Lerner’s FEC Problem

by Eliana Johnson
Did she illegally disclose information to the FEC?

The “phony scandal” at the IRS keeps growing.

E-mail correspondence unearthed by the House Ways and Means Committee reveals that Lois Lerner, the figure at the center of the scandal, may have committed a felony by divulging information about a conservative group to the Federal Election Commission, in an incident that dates back at least to 2008, before President Obama took office. Though some conservatives have eagerly sought evidence that Obama’s White House instigated the IRS’s targeting of tea-party groups, the latest evidence suggests that an anti-conservative bias may instead be an endemic feature of the federal bureaucracy. And now, an FEC official is raising the specter of systemic bias at that agency, too, calling the techniques its lawyers employ a “much more sophisticated way” of discriminating against conservative groups than those used by the IRS.

“When we spoke last July, you had told us that the American Future Fund had not received an exemption letter from the IRS,” an FEC attorney wrote in a February 2009 e-mail to Lerner.

But Section 6103 of the Internal Revenue Code provides that both “return information” and “taxpayer return information” are strictly confidential. An IRS source tells National Review Online that, within the agency, disclosing the information that Lerner appears to have provided is considered “a violation of Section 6103.”

That’s a felony punishable by up to $5,000 in fines or five years in prison. If found guilty of such a violation, Lerner, who has been on paid administrative leave since May, would also lose her job: “If such offense is committed by any officer or employee of the United States,” the law reads, he shall “be dismissed from office or discharged from employment upon conviction for such offense.”

Tax-law experts, however, disagree about whether Lerner’s apparent disclosure was a violation of Section 6103. Steven Willis, a professor of tax law at the University of Florida’s Levin College of Law, argues that it was. The law “does not allow for disclosure of pending applications,” Willis says, and though he acknowledges that the law is a “technicality,” he maintains that Lerner’s violation is something more serious. “In her position as director of Exempt Organizations, Ms. Lerner would surely have been aware of section 6103,” Willis tells me. “She would have had responsibility to ensure that employees who reported to her not violate the sections.” Further, her role as a senior IRS official “adds to the seriousness.”

However, it’s not clear that Lerner disclosed anything that could not have been inferred from information otherwise available to the FEC. Attorneys at that agency knew, based on information provided by the American Future Fund, that the group had applied for tax exemption. Further, once an organization is granted tax exemption, federal law mandates that its application as well as the IRS’s approval letter be made publicly available; since its application was not publicly available, lawyers could have deduced that its file was pending. For this reason and others, Bryan Camp of Texas Tech University’s law school does not believe Lerner broke the law. “Assuming the disclosure occurred, I don’t see that as a 6103 violation,” he says, citing a provision that allows the IRS to verify whether an organization is “currently held to be exempt.” But Camp adds a caveat. “The law of disclosure is complex and treacherous,” he says. “There are very few, even in the office of chief counsel, who understand all the ins and outs.”

The IRS, for its part, is defending Lerner’s actions. The agency told National Review Online in a statement, “The email . . . indicates that both Ms. Lerner and the FEC attorney recognized the IRS obligation to protect taxpayer information and that neither person wanted the IRS to provide the FEC with anything other than publicly available information.”

Regardless of whether Lerner broke the law, the e-mail exchange released by the Ways and Means Committee suggests that information was passed from the FEC to the IRS — and vice versa — and was used by both agencies to target conservative groups.

The American Future Fund is a grassroots group devoted to advocating conservative and free-market principles. Two months after an FEC attorney first contacted Lerner about the group in July 2008, an agent in Lerner’s unit sent the American Future Fund a second request for more information about the group’s activities. The group was eventually granted tax exemption in October 2008.

The handling of the matter by FEC bureaucrats is equally dubious. FEC vice chairman Don McGahn, who tells National Review Online that he has seen additional e-mails between the IRS and the FEC, describes the correspondence as “weird.” According to McGahn, in July 2008, an FEC investigator, conceding he had not been able to find public information about the American Future Fund’s tax status, asked Lerner to provide its application for exemption.

But under federal law, the FEC cannot open an investigation until at least four commissioners have voted that there is “reason to believe that a person has committed” a violation of campaign-finance law — and no such vote had yet taken place. Hans von Spakovsky, an NRO contributor who served as an FEC commissioner from 2006 to 2008, tells me that if the FEC attorney contacted the IRS before the commissioners voted on whether to open an investigation, “that attorney violated federal law.” “The law is crystal clear — no investigation of any kind until the commission votes to open an investigation,” he says.

McGahn views the American Future Fund’s case as but one example of a systemic problem within the FEC. Attorneys in the agency’s general counsel’s office, he says, are less than candid about how they obtain information. With regard to the American Future Fund, they told FEC commissioners in September 2008, “The IRS has not yet issued a determination letter regarding AFF’s application for exempt status. Based on the information from the response and the IRS website, it is likely that the application is still under review.” The e-mail exchange between Lerner and the FEC attorney indicates, however, that FEC attorneys got that information not from the IRS website but from Lerner herself. Furthermore, by February 2009, when the commissioners voted on whether to prosecute the American Future Fund for violating campaign-finance laws, the group had received its tax-exempt status, but agency attorneys — despite reaching out to Lerner weeks before the vote — did not update their report.

FEC attorneys “don’t always brief the commission on the information that they have,” McGahn says; he describes this as “a longstanding frustration” in his five-year tenure as a commissioner. The behavior of career employees with regard to the American Future Fund, he says, reflects “a much larger culture of not telling the whole story when presenting a case to the commission,” with the result being that commissioners at times vote to investigate groups without having the facts presented clearly before them.

He points, by way of example, to the case of Republican congressman Vern Buchanan, whose 2006 campaign was the subject of an FEC complaint. According to McGahn, agency attorneys had “obtained exculpatory information but kept the investigation going for a couple of years,” shielding it from both Buchanan’s attorneys and the commissioners themselves. Buchanan’s attorney, William McGinley, told the commission in December 2010, two years after the initial complaint was filed, “All of the exculpatory information disclosed by the office of general counsel in the last 48 hours has been requested by us multiple times during this matter. This is now the second time in as many days that we have received previously undisclosed exculpatory evidence.” FEC commissioner Caroline Hunter acknowledged as much in a hearing, telling the parties, “The issue about the exculpatory evidence is obviously troubling, and I apologize for having to deal with this at the last minute like this.”

At the FEC, McGahn sees a system of discrimination more highly evolved than that employed by IRS officials. “Making a list of everybody who uses the word tea-party and giving them extra scrutiny, that’s rather amateur,” he explains. “The more sophisticated way is to look up all the complaints that come in” and, for those involving Republican and conservative organizations, “do an extra-statutory search to develop the facts and then decide on what the legal theory is.” It comes down to “the rule of law versus case by case, ad hoc decision making,” where federal bureaucrats are seeking to “decide who broke the rule of law after the fact.”

National Review Online has also drawn attention to Lerner’s own controversial tenure at the FEC, where she served as head of the enforcement office from 1986 to 2001. During that time, she launched a five-year investigation of the Christian Coalition after which the group was cleared of any wrongdoing. In a 1998 case, she recommended against the investigation of a donor, citing his “high profile as a prominent Democratic fundraiser” and “potential fundraising involvement in support of Mr. Gore’s expected presidential campaign.”

House Oversight Committee chairman Darrell Issa has now requested all documents potentially related to the “inappropriate coordination” between the FEC and the IRS between January 1, 2008, and the present. If McGahn and his fellow critics are correct, the scandal currently engulfing the IRS will extend deep into the bowels of another federal agency.

Eliana Johnson is NRO’s media editor.