The US Court of Appeals for the Sixth Circuit held today that the names, addresses, and other identifying information of applicants for tax-exempt status are not return information for purposes of section 6103. As such, the court required the IRS to produce the applicant names and related information regarding the organizations whose applications for exempt status were identified for heightened scrutiny.
The plaintiffs in the case have asserted claims against the IRS under the federal Privacy Act and under the First and Fifth Amendments. During discovery, the district court ordered the IRS to respond to requests for lists of organizations that the IRS had identified for heightened scrutiny during the exempt status application process so that the plaintiffs could identify members of a putative class for a class action. The IRS sought a writ of mandamus from the Sixth Circuit, to prevent the district court’s order from going into effect, on the grounds that complying with the order would require the IRS to violate the protections of taxpayer privacy under section 6103.
Under section 6104, the application of any successful applicant for tax exempt status under section 501(c) or 501(d) is made open to public inspection. As a result, the court held that the IRS’s petition was “patently meritless as to the names and identifying information of groups whose applications the IRS has since granted.”
The Sixth Circuit went further, however, and denied the IRS’s petition even with respect to applications that had not been granted. Section 6103 generally prevents the IRS from disclosing certain “return information” including a “taxpayer’s identity,” defined as “the name of a person with respect to whom a return is filed, his mailing address, his taxpayer identification number (as described in section 6109), or a combination thereof.” The court concluded that the names of applications for exempt status are not a “taxpayer’s identity” because an application for tax exempt status is not a “return” as that word is used in the definition of “taxpayer’s identity.” The Sixth Circuit, thus, ruled that the names of applicants for tax exempt status are not protected by the confidentiality provisions of section 6103, even in cases where an application has been denied or is still pending.
In closing, the Sixth Circuit stated that “Section 6103 was enacted to protect taxpayers from the IRS, not the IRS from taxpayers.” However, it is not clear how the court’s reasoning would be changed if it were an applicant, rather than the IRS, seeking to apply the confidentiality protections of section 6103. As a result, this case may create an unfavorable precedent that could be applied against nonprofit organizations in the future.
United States v. NorCal Tea Party Patriots, 2016 BL 87076, 6th. Cir., No. 15-3793, 3/22/16