[EL] Tax documents as "among the most sensitive documents filed with the government"

[Volokh, Eugene]

               I appreciate Jeff’s argument that, as a matter of first principles, the Nordic model might be better.  Certainly seeing it shows that a Western democracy can operate this way, though it appears that the overwhelming majority of Western democracies take the opposite view.  And indeed property taxes have long been viewed as public – why not income taxes, again as a matter of first principles?

               But whatever might be the merits of that approach as a matter of political philosophy, it’s quite contrary to current American law and recent American traditions.  Indeed, given the frequent publicly expressed concerns about privacy – including financial privacy – I’m inclined to say that American law is unlikely to change here, and I know of no major movement to change it, either at the federal level or at the level of any state.  (Am I mistaken?)  This suggests to me that, when courts consider the risks that tax records and various comparable financial records will be unlawfully publicly disclosed, American courts (even if not, say, Norwegian courts) ought to consider those records as quite “sensitive” indeed.

               Eugene

From: Law-election <law-election-bounces at department-lists.uci.edu> On Behalf Of Jeff Hauser
Sent: Sunday, June 27, 2021 6:04 PM
To: Barnaby Zall <bzall at aol.com>
Cc: law-election at uci.edu
Subject: Re: [EL] Tax documents as "among the most sensitive documents filed with the government"

Obviously those of us who think the US should follow the Nordic countries in making tax returns public, as they were in the 1920s, do not prefer transparency limited to the president's political enemies.

Happily, making all returns public would, of course, make selective disclosure impossible. So yeah, selective release is bad (and criminal). That's... not an argument for the claim that within the same government that includes the DHS and VA and HHS and the like... tax returns are especially and critically private (""tax returns filed with the IRS, which are among the most sensitive documents filed with the government.")

In the wake of everything we have learned from COINTELPRO to Snowden and beyond...

And yes, an IRS that is built in the wake of the 1920s freak out of rich people is institutionally committed to maintaining the statutory goal of privacy. I think that goal is bad and should be repealed! But in general the IRS has been rendered wholly captured, as previous ProPublica work helped clarify for any doubters. https://www.propublica.org/article/how-the-irs-was-gutted

"So, assuming your reference to Carolene Products, footnote 4 is about the popular generalization about the changing focus of the Supreme Court from property rights to individual rights, not sure how that gets turned on its head by protecting BOTH individual rights to privacy and the government's right to maintain taxpayer confidence sufficient to maintain a high rate of voluntary tax compliance."

I'm saying privacy rights that relate to ways one might be disfavored are more important than privacy about one's property. Again, think COINTELPRO, think Snowden, think VA or SSA records relating to, say, PTSD or other psychological issues, think FBI background checks on appointees -- the idea that tax returns are among the most sensitive information about people possessed by the government is just a wild claim.

And think about how much more likely it would be that we would have fixed Peter Thiel's tax evasion (and let's be serious, mispricing assets intentionally to avoid taxes = evasion, not avoidance) if his return were public? https://www.propublica.org/article/lord-of-the-roths-how-tech-mogul-peter-thiel-turned-a-retirement-account-for-the-middle-class-into-a-5-billion-dollar-tax-free-piggy-bank

Billions of dollars are at stake in just IRA abuses. People should own up to their tax returns and allow for third parties to identify problematic behavior.


On Sun, Jun 27, 2021 at 8:41 PM Barnaby Zall <bzall at aol.com<mailto:bzall at aol.com>> wrote:
Jeff Hauser wrote: "The idea that documents about economic activity could ever be among "the most sensitive documents filed with the government" turns Carolene Products Footnote 4 on its head."

Interesting. At the risk of poking a troll and leaving aside the snark about "mean tweets" in light of the record in AFPF/TMLC v. Bonta, what would it require to show you that tax records are "among the most sensitive documents filed with the government"? The 340-page IRS Chief Counsel's Publication 4639, Disclosure and Privacy Reference Guide, October 2012, https://www.irs.gov/pub/irs-pdf/p4639.pdf, or the 180-page Internal Revenue Service, Pub. 1075, Tax Information Security Guidelines For Federal, State and Local Agencies, Sept. 2016, https://www.irs.gov/pub/irs-pdf/p1075.pdf?

If not those, how about Richard Nixon? (Not a joke.)

One of the charges that helped drive President Richard Nixon from office in 1974 was using the Internal Revenue Service (“IRS”) against his “enemies list.” See Impeachment Of Richard M. Nixon, Articles of Impeachment, II(2), H. Rept. 93-1305, at 3 (1974) (“He has, acting personally and through his subordinates and agents, endeavored to obtain from the Internal Revenue Service, in Violation of the constitutional rights of citizens; confidential information contained in income tax returns for purposes not authorized by law, and to cause, in violation of the constitutional rights of citizens, income tax audits or other income tax investigations to be initiated or conducted in a discriminatory manner.”). Those abuses sparked, among other things, tax confidentiality provisions in 26 U.S.C. ("IRC") § 6103 and the limits in IRC § 6104 on releasing donor information. Those limits are to be read strictly. Church of Scientology v. IRS, 484 U.S. 9 (1987) (taxpayer information cannot be released even after redacting personally-identifying information, except under specific exemptions enacted by Congress). Even Congress doesn’t get donor information, except in certain limited circumstances with strict privacy protections. Id., 484 U.S. at 15 (“Subsections 6103 (f)(1), (2), and (4), for example, allow the release of returns and return information to congressional committees, but distinguish between return information that identifies a taxpayer and return information that does not.”).

So, was this just "rich people" protecting themselves? No, it was the United States protecting one of the things that makes its government work. Meaning money, and not just rich people's money. The United States has the highest voluntary tax compliance in the world. See, e.g., J.T. Manhire, What Does Voluntary Compliance Mean? A Government Perspective, 164 U. PENN. L. REV. ONLINE 11, 15 n. 24 (2015) (estimating the United States’ voluntary compliance rate as the highest in the world). Courts have consistently held that confidence in the secrecy of tax records is the reason that tax privacy is one of the highest priorities of the federal government. In 1992, then-Chief Judge Stephen Breyer described the interests involved in these cases:
Congress has decided that, with respect to tax returns, confidentiality, not sunlight, is the proper aim. Tax returns contain highly personal information that many taxpayers might wish not to have broadcast. Moreover, without clear taxpayer understanding that the government takes the strongest precautions to keep tax information confidential, taxpayers’ confidence in the federal tax system might erode, with harmful consequences for a tax system that depends heavily on voluntary compliance. Church of Scientology v. IRS, 792 F.2d 153, 158-59 (D.C. Cir. 1986) (en banc), aff’d 484 U.S. 9 (1987). Thus, the Senate Finance Committee, recommending the tax statute here at issue, pointed both to the “citizen’s right to privacy” and to the “related impact of the disclosure upon the continuation of compliance with our country’s tax system” as reasons for more tightly restricting disclosure. S.Rep. No. 938, 94th Cong., 2d Sess., pt. 1, 318 (1976), reprinted in 1976 U.S.C.C.A.N. 3439, 3747.
Aronson v. I.R.S., 973 F.2d 962, 966 (1st Cir. 1992).

Even today, that remains true. Larry Gibbs, former IRS Commissioner and, before that, one of the authors of the 1976 tax privacy provisions, recently wrote: “Taxpayers are likely to decide that if the IRS cannot protect the privacy and confidentiality of even the president’s returns and tax information, no one else’s returns and tax information can be protected. In turn, taxpayers predictably are likely to be less willing than they previously have been to provide information requested by the IRS in tax returns.” Lawrence Gibbs, “INSIGHT: Let’s Not Forget There’s a Reason for Keeping Tax Returns Private,” Daily Tax Report, BLOOMBERG TAX, Aug. 14, 2019,  https://news.bloombergtax.com/daily-tax-report/insight-lets-not-forget-theres-a-reason-for-keeping-tax-returns-private.

And "let's not forget," as I've written on this list before, it's not just "rich people" and conservative organizations at risk. Planned Parenthood had its confidential donor lists displayed unprotected on line, as did thousands of other organizations. Joint Appendix, No. 19-251, Trial Exhibit 131, at 40, July 3, 2012, e-mail from Belinda Johns forwarding complaint from counsel for Planned Parenthood (“We have discovered that the Registry has posted the complete Form 990, Schedule B (for FYE June 30, 2009), including all of the names and addresses of hundreds of donors, to the publically [sic] accessible record for our client, Planned Parenthood Affiliates of California, Inc.”).  And, it wasn't just incompetence that made that information public; it was the California Attorney General's conscious choice to risk disclosure. The AG's office had open access to the records they wanted, so long as they complied with the same IRS privacy rules applicable to all other California (and many other states') agencies, but decided it was just too hard to follow the rules, including keeping logs of who accessed them "in pen." See testimony of Belinda Johns, Joint App. in No. 19–251, p. 335.

In fact, given the stated purpose of the tax privacy provisions Pro Publica intentionally evaded, perhaps the upcoming Bonta decision might indicate indirectly whether Pro Publica, even if not criminally liable, might have put its tax exemption at risk under either the "illegality doctrine" (if the cases holding that the penalties for publishing these confidential documents apply only to government officials are not correct) or the "public policy" doctrine (where non-illegal activity that violates clear federal public policy deprives an 501(c)(3) of its exemption eligibility). Bob Jone University v. United States, 461 U.S. 574, 591 (1983) ("the purpose of a charitable trust may not be illegal or violate established public policy."). There is a question of whether publishing protected documents that show no illegality, and which arguably do not even demonstrate what Pro Publica was trying to show, "violates a most fundamental national public policy, as well as rights of individuals." Id. 461 U.S. at 592, 593 ("a declaration that a given institution is not "charitable" should be made only where there can be no doubt that the activity involved is contrary to a fundamental public policy."). But the proof of a fundamental national policy is to be found in Congressional enactments and executive action in support thereof, not in a desire to change the law, "however sincere the rationale [for violating it] may be." Id, U.S. at 594. Whether Pro Publica violated a fundamental national policy is an open question, and not a simple one, but whether protecting tax privacy is that fundamental national policy is not. Even when it involves "documents about economic activity."

So, assuming your reference to Carolene Products, footnote 4 is about the popular generalization about the changing focus of the Supreme Court from property rights to individual rights, not sure how that gets turned on its head by protecting BOTH individual rights to privacy and the government's right to maintain taxpayer confidence sufficient to maintain a high rate of voluntary tax compliance.

Barnaby Zall
Friday Harbor, Washington

-----Original Message-----
From: Jeff Hauser <jeffhauser at gmail.com<mailto:jeffhauser at gmail.com>>
To: Pildes, Rick <rick.pildes at nyu.edu<mailto:rick.pildes at nyu.edu>>
Cc: Election Law Listserv <law-election at uci.edu<mailto:law-election at uci.edu>>
Sent: Sun, Jun 27, 2021 10:22 am
Subject: Re: [EL] (no subject)
"tax returns filed with the IRS, which are among the most sensitive documents filed with the government."

The idea that documents about economic activity could ever be among "the most sensitive documents filed with the government" turns Carolene Products Footnote 4 on its head. HHS and the VA deal with vastly more sensitive info, as does OPM, FBI, DHS, and several other agencies.

Tax returns are presumptively public in Pakistan, Norway, Finland, and Sweden. And they should be public in the United States. Taxes are dues paid on how one benefits from the existence of society.

And comparing the power of apartheid southern governments (run by defenders of lynching) to repress the NAACP to... mean tweets and boycotts powered by social media? Not seeing it.

On Sun, Jun 27, 2021 at 1:04 PM Pildes, Rick <rick.pildes at nyu.edu<mailto:rick.pildes at nyu.edu>> wrote:
Disclosure Law in a Toxic Political Culture: The Impending Americans for Prosperity v. Bonta Decision
Posted on June 27, 2021 9:56 am<https://electionlawblog.org/?p=122871> by Richard Pildes<https://electionlawblog.org/?author=7>
That’s the way I would frame the big-picture perspective on this case.  The major precedents on when state demands for disclosure of a group’s donors violate the First Amendment’s protections for freedom of association (outside the campaign-finance context) come from earlier eras.  More specifically, many of those cases involve attempts by Southern states in the 1950s and 1960s to force disclosure of donors to the NAACP.  At times, those laws were even clearly targeted at the NAACP.  Given the risks of reprisals against those donors, in that context, the Court struck these forced-disclosure laws down.  The risk of reprisal was quite specific, and the Court rightly understood the risk donors to the NAACP faced.  Few other organizations faced similar risks from state-mandated disclosure of donors.
The California law in this case is a general law and is clearly not targeted at any specific group.  But in today’s political culture, the Court is realistic enough to realize, as oral argument demonstrated, that the risks of economic or other reprisals against donors to a broader range of groups is greater than in earlier decades.  Because cultural issues are so much more central to politics, and so polarizing, groups dealing with issues ranging from religion, to education, to sexual-orientation, and many other areas are at the center of intense political conflict (the animal-rights group, PETA, filed a brief in the case).  Not only is the political culture more punitive, but the internet and social media make it far easier to get access to sensitive information and to mobilize tactics, including various forms of reprisal, against donors to groups perceived to be controversial.  On top of that, politically motivated leaking of information disclosed to the government, and required to be held confidentially, has become more common.  It will be interesting to see if any of the opinions make reference to the recent disclosure to Pro Publica of tax returns filed with the IRS, which are among the most sensitive documents filed with the government.
Indeed, Justice Sotomayor went even further at argument to comment that anything can be hacked these days, suggesting that even without intentional leaks, sensitive private information filed with the government is at risk of being exposed.  And to add to the mix, a central aspect of the case is the incompetence of California’s government, which inadvertently exposed vast amounts of the charities’ donor-disclosure information that was supposed to be available only to the government.
There are many significant, intriguing doctrinal issues in the case.  One thing I’ll be looking for is how each of these issues is affected by our toxic political culture and these surrounding realities.  In many ways, this case is the Court’s first confrontation with applying the First Amendment to disclosure laws in the “modern” context of today’s vicious political realities.



Best,
Rick

Richard H. Pildes
Sudler Family Professor of Constitutional Law
NYU School of Law
40 Washington Square So.
NYC, NY 10014
347-886-6789

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