U.S. v. Judicial Watch, Inc.

• Decision Date: 15 June 2004
• Docket Number: No. 03-5019.,03-5019.
• Citation: 371 F.3d 824
• Parties: UNITED STATES of America, Appellee, v. JUDICIAL WATCH, INC., Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 824

371 F.3d 824

UNITED STATES of America, Appellee, v. JUDICIAL WATCH, INC., Appellant.

No. 03-5019.

United States Court of Appeals, District of Columbia Circuit.

Argued November 20, 2003.

Decided June 15, 2004.

COPYRIGHT MATERIAL OMITTED

Appeal from the United States District Court for the District of Columbia (No. 02ms00144).

David Barmak argued the cause and filed the briefs for appellant.

Stuart D. Gibson, Attorney, U.S. Department of Justice, argued the cause for appellee. On the brief were Roscoe C. Howard, Jr., U.S. Attorney, and Frank P. Cihlar and Gretchen M. Wolfinger, Attorneys, U.S. Department of Justice.

Before: GINSBURG, Chief Judge, and EDWARDS and TATEL, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge:

The district court enforced a summons issued by the Internal Revenue Service that requires Judicial Watch to produce certain documents for an audit. Judicial Watch appeals, arguing the district court should have either quashed the summons or afforded Judicial Watch discovery and an evidentiary hearing on its claim the audit was politically motivated. Judicial Watch also argues the summons violates the First, Fourth, and Fifth Amendments to the Constitution of the United States. For the reasons set forth below, we affirm the order of the district court.

I. Background

Judicial Watch, a self-described "non-partisan, public interest law firm that uses the courts to fight corruption in the government and legal profession," was founded by attorney Larry Klayman in 1994. It is exempt from the income tax as an educational organization pursuant to § 501(c)(3) of the Internal Revenue Code, which applies to (among others):

Corporations, and any ... foundation, organized and operated exclusively for ... educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation ... and which does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

26 U.S.C. § 501(c)(3).

In 1997 the attention of the IRS was drawn to Judicial Watch by a letter from a recipient of a Judicial Watch fund-raising solicitation who questioned whether the organization is entitled to its tax exemption. In December 1997 a committee of three IRS bureau chiefs reviewed information and documents regarding Judicial Watch's tax-exempt status and approved an audit of its 1996 tax return. The IRS did not notify Judicial Watch that it had been selected for an audit until October 1998.

Judicial Watch's principals immediately objected, both in writing and in meetings with IRS officials, that the audit was an attempt by the Clinton Administration and IRS Commissioner Charles Rossotti to retaliate against the organization for having sued the IRS on behalf of the Western Journalism Center in mid-1998. Judicial Watch also claimed the Clinton Administration and congressional Democrats had pressured the IRS to audit Judicial Watch in retaliation for its having alleged, in a report it sent to the Congress in September 1998, that President Clinton had committed a host of impeachable offenses.

The IRS brought Judicial Watch's claims to the attention of the Treasury Inspector General for Tax Administration (TIGTA), an independent investigative office within the Department of the Treasury. The TIGTA twice investigated whether the IRS pursued the audit for political reasons. The first report (September 1999) found the IRS "recommended ... select[ing Judicial Watch] for audit" in December 1997, that is, before it had sued the IRS or filed its impeachment report, and concluded "[n]o information was developed" to support Judicial Watch's claims. The second report (October 2000) found "no evidence" to support Judicial Watch's "allegation of political intervention" during the audit process. A report by the Staff of the Joint Congressional Committee on Taxation covering the same period likewise found "no credible evidence" that the IRS selected taxpayers for audits "based on the views espoused by [an] organization[] or individuals related to the organization." Joint Committee on Taxation, Report of Investigation of Allegations Relating to Internal Revenue Service Handling of Tax-exempt Organization Matters (JCS-3-00), at 6-11, 17-18 (March 2000).

In April 2000 the IRS notified Judicial Watch it was proceeding with the audit, and over the next two years expanded the audit to cover tax years 1996-2000 and to require additional documents. According to the IRS, the audit now addresses whether Judicial Watch: (1) provides a private benefit either to Larry Klayman or to his law firm, Larry Klayman and Associates; (2) is entitled to tax-exempt status either as a private foundation or as a public interest law firm; and (3) earns unrelated business income for which it must pay taxes.

Late in 2000 the IRS agreed to delay the audit until President Clinton left office, in exchange for which Judicial Watch waived any potential statute of limitations defense. In January 2001 the IRS informed Judicial Watch "the audit is now continuing" and asked Judicial Watch to produce certain documents. Judicial Watch again protested, however, and the IRS again delayed the audit. In August 2001 the IRS notified Judicial Watch it was examining the corporation's tax returns and again requested documents.

In September Judicial Watch sued the IRS in the United States District Court for the District of Maryland, seeking damages for constitutional violations allegedly committed by the IRS in pursuing the audit and an injunction barring the IRS from conducting the audit. See Judicial Watch, Inc. v. Rossotti, 217 F.Supp.2d 618 (D.Md.2002), aff'd, 317 F.3d 401 (4th Cir.2003). The IRS then served Judicial Watch with a summons pursuant to 26 U.S.C. § 7602(a)(2), which authorizes the Service "to summon the person liable for tax ... to produce such books, papers, records, or other data, and to give such testimony, under oath, as may be relevant or material to such inquiry." Judicial Watch moved to enjoin or to stay enforcement of the summons, but the district court denied the motion and dismissed the case. See Rossotti, 217 F.Supp.2d at 627 (injunctive relief barred by the Anti-Injunction Act, damages barred by defendants' qualified immunity).

In March 2002 the IRS repaired to the United States District Court for the District of Columbia to enforce its summons. The district court ordered the IRS to provide for the court's review in camera "all documents relating to its motivation and purpose" for the audit. After a hearing at which it heard arguments regarding the purpose and the scope of the audit, and the necessity, if any, of further discovery, the district court ordered the IRS to produce additional documents and certain affidavits for in camera review.

In December 2002 the district court enforced the summons with a modification; the original request for all of Judicial Watch's internal and external correspondence was narrowed to reach only correspondence that is not privileged, is relevant to the audit, and is described with reasonable particularity.^* See United States v. Judicial Watch, Inc., 266 F.Supp.2d 1, 23 (D.D.C.2002). The district court concluded "there is no evidence of political vindictiveness or a retaliatory motive, respondent's constitutional challenges are without merit, and the summons [as modified] is not so overbroad as to be unlawful." Id. at 5.

II. Analysis

Judicial Watch presents four arguments on appeal: (1) The audit lacks a legitimate tax-related purpose. (2) Judicial Watch is entitled to discovery and to an evidentiary hearing regarding the alleged retaliatory purpose of the audit. (3) The summons is overbroad. (4) The summons violates the first, fourth, and fifth amendment rights of Judicial Watch or of its supporters.

A. Tax-related Purpose

Judicial Watch argues the district court should not have enforced the summons because the audit lacks any legitimate tax-related purpose. According to the taxpayer, the district court "ignore[d] the wealth of competent evidence presented by Judicial Watch of an improper, political and retaliatory motive for the audit and summons."

We review the district court's "determination of whether the factual conditions for enforcement of a summons have been met for clear error." United States v. Ins. Consultants of Knox, Inc., 187 F.3d 755, 759 (7th Cir.1999); see Mazurek v. United States, 271 F.3d 226, 229 (5th Cir.2001); Spell v. United States, 907 F.2d 36, 39 (4th Cir.1990). For the court to enforce the summons the Government must have established a prima facie case by showing: (1) "the investigation will be conducted pursuant to a legitimate purpose"; (2) "the inquiry may be relevant to the purpose"; (3) "the information sought is not already within the [IRS's] possession"; and (4) in issuing the summons "the administrative steps required by the [tax] Code have been followed" by the IRS. United States v. Powell, 379 U.S. 48, 57-58, 85 S.Ct. 248, 13 L.Ed.2d 112 (1964). This initial burden, however, "is a slight one, for the statute must be read broadly in order to ensure that the enforcement powers of the IRS are not unduly restricted." United States v. Kis, 658 F.2d 526, 536 (7th Cir.1981); see Alphin v. United States, 809 F.2d 236, 238 (4th Cir.1987) (burden "is fairly slight because this is a summary proceeding").

The district court properly concluded that declarations in which the IRS agents and officials responsible for the audit attest to each of the four elements of the prima facie case discharged the slight burden placed upon the IRS. See Kis, 658 F.2d at 536 ("No more than [such affidavits are] necessary to make the prima facie case"). It then fell to...