On Tuesday, in the most recent clash between the IRS and the tea-party groups that were allegedly targeted for enhanced scrutiny by the IRS, the Sixth Circuit denied the IRS’s writ of mandamus. In In re United States of America, the Sixth Circuit ordered that the IRS comply with the district court’s discovery orders in the case.
Prior to Tuesday’s decision, the case has largely been argued in the context of discovery conferences. The tea-party groups relevant to this case are groups who, because of the use of some words or groups of words on their 501(c) application that were related to their political beliefs, had their 501(c) applications placed on the “Be On the Lookout” listing. The plaintiffs in the case sought, among other things, to certify a class of organizations allegedly targeted by the IRS because of their political beliefs. To that end, the plaintiffs sought discovery in the form of basic information relevant to class certification, including the names of class members as shown on the IRS’s internal lists so that the plaintiffs could identify fellow members. The district court, over the objection of the IRS, ordered production of the documents requested. The IRS then filed a petition for a writ of mandamus.
The IRS’s defense for refusing to release the information rested on the general rule that “returns and return information shall be confidential” under 26 U.S.C. § 6103(a). The district court had originally held that this rule did not apply because of an exception that allows disclosure of a return that is directly related to the resolution of an issue in the proceeding. The Sixth Circuit disagreed, saying that the exception only applies to “returns,” and the information requested by the plaintiffs was “return information.” However, the Sixth Circuit did agree with the district court’s ultimate conclusion that the information must be disclosed. With respect to applicants whose applications have already been granted, the Sixth Circuit noted, the information is subject to public inspection under the IRS’s procedures. The names of applicants for application that are pending, have been withdrawn, or have been denied, the Sixth Circuit ordered disclosure because the applicants identity is not included in the statutory definition of “return information;” therefore, the information is not confidential under the statute cited by the IRS.
The decision of the Sixth Circuit was based principally on statutory construction of the statutes that govern confidentiality with respect to documents filed with the IRS. While this was a discovery battle, it sets the stage for more significant proceedings in the district court.