For Immediate Release
October 05, 2010

Inspector General Agrees to Conduct Investigation of Obama Administration on Taxpayer Confidentiality Matter

WASHINGTON -- The Treasury Inspector General for Tax Administration agreed to the request from Sen. Chuck Grassley, ranking member of the Finance Committee, and six other committee members to investigate whether Obama Administration officials illegally accessed and disclosed confidential taxpayer information involving a particular taxpayer. 

Details of the inquiry follow here.

For Immediate Release
Friday, Sept. 24, 2010

 Senators Seek Review of Whether Obama Administration Officials Illegally Accessed,Disclosed Confidential Taxpayer Information

WASHINGTON – Sen. Chuck Grassley, ranking member of the Finance Committee, and six other committee members are asking for an inspector general review of whether Obama Administration officials illegally accessed and disclosed confidential taxpayer information. 

The inquiry comes after media reports quoted a senior Obama Administration official describing the tax structure of Koch Industries, Inc.  Taxpayer confidentiality laws are strict, in part to prevent the use of tax information for political gain.  The official appeared to indicate knowledge of Koch Industries’ tax structure beyond what is publicly available. 

Grassley, along with Sens. Jon Kyl, Jim Bunning, Pat Roberts, Michael B. Enzi, John Cornyn and John Ensign, asked the Treasury Inspector General for Tax Administration to investigate whether Obama Administration officials inappropriately examined and disclosed confidential taxpayer information and if so, whether they violated the taxpayer confidentiality law, known as section 6103. 

“… the statement that Koch is a pass-through entity implies direct knowledge of Koch’s legal and tax status, which would appear to be a violation of section 6103,” the senators wrote.  “Alternatively, if the statement was based on speculation, it raises the question of whether the Administration speculating about any specific taxpayer’s liability is appropriate.”

The Finance Committee has exclusive Senate jurisdiction over tax policy.  The signed version of the senators’ letter is available here.  The text of the senators’ letter follows below.

An article from The Wall Street Journal quoting a senior Obama Administration official describing Koch Industries’ tax structure is available here.

A transcript of a speech by President Obama in which he singles out Americans for Prosperity is available here.

 September 23, 2010

The Honorable J. Russell George
Treasury Inspector General for Tax Administration
1125 15th Street NW, Suite 700
Washington, DC  20005

Dear Inspector General George:

We are writing to ask you to investigate a very serious allegation that Administration employees may have improperly accessed and disclosed confidential taxpayer information. As you know, section 6103 of the Internal Revenue Code protects the privacy of federal tax returns and return information.  This law was enacted as a result of the use of tax information for political gain during the Watergate scandal.

 Congress sent a very clear message with the enactment of section 6103 that taxpayer privacy was extremely important.  The Internal Revenue Service (IRS) Restructuring and Reform Act of 1998 (RRA 98) imposed further sanctions on IRS and Treasury employees for accessing tax information without reason – even if such information was not further disclosed. Penalties for unauthorized access or disclosure of returns and return information range from monetary penalties to termination of employment to imprisonment.

Chairmen of either the Senate Committee on Finance or the House Ways and Means Committee are the only Members of Congress able to receive information protected by section 6103 and that is only upon written request in which specific individuals who may view the sensitive information are identified to the IRS.  However, these Members and their staff are subject to the same sanctions for unauthorized access or disclosure of returns and return information.

Similarly, your office and the Government Accountability Office (GAO) are also subject to the same sanctions. In fact, we have been told repeatedly that TIGTA, GAO, and even IRS reports that summarize tax information are in violation of section 6103 if they include aggregate data on so few taxpayers that the taxpayers may be easily identified.

Thus, we are very concerned about a statement made by Administration officials in an August 27, 2010, press briefing regarding the President’s Economic Recovery Board’s (PERAB) report on corporate tax reform.  This statement, as reported by The Wall Street Journal, comments on the legal structure of Koch Industries, Inc. (Koch) and its impact on the group’s tax liability. While Koch’s website indicates some of the Koch companies are limited liability companies (LLC) or limited partnerships, there is no indication that Koch itself is a Subchapter S Corporation, which is one type of flow through entity, or a Subchapter C corporation.  In addition, an LLC can choose to be taxed as Subchapter C corporation.

Thus, the statement that Koch is a pass-through entity implies direct knowledge of Koch’s legal and tax status, which would appear to be a violation of section 6103.  Alternatively, if the statement was based on speculation, it raises the question of whether the Administration speculating about any specific taxpayer’s liability is appropriate.

The statement is also troubling because it was made shortly after the President highlighted the advocacy work of certain tax-exempt organizations funded by Koch Industries, Inc. and its owners.  The work of these tax-exempt organizations, while opposing the Administration’s policies, appears to be in compliance with the tax laws.  However, we are concerned that the PERAB’s statement singling out Koch Industries, Inc. so soon after the President’s statement was politically motivated.

As a result, we ask that you obtain and review a transcript of the August 27, 2010, press briefing to determine the basis for the Administrations employees’ statements and review the PERAB’s work in preparing its report on corporate tax reform.  In particular, we ask you to address the following questions.

1)      Did Administration employees, including PERAB employees, have access to tax returns and return information in compiling the PERAB report?

2)      If yes, how many companies’ tax returns did the PERAB employees review and did they follow the procedures prescribed under the regulations governing section 6103 for accessing and protecting taxpayer information?

3)      Did Administration employees, including PERAB employees, violate section 6103 when they discussed the tax status of Koch Industries, Inc. and its related companies?

4)      If violations of 6103 did not occur, what was the basis for the statement regarding Koch’s legal and tax status and was the statement appropriate?

We appreciate your prompt attention to this matter.

                                                 Sincerely,

Chuck Grassley                                                           Jon Kyl

Ranking Member                                                        United States Senator            

Jim Bunning                                                                Pat Roberts

United States Senator                                                  United States Senator            

Michael B. Enzi                                                           John Cornyn

United States Senator                                                 United States Senator

 John Ensign

 United States Senator