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Linchpins of Liberty v. IRS

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Dismissal of case filed by Linchpins of Liberty against the IRS
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  1 UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA  __________________________________________ ) LINCHPINS OF LIBERTY, et al., ) ) Plaintiffs, ) ) v. ) Civil Action No. 13-777 (RBW) ) UNITED STATES, et al., ) ) Defendants. )  __________________________________________) MEMORANDUM OPINION  The plaintiffs, forty-one organizations that sought or are still seeking tax-exempt status from the Internal Revenue Service (“IRS”), filed this civil action against the United States of America, the IRS, and several known and unknown IRS officials in both their official and individual capacities, 1  alleging violations of the First Amendment, the Fifth Amendment, the Administrative Procedure Act (“APA”), 5 U.S.C. §§ 702, 706 (2012), the Internal Revenue Code, 26 U.S.C. § 6103 (2012), as well as seeking declaratory and injunctive relief, and monetary damages. See Second Amended Complaint (“Am. Compl.”) ¶¶ 13, 139-424, A-J (prayer for relief). Currently pending before the Court are the defendants’ Motion to Dismiss Counts IV, V, VI, VII, IX, and Part of VIII [of the Complaint] and Supporting Statement of Points and Authorities (“Defs.’ Mot.”); Defendant Carter Hull’s Motion to Dismiss (“Hull 1  The known individual defendants are: Jacob Lew, Daniel Werfel, William Wilkins, Douglas H. Shulman, Steven T. Miller, Lois Lerner, Sarah Hall Ingram, Joseph Grant, Nikole Flax, Judith Kindell, Holly Paz, Michael Seto, Steven Grodnitzky, and Carter Hull. For purposes of resolving the several motions to dismiss, these individual defendants fall into two categories: the Individual Management defendants (Nikole Flax, Joseph Grant, Steven Grodnitzky, Sarah Hall Ingram, Judith E. Kindell, Lois Lerner, Steven T. Miller, Holly Paz, Michael Seto, Douglas H. Shulman, and William Wilkins) and Carter Hull alone. Jacob Lew and Daniel Werfel were only sued in their official capacities.  2 Mot.”); and the Individual Management Defendants’ Motion to Dismiss (“Mgmt. Mot.”). 2  The Court concludes for the following reasons that it must grant all of the defendants’ motions to dismiss. 3   I. BACKGROUND The plaintiffs assert that they “are all organizations that applied for [26 U.S.C. § 501(c)(3) or 26 U.S.C. § 501(c)(4)] tax-exempt status with the IRS between 2009 and 2012.” Am. Compl. ¶ 73. Altogether there are forty-one such organizations. Id. ¶¶ 15-55. At the time the plaintiffs filed their complaint, there were four categories of plaintiffs: (1) four plaintiffs that were awaiting an IRS determination of their Section 501(c)(3) tax-exempt status; (2) ten  plaintiffs that were awaiting an IRS determination of their Section 501(c)(4) tax-exempt status; 2  In addition to the submissions already identified, the Court considered the following filings submitted by the  parties in rendering its decision: (1) the Plaintiffs’ Consolidated Response to [the] Defendants’ Motions to Dismiss (“Pls.’ Resp.”); (2) the Federal Defendants’ Reply in Support of Motion to Dismiss Counts IV, V, VI, VII, IX, and Part of VIII (“Defs.’ Reply”); (3) the Reply Brief in Support of Individual Management Defendants’ Motion to Dismiss the Second Amended Complaint (“Mgmt. Reply”); (4) the Reply in Support of Carter Hull’s Motion to Dismiss (“Hull Reply”); (5) the Motion of States of Ohio, Alabama, and South Carolina for Leave to File Amicus Brief in Support of [the] Plaintiffs (“Amicus Mot.”); (6) Defendant Carter Hull’s Opposition to Motion for Leave to File Amicus Brief (“Hull Opp’n to Amicus Mot.”); (7) the Opposition of Individual Management Defendants to the Motion of States of Ohio, Alabama, and South Carolina for Leave to File Amicus Brief in Support of [the] Plaintiffs (“Mgmt. Opp’n to Amicus Mot.”); (8) the United States of America’s Opposition to Motion of the States of Ohio, Alabama, and South Carolina for Leave to File Amicus Curiae Brief (“U.S. Opp’n to Amicus Mot.”); (9) the Reply of States of Ohio, Alabama, and South Carolina in Support of Their Motion for Leave to File Amicus Brief (“Amicus Reply Mot.”); (10) the Brief of Amici Curiae States of Ohio, Alabama, and South Carolina in Support of [the] Plaintiffs (“Amicus Br.”); (11) the Response of Individual Management Defendants to the Brief of Amici Curiae States of Ohio, Alabama, and South Carolina in Support of [the] Plaintiffs (“Resp. to Amicus Br.”); (12) the Plaintiffs’ Notice of Supplemental Authority (“Pls.’ Supp’l Authority I”); (13) the Defendants’ Joint Notice of Supplemental Authority (“Defs.’ Supp’l Authority”); (14) the Plaintiffs’ Response to [the] Defendants’ Joint Notice of Supplemental Authority (“Pls.’ Resp. to Defs.’ Supp’l Authority”); (15) the Federal Defendants’ Response to [the] Plaintiffs’ Notice of Supplemental Authority (“Defs.’ Resp. to Pls.’ Supp’l Authority I”); (16) the Plaintiffs’  Notice of Supplemental Authority (“Pls.’ Supp’l Authority II”); (17) the Federal Defendants’ Response to [the] Plaintiffs’ Notice of Supplemental Authority (“Defs.’ Resp. to Pls.’ Supp’l Authority II); (18) the Individual Defendants Joint Notice of Supplemental Authority (“Individual Defs.’ Supp’l Authority”); and (19) the Plaintiffs’  Notice of Supplemental Authority (“Pls.’ Supp’l Authority III”). 3  The Court’s opinion should not be interpreted as an assessment of the propriety of the alleged conduct by the defendants, as resolution of the motions does not require an assessment of the merits of the plaintiffs’ claims.  3 (3) twenty-two plaintiffs that had already received tax-exempt status; 4  and (4) five plaintiffs that chose to forego pursuit of tax-exempt status in light of the allegations below. Id. The plaintiffs allege that “[a]s early as February 2010, the IRS began identifying [tax-exempt] applications for additional scrutiny,” which “includ[ed] the issuance of letter requests for additional information” from organizations with “conservative-sounding names.” Id. ¶ 92 (citing Am. Compl., Exhibit (“Ex.”) 1 (May 14, 2013 Report from the Treasury Inspector General for Tax Administration (“the Report”)) at 5-6, 30); see also id. ¶¶ 94-95, 280. The  plaintiffs further allege that in August 2010, IRS employees distributed a list entitled “Be On The Lookout”—otherwise known as the “BOLO” list. Id. ¶ 124. The BOLO list allegedly contained terms that would identify “organizations with conservative[-]sounding names that had applied for tax-exempt status under [Sections] 501(c)(3) or 501(c)(4),” but “no terms that would identify  progressive or liberal groups.” Id. The plaintiffs assert that as of July 2011, the BOLO list “continued to focus on organizations associated with . . . conservative philosophies.” Id. ¶ 170. The BOLO list “remained in place for another eighteen (18) months.” 5  Id.; see also id. ¶¶ 276-77. In support of their allegations, the plaintiffs note that on May 10, 2013, one of the named individual defendants “apologized in a speech before the American Bar Association for a pattern of misconduct whereby the IRS intentionally and systematically targeted for additional and 4  There is an outlier in this category of plaintiffs: Roane County Tea Party. Am. Compl. ¶ 44. Following its receipt of tax-exempt status under Section 501(c)(4), the Roane County Tea Party had its tax-exempt status revoked. Id. The plaintiffs, however, treat Roane County Tea Party in its opposition to the motions to dismiss no differently than the other plaintiffs in this category. And so the Court will assume that is the case. 5  Thus, according to the plaintiffs, the “BOLO” list “remained in place” until approximately January 2013.  4 unconstitutional scrutiny[,] conservative organizations applying for tax-exemption.” 6  Id. ¶ 1; see also id. ¶¶ 309-10. The plaintiffs also cite the May 14, 2013 Report released by the Treasury Inspector General for Tax Administration, which stated, among other things, that the IRS had engaged in the following, “both before and during the 2012 election cycle”: (a)   targeting of tax-exempt applications for additional scrutiny and inquiry based on “inappropriate criteria”—including organizational names and policy  positions; (b)   significantly delaying the processing of these applications, keeping them open over twice the length of time typically required to process tax-exempt applications; and (c)   requesting additional information from these applicants that was entirely unnecessary and irrelevant to the IRS’s determination regarding the organizations’ respective tax-exempt statuses. Id. ¶ 275 (citing Ex. 1 (The Report) at 5-20). Under this alleged “IRS scheme,” IRS officials across the country purportedly “pulled applications from conservative organizations, delayed processing those applications for sometimes well over a year, [and] then made harassing, probing, and unconstitutional requests for additional information.” Id. ¶ 2; see also id. ¶¶ 288-92. According to the plaintiffs, “[t]he IRS scheme had a dramatic impact on targeted groups, causing many to curtail lawful activities, expend considerable unnecessary funds, lose donor support, and devote countless hours of time to responding to onerous and targeted IRS information requests that were outside the scope of legitimate inquiry.” Id. ¶ 3. As a result of the aforementioned allegations, the plaintiffs “seek[] damages” for the implementation of the alleged IRS scheme, as well as “declaratory[] and injunctive relief” to “halt IRS targeting” and “strike down all unconstitutional rules, regulations, 6  In addition to the “BOLO” list, the plaintiffs allege that the IRS intended to scrutinize “conservative” Section 501(c)(4) groups further by invoking a gift tax provision that the IRS had rarely used in connection with contributions to these organizations. See Am. Compl. ¶¶ 162-67. The IRS would eventually “suspend[] its open investigation of gift taxes on contributions to [conservative Section] 501(c)(4) organizations.” Id. ¶ 167.
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