FOIA Lawsuit for Information Gathered from Tax Practitioners

December 9, 2019 by 5 Comments

Today we welcome guest blogger Nick Xanthopoulos.  Nick was a staff attorney at Nevada Legal Services’ Low Income Taxpayer Clinic (LITC) from December 2014 until October 2016, and a staff attorney at Mid-Minnesota Legal Aid’s LITC from November 2016 until July 2019.  From August 2019 until November 2019, Nick was an attorney at Kennedy Law Offices, P.A., a boutique law firm in Eagan, Minnesota that represents clients in tax, business, and estate related legal matters.  Nick is currently on sabbatical. Tuan Samahon, a colleague of mine from Villanova, and Shawn Rodgers, both of whom specialize in FOIA litigation at Goldstein LP, will be handling the case. (Their pro hac vice motions are pending). Keith

Before 2018, tax professionals with an IRS power of attorney (Form 2848) on file went through a familiar process when calling the IRS to represent someone: we provided the taxpayer’s Social Security number (SSN) and name, our name and Centralized Authorization File (CAF) number (a unique identifier), and which tax years and forms we were authorized to discuss.  During these calls we were often asked additional information about the taxpayer to verify the taxpayer’s address or phone number but not personal information about ourselves.  Indeed, the Internal Revenue Manual (IRM), a guide that IRS employees are supposed to follow, says that only those items are needed to verify that a caller is an authorized third party.  (IRM 21.1.3.3(2).)

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In January 2018, the IRS changed the procedure with no advance notice, and obviously, no opportunity for comment by the affected parties.  Since then, IRS employees begin nearly every phone call by forcing practitioners to say our own SSN, date of birth, and other personal information.  In gathering this information, the IRS should take responsibility for the protection of this information under Internal Revenue Code (IRC) section 6103 but also allow practitioners to know how it uses and protects that information.  If we refuse to state our confidential information during the recorded phone call, IRS will not let us represent our clients, thereby worsening an access to justice gap.  If we do answer the questions about our personal information, it becomes part of the client’s file.  I know that the IRS records calls and keeps them in taxpayers’ files because I have secured at least 4 such recordings through Freedom of Information Act (FOIA) requests.  In at least 2 of them, an IRS employee insisted on me stating my SSN despite knowing that my client was listening.

I have had several clients who were victims of tax-related identify theft.  ID theft damage can only be mitigated, never fixed.  Yet no IRS employee has ever instilled me with any confidence that the IRS would redact my SSN from all recordings and all case notes.  As a result, I have refused to state my SSN during any call when I was representing a client.  Practitioners should never be forced to choose between representing someone as effectively as possible and protecting ourselves from identity theft or other misuse of our own personal information.  If the IRS published the procedures it follows to ensure practitioners’ information is kept separate from clients’ files, then practitioners could make an informed decision about whether it is safe to state our SSNs in order to represent our clients.

In June 2019, Professor Keith Fogg and I made a FOIA request for “IRS agency records relating to precautions taken to safeguard the confidentiality of return and return information taken by the IRS from tax practitioners.”  In response, the IRS directed us to the www.irs.gov version of IRM 21.1.3.3, which is heavily redacted, and provided no other agency records.  In explaining why it redacted much of IRM 21.1.3.3, the IRS claimed the “records or information [was] compiled for law enforcement purposes” and that release “would disclose techniques and procedures for law enforcement investigations or prosecutions or would disclose guidelines for law enforcement investigations or prosecutions if such disclosure could reasonably be expected to risk circumvention of the law.” When Professor Fogg and I administratively appealed the partial denial of our FOIA request, the IRS Independent Office of Appeals summarily upheld the IRS decision.

As a result, Professor Fogg and I sued the IRS. We filed a complaint on November 29, 2019, in US District Court in the District of Minnesota seeking production of the requested records.  The IRS claims that the new authentication procedure’s “intent is to enhance protections for tax professionals and their clients.”  (IRM 21.1.3.3(3).)  The public and tax practitioners should have the right to see agency records about how the IRS is protecting tax professionals when the IRS forces professionals to state their own confidential information in order to represent a taxpayer.

The treatment of the information of professionals seeking to represent taxpayers should not be the type of information that the IRS hides from the professionals to protect law enforcement.  These professionals are not the taxpayers in the case and are seeking only to represent the taxpayers.  To hide from them the uses of the information and the safeguards surrounding the information denies them the opportunity to make an informed decision.  This is particularly important when the IRS has adopted a procedure without notice and comment and without input from the affected community.

Tax professionals provide an important service to the tax system.  They should not be treated as criminals entitled to no voice in what personal information is elicited from them nor have the use of the information hidden from them. Of course, the IRS has an important job in making sure that it only provides a taxpayer’s information to a properly authorized representative. That aspect of its mission, however, does not give it carte blanche to gather and use all manner of information from the professionals who practice before it, especially without giving those professionals a voice in what information is gathered, the safeguards placed on that information and the uses of that information.

The goal of the FOIA litigation is to find out answers to these questions so that the practitioner community can begin to have a voice in how its information is used by the IRS and protected from abuse.  Please take a moment to learn more about this important issue by reading the FOIA complaint.  You can access the complaint (including exhibits) for free here, thanks to Syracuse University’s Transactional Records Access Clearinghouse (TRAC).

Filed Under: FOIA, ID Theft Tagged With:

Investigating Assets Prior to Submission of Collection Remedies

March 23, 2016 by 3 Comments

When a client seeks a collection remedy because full payment is not an option, knowing the assets and liabilities of that client becomes important in the negotiations that will take place with the IRS.  Some clients have very simple asset situations that require little effort while others provide much more complex situations.  After having the IRS point out to my clinic two or three times that we filed an offer in compromise that left off a taxpayer’s assets, some of which were real property assets, we became much more diligent about searching records independent of the information provided by the client where we had any concerns about the correctness of the information coming from the taxpayer.  In each of the cases in which the IRS found assets left off of an OIC, we were able to provide an explanation but still, who wants to be in that position. 

Today, we hear from guest blogger Nicholas Xanthopoulos who directs the tax clinic at Nevada Legal Services in Las Vegas.  Just because Nick is from Las Vegas does not mean his clients have more issues reporting assets than representatives from other parts of the country but he has gone to the trouble of putting together some tips on how to find information about a taxpayer’s assets without using the database services that charge for this information.  These tips can be useful to anyone unable to use the paid database services that collect this information.  He expresses thanks to Frank Agostino for his “Google it” suggestions and to Caroline Tso Chen for her edits.  Keith

Low Income Taxpayer Clinic (“LITC”) practitioners have limited time and money.  From intake to representation, our work requires us to know as much as we can about our clients’ financial lives.  For instance, we need to know all we can about every asset someone has when preparing an offer in compromise based on doubt as to collectability (“OIC-DATC”).  Who wants an OIC-DATC examiner asking about a home that taxpayer didn’t tell us about?  (Client forgot to mention that she/he received property in a divorce but never recorded a quitclaim deed.)

The Service “contracts with various subscription search services” to help it locate taxpayers’ assets.  IRM 5.1.18.2.2(2).  Its private “locator service programs” include LexisNexis Accurint and Digital Matrix Systems’ Smart.Alx.  IRM 5.1.18.2(1).  The Service also uses Department of Motor Vehicles (“DMV”) databases, real property title reports, Uniform Commercial Code (“UCC”) filings, and Secretary of State (“SOS”) corporate information.  This section of the IRMprovides a roadmap of the sources that the IRS uses in tracking down taxpayer’s assets.  The offer examiners and others in the Collection Division will use these resources.  As the taxpayer’s representative you need to be prepared by finding ways to gather the same type of information before you make a submission to the IRS about your client’s assets and get embarrassed, or worse, by having the IRS locate assets of the taxpayer that were left off of the Form 433.

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Luckily for LITC practitioners, we don’t have to buy Cadillac subscriptions to LexisNexis or WestLaw to investigate our clients’ financial situations.  There may be no such thing as a free lunch, but there are free online tools to aid the search.  I’ll list some of my favorites with two caveats: first, we live in a big country, so what’s free in one place might not be in another; and second, there are great free resources that I don’t know about or forgot to mention here.

 

Google it:  Because it’s obvious, using an internet search engine can be easily forgotten.  Search for the taxpayer’s name, address, and phone number.  Also search for the name of everyone who lives at their address.  Pay attention to the domain name since that can influence how reliable the information is: federal government websites generally end in “.gov”, state government websites usually end in “[state].us” (as in “nv.us”), and nonprofit websites frequently end in “.org”.  Don’t know who the registered owner is?  Check out https://whois.icann.org/en.  (As an example and to quench your curiosity, www.optimataxrelief.com is registered to Harry Langenberg in France.)

Real property records:  Some places call it a recorder’s office; others call it a registry of deeds.  I call it an information treasure trove.  Many counties have a website that allows free searches for deeds, mortgages, notices of federal tax liens, and recorded court judgments.  If you’re lucky, the results will include not just a document description but also a free, scanned copy.

Assessor’s office:  Most municipal/county assessor websites allow users to search by address or owner.  In addition, they usually list a house’s assessed value.  If you prefer a private company’s estimate of a home’s value, you can visit www.zillow.com/sellerlanding/pricingtool.

SOS corporate information:  Virtually every SOS has a website where you can search business names for free, sometimes by an individual’s name.  The access might only include information summaries and filing names.  Some, like Florida’s, allow you to download free copies of filings.

Free credit reports:  Once every 12 months, a person can get a free credit report from each of the three credit reporting agencies (Equifax, Experian, and TransUnion).  To request the report, visit www.annualcreditreport.com.  While credit reports are about debts, debts are often secured by assets.  In addition to defending a person from collection action, the credit reports can help prove a person is eligible to exclude cancelled debt from their income due to insolvency.

Court records:  Free online access to trial level state court case information varies widely.  In some places, like Maine, it isn’t available.  In others, such as Minnesota and Nevada, online docket information may be accessible for free.  For federal Article III courts, Public Access to Court Electronic Records (“PACER”) charges to view both docket activity and documents.

UCC filings:  To quote Wayne Gretzky, “You miss 100% of the shots you don’t take.”  Before writing this article, I’d given up on free access to UCC filings.  However, Arizona provides free access (http://apps.azsos.gov/apps/ucc/search/), so I wouldn’t be surprised if other states do too.

 

 

Filed Under: miscellaneous Tagged With:

The Right to Be Informed: Using the Freedom of Information Act and Internal Revenue Manual to Secure Taxpayer Records

October 8, 2015 by 1 Comment

Today we welcome first time guest blogger, Nicholas Xanthopoulos, who directs the low income taxpayer clinic at Nevada Legal Services.  Nick posted on the low income taxpayer listserv an experience he had when seeking records through FOIA in which an IRS FOIA Public Liaison suggested that he should request the information from the front line IRS employee.  You can read below how that worked. 

Sometimes IRS employees use FOIA as a way to shield themselves from possible disclosure violations, the charitable view, or just doing the work to copy appropriate documents from a taxpayer’s file, the less charitable view.  In my clinic this comes up most often in Tax Court cases where we first get involved after the case has gone to Appeals.  More often than not, the Appeals employee declines to provide information in the file referring us to the FOIA process if we want the information.  This is a shortsighted and incorrect response.  The Appeals employee has the ability to provide the information in the file almost all of which the taxpayer or the representative has the right to see.  Suggesting FOIA creates more work for everyone including the Appeals employee and greatly slows the process of information flow.  With cases in Tax Court in which Appeals declines to provide the requested information, my clinic simply makes a Branerton request to the Chief Counsel attorney which usually results in a call from the Attorney to the Appeals employee directing the Appeals employee to provide the information.  This tactic does not work, however, when no Tax Court case exists. 

TIGTA recently looked at the IRS performance in FOIA requests.  It found that the IRS was getting slower in responding but also that it failed to send response documents in certain cases.  That it takes longer should surprise no one given the staffing problems caused by the budget cuts.  TIGTA recommended providing more information to the parties requesting information during the search and response process.  This good idea does, however, take time away from actually responding.  Making a FOIA request can be a slow, painful process but can also produce important information necessary to proper representation of a client.  Nick provides some good insights and citations regarding the process.  Keith

The Freedom of Information Act (“FOIA”) requires the Internal Revenue Service to “promptly” provide records when a person requests them.  5 U.S.C. § 552(a)(3)(A).  A request qualifies for FOIA treatment if it “reasonably describes” the records and follows agency policy.  Id.   The request must “fully comply” with various form requirements, such as stating whether the requestor wants to view the records before receiving copies of them.  26 C.F.R. § 601.702(c)(4).

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Usually, a FOIA request “reasonably describes” the records if it provides “the name, taxpayer identification number (e.g. social security number…), subject matter, location, and years at issue of the requested records.  § 601.702(c)(5)(i).  In making a request, a practitioner must provide a completed “power of attorney, Privacy Act consent, or tax information authorization.”  § 601.702(c)(5)(iii)(C).  Sample FOIA requests are available from various sources, including the IRS.  The Treasury processes record requests under both FOIA and the Privacy Act of 1974, as amended, a topic outside the scope of this post.

FOIA deadlines for the IRS to provide requested records is slightly more complicated.  Within 20 days[1] of receiving the request, the IRS must decide whether to comply with it and notify the requestor about the decision.  5 U.S.C. § 552(a)(6)(a)(i); 26 C.F.R. § 601.702(c)(9)(B)(ii).  The IRS can extend the deadline by up to 10 business days if it has “to search for and collect” the records from other locations.  5 U.S.C. § 552(a)(6)(B)(i), 552(a)(6)(B)(iii).  In one of my cases, the IRS invoked this “unusual circumstances” extension; I imagine such extensions are relatively common when requesting records from an examination administrative file.

If the IRS chooses to provide the records, it generally must mail them to the requestor at the time of the determination or “shortly thereafter.”  26 C.F.R. § 601.702(c)(9)(B)(iii).  (Section 601.702 does not define “shortly.”)  If the IRS does not notify the requestor of its determination within 20 days of receiving the request, then administrative remedies are considered exhausted.  5 U.S.C. § 552(a)(6)(C)(i); 26 C.F.R. § 601.702(c)(12).  The requestor may then seek from the U.S. District Court an order for the IRS to produce the requested records.  5 U.S.C. § 552(a)(6)(B).  The Court may also order the IRS to pay reasonable attorney fees and costs if the requestor “substantially prevails” in the action.  5 U.S.C. § 552(a)(6)(E).

I have a case where the IRS did not, within 20 days of receiving my FOIA request, notify me of its determination or invoke the unusual circumstances extension.  As a result, I called a FOIA Public Liaison to ask about the status of my request.  (A list of Liaisons’ names and phone numbers is available at http://www.irs.gov/uac/IRS-Disclosure-Offices.)  The Liaison told me that it may be more effective to request records directly from a representative in the relevant IRS division.  I was also told that, if the IRS representative wouldn’t release the records, I should cite the Internal Revenue Manual (“IRM”): section 5.1.22.6 for a “copy of the [collection] case file” and section 4.2.5.7 for “a copy of the examiner’s files or workpapers.”  Finally, a Liaison told me that the records provided might be broader than those disclosed in response to a FOIA request.

Both IRM sections refer to Internal Revenue Code section 6103(e) as authority for releasing taxpayer records.  For collection files, the IRM says that “[a] taxpayer or taxpayer representative has a right to information used to collect his/her tax liability, which includes a copy of the case file.”    IRM 5.1.22.6.  However, IRM 5.1.22 does not describe what a “case file” contains, and I have been unable to find a definition of the term elsewhere in the IRM.  When I requested a copy of a taxpayer’s case file, the representative agreed to fax it to me.  Due to technical difficulties, I only received the cover pages to the fax attempts.  When I spoke with a different collection representative, he told me that the “case file” I was faxed consisted only of an account transcript; he also told me that he didn’t know what documents a “case file” includes.

For exam cases, the IRM disclosure provisions read less strongly.  To be exact, “the examiner may be asked…for a copy of the examiner’s files or workpapers.” IRM 4.2.5.7.  The section adds that IRC section 6103(e) “advises that the Service shall [generally] give taxpayers access to their returns or return information.”  Id.  When I asked a representative for a copy of workpapers and cited to the IRM, she told me that the disclosure is not allowed.  I accepted her offer for a call back from a supervisor about my request, but I never received one.

The IRM disclosure provisions each offer a remedy to aggrieved requestors.  If a collections representative refuses to release a copy of a case file and a taxpayer can’t resolve the issue with managerial involvement, then a “[FOIA] or Privacy Act request process is available.”  IRM 5.1.22.6 at ¶ 7.  Likewise, a FOIA request is sometimes “necessary” for representatives to provide taxpayers with copies of examination files or workpapers.  IRM 4.2.5.7 at ¶ 6.

So far, my experiences with the IRM sections on disclosure and requesting hardship CNC when a taxpayer isn’t in filing compliance are similar: explain what they say, provide the citation, and hope the IRS representative is willing to listen.  If the representative is not responsiveand litigation isn’t pending, then FOIA and the Privacy Act are the only disclosure paths I’m aware of that offer a judicial remedy.

 

 

 

Filed Under: FOIA Tagged With: