spending under control. Call Senators Hatch and Lee.
Audio Tell them to keep fighting for the Balanced Budget Amendment
On-Screen Visuals and Text Call (202) 224-3121 Visual: Photos of Senator Orrin Hatch, Senator Mike Lee, Mitt Romney Text: Tell SENATORS HATCH and LEE: KEEP LEADING THE FIGHT! FOR THE BALANCED BUDGET AMENDMENT Visual: Photos of Senator Orrin Hatch, Senator Mike Lee, Mitt Romney Text: Tell SENATORS HATCH and LEE: KEEP LEADING THE FIGHT! FOR THE FUTURE OF AMERICA Text: PAID FOR BY FREEDOM PATH. FREEDOM PATH IS RESPONSIBLE FOR THE CONTENT OF THIS ADVERTISING. NOT AUTHORIZED BY ANY CANDIDATE OR CANDIDATES COMMITTEE. WWW.FREEDOM-PATH.ORG
and for the future of America.
Freedom Path is responsible for the content of this advertising.
117.
In the September 2013 Letter, the IRS deems the Three Men advertisement
to be campaign activity in support of Senator Hatchs candidacy under the facts and circumstances test. 118. Plaintiff aired its first advertisement encouraging the passage of a Balanced
Budget Amendment in 2011, shortly after it was introduced. While the IRS suggests in the September 2013 Letter that the Balanced Budget Amendment was no longer a relevant issue in Congress in 2012, the facts suggest otherwise. On March 29th, for example, while the Three Men advertisement was still on the air, Senator Rand Paul introduced a budget resolution co-sponsored by Utah Senator Mike Lee that would have made it out of order to consider in the Senate any budget resolution after the enactment of this resolution until a balanced budget amendment to the U.S. Constitution has been adopted, except by a supermajority waiver. S. Con. Res. 39, 112th Cong. (2012). PLAINTIFFS VERIFIED COMPLAINT 40
119.
Neither the Repeal It nor the Three Men advertisement references an
election or contains a statement of support for Senator Hatchs candidacy. Similarly, the advertisements do not take a position on Senator Hatchs character, qualifications, or fitness for office. Indeed, without having independent and additional knowledge, a viewer of this advertisement would not even know from this communication that Senator Hatch was a candidate for public office. 120. Both the Repeal It and Three Men advertisements urge the public to take
action. Specifically, they encourage viewers to contact their Senator(s), provide the viewers the official Senate phone number, and then ask viewers to make their opinion about the legislation and policies at issue in the advertisements known to their Senator(s). 121. In the September 2013 Letter, the IRS makes clear that the facts and
circumstances test puts significant weight on the timing of communications, despite the U.S. Supreme Courts warning that contextual factors . . . should seldom play a significant role in the inquiry. WRTL II, 551 U.S. at 473. Furthermore, the facts and circumstances test apparently penalizes Plaintiff for airing communications during an election year, which is the specific period of time in which public officials and the public are more likely to be impacted by the communications. See, e.g., Saul Zipkin, The Election Period and Regulation of the Democratic Process, 18 Wm. & Mary Bill Rts. J. 533, 544 (2010) (The pre-election period is a time of heightened engagement with the democratic process: a time when both voters and political actors are more attentive to one another.). 122. The Repeal It and Three Men advertisements do not contain many of the
factors that are indicia of campaign activity under Revenue Ruling 2004-6, which are listed in paragraph 88 above. The advertisements aired more than sixty days before the primary PLAINTIFFS VERIFIED COMPLAINT 41
election; they aired in Utah statewide and were not efficiently targeted to the approximately 4,000 delegates attending the state convention; and they did not raise an issue that distinguished Senator Hatch from his opponent. 123. Rather, the Repeal It and Three Men advertisements contain many of the
characteristics of communications that do not constitute campaign activity, which are listed in paragraph 89 above. The advertisements identify specific legislation and legislative policy issues that they hope to influence; the timing of the communications correspond to legislative events, such as the introduction of legislation and addition of co-sponsors to legislation; and the communications identify Senators Hatch only in his capacity as a legislator. CAUSES OF ACTION COUNT I Violations of the First Amendment Freedom of Speech Bivens Action Against Defendants Lerner and the Unknown Named IRS Officials in Their Personal Capacities While Acting Under Color of Federal Authority 124. Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 125. The First Amendment to the U.S. Constitution protects private speech from
government interference or restriction when the specific motivating ideology or the opinion or perspective of the speaker is the rationale for the restriction. 126. 127. Plaintiffs speech enjoys First Amendment protections. The U.S. Supreme Court, in Bivens v. Six Unknown Named Agents of Federal
Bureau of Narcotics, 403 U.S. 388 (1971), recognized a private damages action against
42
federal officials for constitutional torts committed by such officials while acting under color of federal authority. 128. Defendants Lerner and the Unknown Named IRS Officials unlawfully
deprived Plaintiff of its First Amendment rights in connection with and arising from its Application for Exemption by imposing upon such Application an unconstitutional requirement of heightened scrutiny, issuing unconstitutional and overly intrusive requests for information as described herein, delaying the processing of Plaintiffs application on the basis of Plaintiffs viewpoints, and failing to prevent such conduct by other IRS employees under their direct supervision and control while they were fully aware of such unconstitutional misconduct. 129. In targeting Plaintiffs Application for Exemption for additional and
illegitimate scrutiny, Defendants Lerner and the Unknown Named IRS Officials engaged in impermissible viewpoint-based discrimination in violation of established First Amendment principles while acting under color of federal authority in their respective IRS positions. 130. Defendants Lerner and the Unknown Named IRS Officials conduct directly
infringed upon Plaintiffs speech by inhibiting their ability to engage in effective advocacy and other expressive activities. 131. Defendants Lerner and the Unknown Named IRS Officials conduct
constitutes retaliation against Plaintiff on the basis of the actual or perceived viewpoint of its protected speech. 132. Defendants Lerner and the Unknown Named IRS Officials knew, or
reasonably should have known, that their conduct would violate Plaintiffs federal constitutional rights. PLAINTIFFS VERIFIED COMPLAINT 43
133.
Plaintiff has no other adequate monetary remedy in court for Defendants
Lerner and the Unknown Named IRS Officials violations of Plaintiffs constitutional rights as complained herein. COUNT II Violations of the First Amendment Freedom of Association Bivens Action Against Defendants Lerner and the Unknown Named IRS Officials in Their Personal Capacities While Acting Under Color of Federal Authority 134. Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 135. The First Amendment to the U.S. Constitution protects Plaintiffs right to
freely associate with others of their choosing for the purposes of engaging in protected speech or religious activities. 136. The U.S. Supreme Court, in Bivens v. Six Unknown Named Agents of Federal
Bureau of Narcotics, 403 U.S. 388 (1971), recognized a private damages action against federal officials for constitutional torts committed by such officials while acting under color of federal authority. 137. Defendants Lerner and the Unknown Named IRS Officials unlawfully
deprived Plaintiff of its First Amendment rights in connection with and arising from its Application for Exemption by imposing upon such Application an unconstitutional requirement of heightened scrutiny, issuing unconstitutional and overly intrusive requests for information as described herein, delaying the processing of Plaintiffs application on the basis of Plaintiffs viewpoints, and failing to prevent such conduct by other IRS employees under their direct supervision and control while they were fully aware of such unconstitutional misconduct. PLAINTIFFS VERIFIED COMPLAINT 44
138.
Defendants Lerner and the Unknown Named IRS Officials, while acting under
color of federal authority in their respective IRS positions, infringed upon Plaintiffs ability to freely associate for protected speech purposes with others of their choosing, including potential donors and grantees. 139. Defendants Lerner and the Unknown Named IRS Officials knew, or
reasonably should have known, that their conduct would violate Plaintiffs federal constitutional rights. 140. Plaintiff has no other adequate monetary remedy in court for Defendants
Lerner and the Unknown Named IRS Officials violations of Plaintiffs constitutional rights as complained herein. COUNT III Violations of the Fifth Amendment Equal Protection under the Due Process Clause Bivens Action Against Defendants Lerner and the Unknown Named IRS Officials in Their Personal Capacities While Acting Under Color of Federal Authority 141. Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 142. The Fifth Amendment to the U.S. Constitution protects persons against the
deprivation of life, liberty, or property without due process of the law and forbids the federal government from denying the equal protection of the laws. 143. The Fifth Amendment guarantees persons the right to be free from illegal
discrimination and selective, viewpoint-based scrutiny and enforcement. 144. The U.S. Supreme Court, in Bivens v. Six Unknown Named Agents of Federal
Bureau of Narcotics, 403 U.S. 388 (1971), recognized a private damages action against
45
federal officials for constitutional torts committed by such officials while acting under color of federal authority. 145. Defendants Lerner and the Unknown Named IRS Officials unlawfully
deprived Plaintiff of its Fifth Amendment rights in connection with and arising from its Application for Exemption by imposing upon such Application an unconstitutional requirement of heightened scrutiny, issuing unconstitutional and overly intrusive requests for information as described herein, delaying the processing of Plaintiffs application on the basis of Plaintiffs viewpoints, and failing to prevent such conduct by other IRS employees under their direct supervision and control while they were fully aware of such unconstitutional misconduct. 146. Defendants Lerner and the Unknown Named IRS Officials, while acting under
color of federal authority in their respective IRS positions, caused Plaintiff to be treated differently than other similarly situated organizations seeking tax-exempt status. 147. The disparate treatment of Plaintiff based on its viewpoints was a result of a
discriminatory purpose on the part of Defendants Lerner and the Unknown Named IRS Officials. 148. Defendants Lerner and the Unknown Named IRS Officials disparate
treatment of Plaintiff based on its viewpoints is not rationally related to any legitimate government interest. 149. Defendants Lerner and the Unknown Named IRS Officials knew, or
reasonably should have known, that their conduct would violate Plaintiffs federal constitutional rights.
46
150.
Plaintiff has no other adequate monetary remedy in court for Defendants
Lerner and the Unknown Named IRS Officials violations of Plaintiffs constitutional rights as complained herein. COUNT IV Violations of the Administrative Procedure Act Against Defendants Unknown Names IRS Officials, IRS, and United States of America in their Official Capacities 151. Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 152. The Administrative Procedure Act (APA) provides a cause of action for
persons aggrieved by final actions of an agency of the United States, or officers thereof while acting in an official capacity, that have been unlawfully withheld or unreasonably delayed, as well as agency actions, findings, and conclusions that are contrary to constitutional right, power, privilege, or immunity. 153. The United States has waived its sovereign immunity pursuant to 5 U.S.C.
702 in actions seeking relief other than money damages and stating a claim that an agency of the United States and/or officers thereof acted or failed to act in an official capacity. 154. 155. Defendant IRS is an agency of the United States for the purposes of the APA. Defendants Lerner and the Unknown Named IRS Officials were officers of an
agency of the United States for purposes of the APA during times relevant to the alleged conduct. 156. Defendants Lerner and the Unknown Named IRS Officials unlawful and
viewpoint-based targeting of Plaintiffs Application for Exemption for heightened scrutiny
47
and unconstitutional and intrusive requests for information unreasonably delayed IRSs final determination of Plaintiffs tax-exempt status. 157. Defendants Lerner and the Unknown Named IRS Officials unlawful conduct
of implementing a policy and practice of targeting and singling out Plaintiffs Application for Exemption for heightened scrutiny and their actions in issuing to Plaintiff the unconstitutionally and overly intrusive requests for information described herein, based solely on Plaintiffs viewpoints, constitute final agency actions that are contrary to Plaintiffs federal constitutional rights to freedom of speech and freedom of association under the First Amendment and the equal protection of the laws under the Fifth Amendment. 158. Defendants Lerner and the Unknown Named IRS Officials demand that
Plaintiff respond to irrelevant, unconstitutional, and overly intrusive requests for information described herein violated their authority under Internal Revenue Manual 7.20.2.4.1, which requires that requests for additional information must be relevant to the paragraph of Section 501(c) appropriate to the applicant. 159. Plaintiff has no other adequate monetary remedy in court for Defendants
Lerner and the Unknown Named IRS Officials violations of Plaintiffs constitutional rights as complained herein. 160. Plaintiff has suffered, and will continue to suffer absent an injunction,
irreparable harm as a result of Defendants Lerner and the Unknown Named IRS Officials unlawful conduct of implementing the policy and practice of targeting and singling out Plaintiffs Application for Exemption for heightened scrutiny and their actions in issuing to
48
Plaintiff the unconstitutional and overly intrusive requests for information described herein. 161. Under no circumstances can Defendants Lerner and the Unknown Named IRS
Officials prevail on this claim as they have already admitted to their unlawful conduct of discriminatorily targeting Plaintiffs Application for Exemption for heightened scrutiny. COUNT V Violations of the Internal Revenue Code 26 U.S.C. 6103 Against Defendant United States of America for Illegal Release of Plaintiffs Application for Exemption 162. Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 163. 26 U.S.C. 6103 provides that tax [r]eturns and return information shall be
confidential and may be inspected and/or disclosed only as specifically authorized by this provision. 164. 26 U.S.C. 7431 provides taxpayers a cause of action for damages against the
United States for knowing or negligent unauthorized inspection of tax return information in violation of 26 U.S.C. 6013. 165. All information furnished by Plaintiff to the IRS in its still-pending (or
withdrawn or denied) Application for Exemption is return information under 26 U.S.C. 6103(b)(2) not subject to public inspection until such time as Plaintiff receives a written determination with respect to its tax-exempt status pursuant to 26 U.S.C. 6110(a). 166. Return information is defined very broadly to include:
(A) a taxpayers identity, the nature, source, or amount of his income, payments, receipts, deductions, exemptions, credits, assets, liabilities, net worth, tax liability, tax withheld, deficiencies, overassessments, or tax payments, whether the taxpayers return was, is being, or will be examined or subject to other PLAINTIFFS VERIFIED COMPLAINT 49
investigation or processing, or any other data, received by, recorded by, prepared by, furnished to, or collected by the Secretary with respect to a return or with respect to the determination of the existence, or possible existence, of liability (or the amount thereof) of any person under this title for any tax, penalty, interest, fine, forfeiture, or other imposition, or offense, (B) any part of any written determination or any background file document relating to such written determination (as such terms are defined in section 6110(b)) which is not open to public inspection under section 6110[.] 26. U.S.C. 6103(b)(2)(A)-(B). 167. The United States has waived its sovereign immunity, pursuant to 26 U.S.C.
7431, for suits alleging a knowing or negligent violation of 26 U.S.C. 6103 by an officer or employee of the United States. 168. 26 U.S.C. 6103(h) authorizes disclosure of return information only to such
officers and employees of the Department of Treasury whose official duties require such inspection or disclosure for tax administration purposes. 169. Release of such tax return information, whether intentionally or as a result of
negligence, constitutes a violation of 26 U.S.C. 7431(a)(1). 170. Such inspections did not result from a good faith, but erroneous
interpretation of section 6103 under 26 U.S.C. 7431(b)(1) and were not requested by the taxpayer, Plaintiff, under 26 U.S.C. 7431(b)(2). 171. On information and belief, the same personnel involved with the release of
Plaintiffs tax return information have previously denied access, in writing, to other requestors who sought similar documents with respect to other groups whose applications were pending. 172. 26 U.S.C 7431 authorizes damages equal to the sum of:
(1) The greater of PLAINTIFFS VERIFIED COMPLAINT 50
(A) $1,000 for each act of unauthorized inspection or disclosure of a return or return information with respect to which such defendant is found liable; or (B) the sum of (i) the actual damages sustained by the plaintiff as a result of such unauthorized inspection or disclosure, plus (ii) in the case of a willful inspection or disclosure or an inspection or disclosure which is the result of gross negligence, punitive damages, plus (2) the costs of the action, plus (3) in the case of a plaintiff which is described in section 7430(c)(4)(A)(ii), reasonable attorneys fees, except that if the defendant is the United States, reasonable attorneys fees may be awarded only if the plaintiff is the prevailing party (as determined under section 7430(c)(4)). 173. The number of unauthorized inspections of Plaintiffs return information
cannot be completely and accurately ascertained at this time but will be more fully known after the completion of discovery. 174. As a minimum, Defendants United States of America and its agency, IRS, are
liable for $1,000 for each unauthorized inspection or disclosure by employees of the United States. 175. Defendants United States of America and IRSs conduct has caused Plaintiff to
incur actual damages in the form of harm to its reputation, harm to its fundraising ability, and direct costs for legal and public relations responses related to the release of this tax return information. COUNT VI Violations of the Fifth Amendment Equal Protection under the Due Process Clause PLAINTIFFS VERIFIED COMPLAINT 51
Against Defendant IRS for Unconstitutional Application of Law 176. Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 177. The facts and circumstances test used by Defendant IRS to analyze
Plaintiffs activities is in direct conflict with the U.S. Supreme Courts clear guidelines relating to issue advocacy and campaign speech in WRTL II, 551 U.S. 449. 178. In stark contrast to the objective standard adopted by the U.S. Supreme Court
in WRTL II in 2007, the IRS has blatantly ignored the Courts applicable precedent and continued to apply the amorphous facts and circumstances test to Plaintiffs activities in a manner that unjustifiably focuses on the inherently fact-intensive and subjective nature of external contextual factors. 179. The twenty plus factors that the IRS considers when attempting to apply its
facts and circumstances test are grossly indeterminate, and their application grossly imprecise, that the IRS is more or less free to come to any conclusions it wishes with respect to a particular public communication. See Big Mama Rag, 631 F.2d at 1034 ([R]egulations authorizing tax exemptions may not be so unclear as to afford latitude for subjective application by IRS officials.). 180. As such, the IRSs facts and circumstances test is void for vagueness in
violation of the Due Process Clause of the Fifth Amendment. COUNT VII Violations of the Administrative Procedure Act Against Defendant IRS for Act Beyond Statutory Limits of Power
52
181.
Plaintiff realleges and incorporates by reference the preceding paragraphs of
this Complaint as though fully set forth herein. 182. Even where APA review is precluded by statute, the U.S. Supreme Court has
ruled that judicial review is available when an agency acts ultra vires. See, e.g., Harmon v. Brucker, 355 U.S. 579, 581-82 (1958) (Generally, judicial review is available to one who has been injured by an act of a government official which is in excess of his express or implied powers.). In other words, the APA stricture barring judicial review, to the extent that statutes preclude judicial review, 5 U.S.C. 701(a)(1), does not repeal the review of ultra vires actions that was recognized long before, in McAnnulty. . . . When an executive acts ultra vires, courts are normally available to reestablish the limits of his authority. Aid Assn for Lutherans v. U.S. Postal Serv., 321 F.3d 1166, 1173 (D.C. Cir. 2003) (citing Dart v. United States, 848 F.2d 217, 224 (D.C. Cir. 1988); Chamber of Commerce v. Reich, 74 F.3d 1322, 1328 (D.C. Cir. 1996)). 183. The adoption and application of the facts and circumstances test is an ultra
vires agency action in violation of the statute from which the IRS claims to derive its rulemaking authority. PRAYER FOR RELIEF WHEREFORE Plaintiff demands judgment against Defendants and in favor of Plaintiff as follows: 184. Under Count I, that this Court declare that the conduct of Defendants Lerner
and the Unknown Named IRS Officials, while acting under color of federal authority, violated the constitutional rights of Plaintiff and award Plaintiff compensatory and punitive damages in an amount to be proved at trial against Defendants Lerner and the Unknown PLAINTIFFS VERIFIED COMPLAINT 53
Named IRS Officials for their violations of Plaintiffs constitutional rights committed while acting under color of federal authority; 185. Under Count II, that this Court declare that the conduct of Defendants Lerner
and the Unknown Named IRS Officials, while acting under color of federal authority, violated the constitutional rights of Plaintiff and award Plaintiff compensatory and punitive damages in an amount to be proved at trial against Defendants Lerner and the Unknown Named IRS Officials for their violations of Plaintiffs constitutional rights committed while acting under color of federal authority; 186. Under Count III, that this Court declare that the conduct of Defendants Lerner
and the Unknown Named IRS Officials, while acting under color of federal authority, violated the constitutional rights of Plaintiff and award Plaintiff compensatory and punitive damages in an amount to be proved at trial against Defendants Lerner and the Unknown Named IRS Officials for their violations of Plaintiffs constitutional rights committed while acting under color of federal authority; 187. Under Count IV, that this Court declare that the conduct of Defendants
Unknown Names of IRS Officials, IRS, and United States of America violated the Administrative Procedures Act; 188. Under Counts V, that this Court: (i) the sum of: (1) The greater of award Plaintiff damages under 26 U.S.C. 7431 in an amount equal to
54
(A)
$1,000 for each act of unauthorized inspection or
disclosure of a return or return information with respect to which such Defendant are found liable; or (B) the sum of (i) the actual damages sustained by Plaintiff as a
result of such unauthorized inspection or disclosure, plus (ii) in the case of a willful inspection or disclosure or
an inspection or disclosure which is the result of gross negligence, punitive damages, plus (2) (3) the costs of the action, plus Reasonable fees paid or incurred for the services of attorneys
in connection with this court proceeding. (ii) Award Plaintiff its reasonable attorneys fees, costs, and expenses associated with this action pursuant to 28 U.S.C. 2412 and 26 U.SC. 7431; and (iii) Award Plaintiff such other and further relief as this Court deems necessary and proper. 189. Under Count VI, that this Court: (i) declare that the facts and circumstances test contained in Revenue
Ruling 2007-41 and Revenue Ruling 2004-6, and any applicable rules and regulations implementing these Revenue Rulings, are unconstitutionally vague in violation of the Due Process Clause of the Fifth Amendment;
55
(ii)
issue preliminary and permanent injunctions enjoining Defendant IRS
from utilizing the facts and circumstances test contained in Revenue Ruling 2007-41 and Revenue Ruling 2004-6, and any applicable rules and regulations implementing these Revenue Rulings; (iii) Award Plaintiff its reasonable attorneys fees, costs, and expenses
associated with this action pursuant to the Equal Access of Justice Act, 28 U.S.C. 2412(d)(1)(A). (iv) Award Plaintiff such other and further relief as this Court deems
necessary and proper; 190. Under Count VII, that this Court declare that Defendant IRS, in adopting and
applying the facts and circumstances test, has acted ultra vires. Dated: April 28, 2014 Respectfully submitted, By: _/s/ Orrin Harrison III_______________ Chris K. Gober (Lead Counsel) gober@goberhilgers.com Michael T. Hilgers mhilgers@goberhilgers.com GOBER HILGERS PLLC 1005 Congress Avenue, Suite 350 Austin, Texas 78701 Telephone: (512) 354-1783 Facsimile: (877) 437-5755 Jason Torchinsky* jtorchinsky@hvjlaw.com HOLTZMAN VOGEL JOSEFIAK, PLLC 45 North Hill Drive, Suite 100 Warrenton, Virginia 20186 Telephone: (540) 341-8808 Facsimile: (540) 341-8809 PLAINTIFFS VERIFIED COMPLAINT Orrin L. Harrison III oharrison@ghjhlaw.com GRUBER HURST JOHANSEN HAIL SHANK LLP 1445 Ross Avenue, Suite 2500 Dallas, Texas 75202 Telephone: (214) 855-6828 Facsimile: (214) 855-6808
* Motion for pro hac admission forthcoming
ATTORNEYS FOR PLAINTIFF 56

Freedom Path V IRS

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Freedom Path V IRS

Uploaded by

Copyright:

Available Formats

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Civil Case No.

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

The United States of America is a proper defendant pursuant to 5 U.S.C.

cycle, had engaged in the following:

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

pending Application for Exemption to ProPublica in violation of 26 U.S.C. 6103.

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

The information contained in a still-pending (or withdrawn or denied) Form

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Furthermore, the U.S. House of Representatives Committee on Ways and

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

With respect to the IRSs review process as it relates to the evaluation of an

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Supposedly relevant factors identified in Revenue Ruling 2004-6 are not

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

not be used by the IRS to analyze Plaintiffs activities.3

PLAINTIFFS VERIFIED COMPLAINT

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Case 3:14-cv-01537-D Document 1 Filed 04/28/14

Audio and devastating to small business.

But ObamaCare can still be stopped.

Declaring ObamaCare unconstitutional,

Orrin Hatch, leading the conservative charge to repeal ObamaCare.