U.S. v. Judicial Watch, Inc.
| Decision Date | 11 December 2002 |
| Docket Number | No. 02-144 (ESH).,02-144 (ESH). |
| Citation | 266 F.Supp.2d 1 |
| Parties | UNITED STATES of America, Petitioner, v. JUDICIAL WATCH, INC., Respondent. |
| Court | U.S. District Court — District of Columbia |
Stuart David Gibson, U.S. Atty's Office, Washington, DC, for Petitioner.
Larry Elliot Klayman, Judicial Watch, Inc., Washington, DC, David Barmak, Joanne B. Jarquin, Mintz, Levin, Cohen, Ferris, Glovsky & Popeo, P.C., for Respondent.
This action was commenced by petitioner, the United States of America, to judicially enforce an Internal Revenue Service (IRS) summons against respondent, Judicial Watch, Inc., pursuant to sections 7402(b) and 7604(a) of the Internal Revenue Code of 1986, 26 U.S.C. §§ 7402(b) and 7604(a). The purpose of the audit is to examine the tax-exempt status and potential tax liability of Judicial Watch for the tax periods ended December 31, 1996 through December 31, 2000. While this type of case is ordinarily characterized as a "summary subpoena enforcement proceeding," SEC v. McGoff, 647 F.2d 185, 193 (D.C.Cir.), cert, denied, 452 U.S. 963, 101 S.Ct. 3114, 69 L.Ed.2d 974 (1981) (citation and internal quotation marks omitted) that has not been the case here. For, as observed by Judge Nickerson of the District of Maryland when denying Judicial Watch's motion to stay or enjoin the IRS administrative summons that underlies this action, "this is a highly unusual case that, at its heart, is about an organization seeking to stop the Internal Revenue Service from auditing it." Judicial Watch, Inc. v. Rossotti, 217 F.Supp.2d 618, 619 (D.Md.2002).1
As in the Rossotti action, Judicial Watch continues to argue that while it is not exempt from being audited,2 the audit that is the subject of this suit was initiated for an illegal purpose and the summons is "retaliatory, unconstitutional and grossly overbroad." (Judicial Watch's Opposition to Petition to Enforce Summons ["JW's Opp."] at 1.) On this basis, Judicial Watch seeks to quash the summons in its entirety, or in the alternative, to obtain full discovery and an evidentiary hearing regarding the purpose for the audit.
In order to provide discovery regarding how respondent had been selected for audit,3 the Court required the IRS to submit affidavits from the two IRS agents who have been assigned to conduct the audit, as well as the two IRS officials who authorized the audit in December 1997, some 1,000 documents relating to Judicial Watch and the initiation and history of the audit, and the two investigations conducted in 1999 and 2000 by the Treasury Inspector General for Tax Administration ("TIGTA") regarding Judicial Watch's allegations that it had been improperly selected for audit. In addition, the parties have submitted extensive briefs and argument was held on August 1, 2002. Based upon the Court's review of these voluminous submissions and the relevant case law, the Court concludes that the audit cannot be postponed any longer; there is no evidence of political vindictiveness or a retaliatory motive, respondent's constitutional challenges are without merit, and the summons is not so overbroad as to be unlawful.
Respondent Judicial Watch describes itself as a "non-profit, non-partisan ... organization which as a public interest law firm specializes in deterring, monitoring, uncovering, and addressing public corruption in government." Judicial Watch, Inc. v. Department of Justice, 185 F.Supp.2d 54, 57 (D.D.C.2002). It is a "legal "watchdog' organization that relies on the Freedom of Information Act ("FOIA"), the civil discovery process, and court litigation[] ... to protect the American people from, and educate them about, corruption in government and abuses of power, and to enforce the principle that `no one is above the law.'"4 Rossotti, 217 F.Supp.2d at 619 (quoting Amended Complaint 112). It was founded in 1994, and by letter dated August 3, 1995, it obtained a ruling from the IRS that it met the requirements for tax exemption under 26 U.S.C. § 501(c)(3), which was confirmed on November 18, 1998.5 Since then, the IRS has not completed any examination into whether Judicial Watch is in compliance with the laws governing its tax-exempt status.
By letter postmarked October 23, 1997, a recipient of a Judicial Watch fundraising solicitation wrote to the Atlanta office of the IRS questioning whether Judicial Watch should be a tax-exempt entity. (Supplemental Declaration of Daniel Rose ["Supp. Rose Decl."] ¶20a.) Specifically, the letter questions the political nature of Judicial Watch's activities asking, "By what stretch of the imagination can anyone solicit tax exempt donations supposedly to be used to bring a politically motivated law suit?" (United States' In Camera Submission at 1.) Based on the informant letter, and because the IRS's records reflected that Judicial Watch had reported no gross receipts for the year ending July 31, 1996, the Atlanta office forwarded the letter to the IRS Classification Unit to determine whether an audit was warranted. (Supp. Rose Decl. 1120b.) In doing so, the Atlanta office was following standard IRS procedure. (Id.)
Judicial Watch is headquartered in Washington, D.C., and therefore the IRS referral was directed to the agency's Southeast Region office, which is located in Baltimore. The regional Classification Unit received the referral on November 10, 1997. (Id. ¶ 120c.) Pursuant to IRS procedures, a comnnttee of three agency branch chiefs—Joseph Barthelmes, Michael Rachael, and Don Jones—reviewed information regarding Judicial Watch to determine whether an audit was warranted. (Id ¶ 20d.) Trie committee approved the audit on December 18, 1997. (Id)
In mid-1998, Judicial Watch filed suit against the IRS on behalf of the Western Journalism Center, challenging the agency's audit of that organization. (JW's Opp. Ex. 4, Declaration of Larry Klayman ["Klayman Decl."] 1111.) On September 28, 1998, Judicial Watch submitted to Congress a report on "Crimes and Other Offenses Committed by President Bill Clinton Warranting His Impeachment and Removal from Elected Office," which was accepted into the Congressional Record on October 5, 1998. (See id. Ex. 9.) Just four days later, Judicial Watch received a letter from the IRS dated October 5, 1998, and signed by IRS Agent Donna Dorsey, which stated that it had been selected for an audit. (See id. Ex. 10.)
The stated purpose of the October 5, 1998 audit letter was to examine Judicial Watch's Form 990-EZ for the tax year ending December 31, 1996,6 and the letter set forth "records [that] should be made available at the start of the examination." (Id. Ex. 10 at 1.) These included, inter alia, "[correspondence files," "[a]ll books and records of your organization's assets, liabilities, receipts, and disbursements," and Judicial Watch's "[c]heck register, cancelled checks, and bank statements." (Id.)' Attached to the letter was an additional document request in which the IRS asked Judicial Watch to itemize some of its expenses, to explain its process for selecting which cases to litigate, and to "[p]rovide the names and addresses of the directors [of] Judicial Watch and their relationship to any political party or political groups." (Id. at 3.)
Judicial Watch immediately resisted the audit. On October 14, 1998, pursuant to the Freedom of Information Act ("FOIA"), 5 U.S.C. § 552, it requested from the IRS all documents relating to Judicial Watch or its founder, Larry Klayman. Rossotti, 217 F.Supp.2d at 620. Respondent met with various IRS officials in late 1998 and early 1999 to discuss the audit, but was rebuffed in its attempts to meet with then-Commissioner Charles Rossotti in May 1999. Id. at 620-21. In addition, Judicial Watch's complaints that the audit was retaliatory were forwarded to the TIGTA, a branch of the Department of Treasury (DOT) that is independent from the IRS. In response to these allegations, TIGTA conducted two separate investigations to determine whether the audit was retaliatory. In both cases, it uncovered no wrongdoing by the IRS or the Clinton Administration.7 (Declaration of Steven Geary ["Geary Decl."] 11113-6.) However, the audit was postponed pending the results of these investigations. See Rossotti 217 F.Supp.2d at 621.
Judicial Watch continued to correspond with the IRS about the proposed audit in 2000. In response to allegations that the audit was retaliatory, IRS Acting Director for Exempt Organizations Steven Miller agreed to delay consideration of the audit until after President Clinton left office on January 20, 2001. Id. However, on January 8, 2001, the IRS sent Judicial Watch a letter stating that the audit was proceeding, and asking that the documents be submitted to the IRS by January 30, 2001. Id. Judicial Watch did not comply with this request, but instead submitted four additional FOIA requests to the IRS, "essentially requesting any and all documents related to Judicial Watch." Id. At the same time, the IRS continued to request documents from Judicial Watch in preparation for the proposed audit, and Judicial Watch continued to refuse to respond to these requests.8 Id.
In September 2001 Judicial Watch filed suit in Maryland, seeking to enjoin the audit as "retaliatory, politically-motivated, and unconstitutional." Id. On January 18, 2002—more than four years after the audit was authorized and over three years after the initial audit letter was sent—the IRS served Judicial Watch with an administrative summons demanding the production of documents within eight days. Id at 622. Judicial Watch did not comply with the summons, but instead, it initiated suit in Maryland to stay or enjoin its enforcement. Id. On March 27, 2002, Judge Nickerson denied Judicial Watch's motion to stay or enjoin enforcement of the summons, and the following day, the...
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