Professor Examines Alleged Taxpayer Privacy Violation by Congress

George Yin

Professor George Yin is the law school's Edwin S. Cohen Distinguished Professor of Law and Taxation. He previously headed the nonpartisan staff of the U.S. Congress' Joint Committee on Taxation.

September 30, 2015

University of Virginia School of Law professor George Yin, who previously held one of the most influential tax positions in the country when he headed the nonpartisan staff of the U.S. Congress' Joint Committee on Taxation, claims in his latest paper that the U.S. House Ways and Means Committee violated the law in 2014 when it released to the public the tax return information of 51 taxpayers.

In "Preventing Congressional Violations of Taxpayer Privacy," Yin makes the argument for why the committee's action was illegal and proposes solutions to protect taxpayer privacy in the future.

What led you to work on this project?

To perform its various duties, the JCT staff is given the special privilege of being able to examine otherwise confidential tax return information. But under the law, everyone who has access to such information, including the JCT staff, must generally protect its confidentiality, with both civil and criminal penalties applying to a violation. As the JCT chief of staff, I obviously had to become familiar with this law and thus, when I heard that the Ways and Means Committee had released protected tax information to the public, I was curious to find out what had happened.

What did you find?

The disclosed information was included in a referral letter the committee sent to the Justice Department alleging possible criminal misconduct by a high-ranking IRS employee (Lois Lerner). The committee wanted to release a copy of the letter to the public and, in general, there was nothing preventing the committee from doing so. But since the letter contained protected tax information that generally may not be disclosed, the chairman convened a meeting of the committee to obtain authorization and claimed that an obscure tax law provision permitted the disclosure. In a strictly party line vote, the committee agreed with the chairman.

Has this obscure provision ever been relied on before?

Yes, but apparently very rarely since its enactment in 1924. The most recent occasion was in 1974 when the committee disclosed tax information belonging to President Nixon. The JCT staff had investigated the president's personal tax returns and because of the keen public interest in the investigation, the committee released the staff's findings to the public.

So, although unusual, was there anything wrong with what the Ways and Means Committee did in 2014?

I concluded that there was, but only after a close examination of both the facts and applicable law.

What were the most critical facts?

The deeper I got into the facts, the more inexplicable and unsettling they became. The sole stated purpose of the committee's meeting (conducted in executive session) was to determine whether it could disclose the tax information included in its criminal referral letter. It was a surprise, then, that the committee never discussed the tax information to be disclosed or the 51 taxpayers whose rights might be violated. Even more remarkable, there was virtually no discussion of the committee's authority to make the disclosure. The only person to testify at the meeting conceded that he was not an expert on tax confidentiality law. From the discussion at the meeting, it appeared that few, if any, of the members of the committee had any familiarity with the pertinent law or the tax information being disclosed.

But the most glaring and startling omission was the absence of any explanation of the reason for disclosing the information. The committee never provided an explanation, and I could not come up with a legitimate reason on my own. I was astonished to discover that most of the tax disclosures had absolutely nothing to do with the allegations contained in the referral letter. For example, the committee released tax information belonging to groups such as the World Wildlife Fund and the Miss America Foundation that had no connection to Lois Lerner or any of the crimes she allegedly committed. Overall, I found that not a single tax disclosure was necessary to support the committee's claims in its letter.

Why, then, did the committee conduct the meeting and make the disclosures?

It's really quite a puzzle. In my paper, I speculate that the chairman and committee majority may have seen a partisan political advantage to publicizing one particular piece of tax information relating to Crossroads Grassroots Policy Strategies, an organization run by Karl Rove. It consisted of emails from Lerner to subordinates in which she expressed interest in having the organization audited and its application for tax-exempt status denied. But since this material was protected tax information, it was necessary for the committee to develop some vehicle to allow the information to become public. It is possible that the criminal referral letter and subsequent committee meeting and vote were carried out to provide that vehicle.

During the committee meeting, the chairman repeatedly stated that the referral letter needed to be made public. Eventually, a committee member asked whether it could send a public letter to the Justice Department but transmit the protected tax return information under seal. To me, this seemed like a perfectly reasonable request since the only legal restriction facing the committee related to the confidentiality of the tax information. I didn't think any of it was necessary for the committee's claims, but even if that view is incorrect, a transmittal under seal would have protected the information. The chairman, however, denied the request without any explanation. My speculation would help to explain why he was so insistent upon publicizing the tax information even though he could never explain the reason for doing so.

But did the committee's disclosure violate the law?

Unfortunately, I believe it did. I researched the legal authority relied on by the committee and concluded that it permits disclosure of tax information only if the committee has a legitimate reason to do so. This is an almost trivial, common-sense restriction imposed on the committee before it is allowed to breach taxpayer privacy. It merely requires the committee to act within the scope of its constitutional and legislative responsibilities. Yet, in view of what transpired, I believe the Ways and Means Committee failed to satisfy this requirement. Because of the manner in which the release occurred, however, I also concluded that the Speech or Debate Clause of the Constitution insulated those responsible for the disclosure from prosecution.

Was any of the information released especially sensitive?

No, I don't think so. Moreover, in order to increase the transparency of the IRS' work, I have previously urged more disclosure of precisely the type of information the committee released. But, of course, there is a right way and a wrong way to achieve a policy objective. Because of the Origination Clause — the rule requiring tax legislation to originate in the House — and its jurisdiction in that chamber over such legislation, the Ways and Means Committee is uniquely situated to initiate change of any tax law that it considers to be unsound or outdated. Pending change, however, it should be respecting the laws that it or its predecessors helped to craft.

If the information released wasn't sensitive, what would you say was the main significance of this episode?

I think the Ways and Means Committee's action in 2014 establishes a dangerous precedent. It shows how a future committee, even one motivated purely by partisan political objectives, could release with impunity the tax information of any taxpayer. Thus, I see the committee's action as potentially sounding the death knell of taxpayer privacy.

Could anything be done to prevent that outcome?

I suggest placing additional restrictions on the access of the committees to tax return information. If they are unable to obtain the information in the first instance, then they will be unable to disclose it for improper purposes. To respect their legitimate need for the information, I would give exclusive access in the legislative branch to a congressional staff intermediary who would use the information for Congress and convey it to Congress only in specified circumstances. If, as I assert in my paper, the intermediary's actions would likely not be protected by the Speech or Debate Clause, then restrictions placed on the intermediary's discretion could be enforced to protect taxpayer privacy.

It might seem unrealistic to expect Congress to take any action that would restrict its prerogatives in any way. Yet the history of this issue shows that Congress has repeatedly done exactly that. Moreover, possible harm from misuse of the information is indiscriminate. Because today's majority in Congress may obviously be tomorrow's minority, every legislator should be interested in preventing illegitimate disclosures in the future. Taxpayer interest in tax privacy is very longstanding, and Congress has taken many steps over the years to protect that interest. Congress should do so once again.

After you reached your conclusions, did you have any second thoughts about publishing them?

Yes, I did. I know and respect the chairman of the committee and several of the other persons involved in this episode, and I was embarrassed to discover that they appeared to have violated the law. But there may be fewer than two dozen people in the country — private practitioners, government lawyers, and academics — who really understand the law of taxpayer privacy. I know I didn't before my stint at the JCT. It therefore seemed important to share my findings, however uncomfortable they may be, once I had completed my work.

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