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Linchpins of Liberty v. United States

United States District Court, D. Columbia.

October 23, 2014

LINCHPINS OF LIBERTY, et al., Plaintiffs,
v.
UNITED STATES, et al., Defendants

Page 237

For LINCHPINS OF LIBERTY, PATRIOTS EDUCATING CONCERNED AMERICANS NOW, GREENWICH TEA PARTY PATRIOTS OF SOUTH JERSEY, INC., GREATER PHOENIX TEA PARTY PATRIOTS, UNITE IN ACTION, INC., ALLEN AREA PATRIOTS, LAURENS COUNTY TEA PARTY, NORTH EAST TARRANT TEA PARTY, INC, MYRTLE BEACH TEA PARTY, INC, ALBUQUERQUE TEA PARTY, INC., COLORADO 9/12 PROJECT, SAN ANTONIO TEA PARTY, INC., WETUMPKA TEA PARTY, INC., OKC PIA ASSOCIATION, RICHMOND TEA PARTY, HAWAII TEA PARTY, agent of MAUI TEA PARTY, SHELBY COUNTY LIBERTY GROUP, MANASSAS TEA PARTY, HONOLULU TEA PARTY, WACO TEA PARTY, KENTUCKY 9/12 PROJECT, INC., SAN FERNANDO VALLEY PATRIOTS, INC, PORTAGE COUNTY TEA PARTY, INC, CHATTANOOGA TEA PARTY, AMERICAN PATRIOTS AGAINST GOVERNMENT EXCESS, Plaintiffs: Julian A. Fortuna, PRO HAC VICE, LEAD ATTORNEY, TAYLOR, ENGLISH, DUMA, LLP, Atlanta, GA; Robert W. Ash, PRO HAC VICE, LEAD ATTORNEY, AMERICAN CENTER FOR LAW & JUSTICE, Virginia Beach, VA; Jay Alan Sekulow, AMERICAN CENTER FOR LAW & JUSTICE, Washington, DC.

For ALL PLAINTIFFS, Plaintiff: Abigail A. Southerland, Carly F. Gammill, David A. French, Miles Landon Terry, PRO HAC VICE, LEAD ATTORNEYS, AMERICAN CENTER FOR LAW & JUSTICE, Franklin, TN; Andrew J. Ekonomou, PRO HAC VICE, LEAD ATTORNEY, LAMBROS FIRM, Atlanta, GA; Julian A. Fortuna, PRO HAC VICE, LEAD ATTORNEY, TAYLOR, ENGLISH, DUMA, LLP, Atlanta, GA; Robert W. Ash, PRO HAC VICE, LEAD ATTORNEY, AMERICAN CENTER FOR LAW & JUSTICE, Virginia Beach, VA; Jay Alan Sekulow, AMERICAN CENTER FOR LAW & JUSTICE, Washington, DC.

For FIRST STATE PATRIOTS, INC., ARLINGTON TEA PARTY, INC., TRI-CITIES TEA PARTY, AMEN, COMMON SENSE CAMPAIGN CORP., LIBERTY TOWNSHIP TEA PARTY, INC., MID-SOUTH TEA PARTY, ACADIANA PATRIOTS, FIRST COAST TEA PARTY, INC., ROCHESTER TEA PARTY PATRIOTS, EAST JERSEY TEA PARTY, SHENANDOAH VALLEY TEA PARTY PATRIOTS, MISSISSIPPI TEA PARTY, INC., OREGON CAPITOL WATCH FOUNDATION, PROTECTING AMERICAN VALUES, INC., ROANE COUNTY TEA PARTY, Plaintiffs: Julian A. Fortuna, PRO HAC VICE, LEAD ATTORNEY, TAYLOR, ENGLISH, DUMA, LLP, Atlanta, GA; Robert W. Ash, PRO HAC VICE, LEAD ATTORNEY, AMERICAN CENTER FOR LAW & JUSTICE, Virginia Beach, VA; Carly F. Gammill, AMERICAN CENTER FOR LAW & JUSTICE, Franklin, TN.

For UNITED STATES OF AMERICA, Defendant: Grover Hartt, III, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Tax Division, Dallas, TX; Joseph A. Sergi, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC; Laura Cindy Beckerman, U.S. DEPARTMENT OF JUSTICE, Tax Division, CTS-N, Washington, DC.

For INTERNAL REVENUE SERVICE, JACOB J. LEW, in his official capacity as Secretary of the United States Department of the Treasury, UNKNOWN NAMED OFFICIALS OF THE INTERNAL REVENUE SERVICE, in their official and individual capacities, DANIEL I. WERFEL, in his official capacity as Acting Commissioner, INTERNAL REVENUE SERVICE, Defendants: Joseph A. Sergi, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC.

For STEVEN T. MILLER, in his individual capacity as former Deputy Commissioner, Services & Enforcement, and Acting Commissioner, Internal Revenue Service, LOIS LERNER, in her official and individual capacities as Director, Exempt Organizations Division, Internal Revenue Service, HOLLY PAZ, in her official and individual capacities, as former Acting Manager, EO Technical Unit, former Acting Director, Office of Rulings & Agreements, and Director, Office of Rulings & Agreements, STEVEN GRODNITZKY, in his official and individual capacities, as Manager, EO Technical Unit, INTERNAL REVENUE SERVICE, Defendants: Brigida Benitez, Erica Lynne Gerson, LEAD ATTORNEYS, STEPTOE & JOHNSON, LLP, Washington, DC; Joseph A. Sergi, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC.

For CARTER HULL, in his official and individual capacities, as Tax Law Specialist, Exempt Organizations, INTERNAL REVENUE SERVICE, Defendant: Jeffrey A. Lamken, LEAD ATTORNEY, MOLOLAMKEN, LLP, Washington, DC; Joseph A. Sergi, LEAD ATTORNEY, U.S. DEPARTMENT OF JUSTICE, Tax Division, Washington, DC; Justin V Shur, MOLOLAMKEN LLP, Washington, DC.

For WILLIAM WILKINS, in his official and individual capacities as Chief Counsel, INTERNAL REVENUE SERVICE, DOUGLAS H. SHULMAN, in his official and individual capacities as Commissioner, INTERNAL REVENUE SERVICE, SARAH HALL INGRAM, in her official and individual capacities as Commissioner, Tax-Exempt / Government Entities Division, INTERNAL REVENUE SERVICE, JOSEPH GRANT, in his official and individual capacities as Commissioner, Tax-Exempt / Government Entities Division, INTERNAL REVENUE SERVICE, NIKOLE FLAX, in her official and individual capacities as Senior Technical Advisor, Exempt Organization Division, INTERNAL REVENUE SERVICE, JUDITH E. KINDELL, in her official and individual capacities as Senior Technical Advisor, Exempt Organization Division, INTERNAL REVENUE SERVICE, MICHAEL SETO, in his official and individual capacities as Acting Manager, EO Technical Unit, INTERNAL REVENUE SERVICE, Defendants: Brigida Benitez, Erica Lynne Gerson, LEAD ATTORNEYS, STEPTOE & JOHNSON, LLP, Washington, DC.

For STATE OF OHIO, ALABAMA AND SOUTH CAROLINA, Amicus: Frederick Dickson Nelson, LEAD ATTORNEY, OHIO ATTORNEY GENERAL, Columbus, OH.

Page 238

MEMORANDUM OPINION

REGGIE B. WALTON, United States District Judge.

The plaintiffs, forty-one organizations that sought or are still seeking tax-exempt status from the Internal Revenue Service (" IRS" ), filed this civil action against the United States of America, the IRS, and several known and unknown IRS officials in both their official and individual capacities,[1] alleging violations of the First Amendment, the Fifth Amendment, the Administrative Procedure Act (" APA" ), 5 U.S.C. § § 702, 706 (2012), the Internal Revenue Code, 26 U.S.C. § 6103 (2012), as well as seeking declaratory and injunctive relief, and monetary damages. See Second Amended Complaint (" Am. Compl." ) ¶ ¶ 13, 139-424, A-J (prayer for relief). Currently pending before the Court are the defendants' Motion to Dismiss Counts IV, V, VI, VII, IX, and Part of VIII [of the Complaint] and Supporting Statement of Points and Authorities (" Defs.' Mot." ); Defendant Carter Hull's Motion to Dismiss (" Hull Mot." ); and the Individual Management Defendants' Motion to Dismiss (" Mgmt. Mot." ).[2] The Court concludes for

Page 239

the following reasons that it must grant all of the defendants' motions to dismiss.[3]

I. BACKGROUND

The plaintiffs assert that they " are all organizations that applied for [26 U.S.C. § 501(c)(3) or 26 U.S.C. § 501(c)(4)] tax-exempt status with the IRS between 2009 and 2012." Am. Compl. ¶ 73. Altogether there are forty-one such organizations. Id. ¶ ¶ 15-55. At the time the plaintiffs filed their complaint, there were four categories of plaintiffs: (1) four plaintiffs that were awaiting an IRS determination of their Section 501(c)(3) tax-exempt status; (2) ten plaintiffs that were awaiting an IRS determination of their Section 501(c)(4) tax-exempt status; (3) twenty-two plaintiffs that had already received tax-exempt status; [4] and (4) five plaintiffs that chose to forego pursuit of tax-exempt status in light of the allegations below. Id.

The plaintiffs allege that " [a]s early as February 2010, the IRS began identifying [tax-exempt] applications for additional scrutiny," which " includ[ed] the issuance of letter requests for additional information" from organizations with " conservative-sounding names." Id. ¶ 92 (citing Am. Compl., Exhibit (" Ex." ) 1 (May 14, 2013 Report from the Treasury Inspector General for Tax Administration (" the Report" )) at 5-6, 30); see also id. ¶ ¶ 94-95, 280. The plaintiffs further allege that in August 2010, IRS employees distributed a list entitled " Be On The Lookout" --otherwise known as the " BOLO" list. Id. ¶ 124. The BOLO list allegedly contained terms that would identify " organizations with conservative[-]sounding names that had applied for tax-exempt status under [Sections] 501(c)(3) or 501(c)(4)," but " no terms that would identify progressive or liberal groups." Id. The plaintiffs assert that as of July 2011, the BOLO list " continued to focus on organizations associated with . . . conservative philosophies." Id. ¶ 170. The BOLO list " remained in place for another eighteen (18) months." [5] Id.; see also id. ¶ ¶ 276-77.

In support of their allegations, the plaintiffs note that on May 10, 2013, one of the named individual defendants " apologized in a speech before the American Bar Association for a pattern of misconduct whereby the IRS intentionally and systematically targeted for additional and unconstitutional scrutiny[,] conservative organizations applying for tax-exemption." [6] Id. ¶ 1; see also id. ¶ ¶ 309-10. The plaintiffs also cite the May 14, 2013 Report released by the Treasury Inspector General for Tax Administration, which stated,

Page 240

among other things, that the IRS had engaged in the following, " both before and during the 2012 election cycle" :

(a) targeting of tax-exempt applications for additional scrutiny and inquiry based on " inappropriate criteria" --including 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 tax-exempt applications; and
(c) requesting additional information from these applicants that was entirely unnecessary and irrelevant to the IRS's determination regarding the organizations' respective tax-exempt statuses.

Id. ¶ 275 (citing Ex. 1 (The Report) at 5-20).

Under this alleged " IRS scheme," IRS officials across the country purportedly " pulled applications from conservative organizations, delayed processing those applications for sometimes well over a year, [and] then made harassing, probing, and unconstitutional requests for additional information." Id. ¶ 2; see also id. ¶ ¶ 288-92. According to the plaintiffs, " [t]he IRS scheme had a dramatic impact on targeted groups, causing many to curtail lawful activities, expend considerable unnecessary funds, lose donor support, and devote countless hours of time to responding to onerous and targeted IRS information requests that were outside the scope of legitimate inquiry." Id. ¶ 3. As a result of the aforementioned allegations, the plaintiffs " seek[] damages" for the implementation of the alleged IRS scheme, as well as " declaratory[] and injunctive relief" to " halt IRS targeting" and " strike down all unconstitutional rules, regulations, practices, and procedures that empowered the IRS's unlawful acts." Id. ¶ 5; see also id. ¶ ¶ 311-16.

The plaintiffs filed suit on May 29, 2013, ECF No. 1, and have since amended their complaint twice, once on June 25, 2013, ECF No. 27, and again on October 18, 2013, Am. Compl. at 81. Counts one through three seek monetary damages against certain defendants in their individual capacities for carrying out the alleged IRS scheme in violation of the First and Fifth Amendments. See Am. Compl. at 61-65. Counts four through seven generally accuse the defendants of violating the APA and seek declaratory and injunctive relief. See id. at 66-75. Count eight seeks declaratory relief under 26 U.S.C. § 7428 for those plaintiffs that are awaiting determination of their Section 501(c)(3) tax-exempt status. See id. at 75-76. And through count nine, the plaintiffs seek monetary damages for violations of 26 U.S.C. § 6103, because the defendants allegedly " obtained, inspected, handled, and disclosed" the plaintiffs' tax return information " illegally." Id. ¶ 419; see also id. at 76-78.

After the plaintiffs instituted this action, the IRS publicly released a memorandum on its website stating that the challenged IRS scheme had been suspended as of June 20, 2013. Daniel Werfel, Charting a Path Forward at the IRS: Initial Assessment and Plan of Action, at 7 (June 24, 2013), www.irs.gov/PUP/newsroom/Initial%20Assessment%20and%20Plan%20of%20Action.pdf) (" IRS Action Plan" ) (" We have suspended the use of 'be-on-the-lookout,' or BOLO, lists in the application process for tax exempt status." ); id. at 14 (" Specifically, the IRS has[] suspended the use of BOLO lists in the application process for tax[-]exempt status . . . ." ); id. at Appendix (" App." ) C (" Memo Suspending [U]se ...


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