Group Seeks Sanctions Against IRS For Destroying Evidence

A group that is disputing its tax-exempt status with the Internal Revenue Service asked a District of Columbia federal judge on Tuesday to sanction the agency, alleging that the service destroyed electronic documents when it knew that the case could result in litigation.

The Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts Inc., which claims to be a scholarship organization with a charitable purpose, said that a default judgment against the IRS would be an appropriate sanction in the case or, at minimum, an adverse inference that the destroyed documents would have been favorable to the group.

The group alleges that during an audit of the foundation, an IRS revenue agent deleted files in the case record because they could not be opened. In his notes, the agent said he had no way of knowing what was in the files, the group alleged.

“The narrative entry in the Case Chronology Record clearly and plainly admits that the document destruction in this instance was deliberate and intentional,” the group said. “This knowing deletion of files constitutes spoliation, and the Foundation is entitled to an award of sanctions for this conduct.”

According to the group’s motion for sanctions, the IRS began an audit of the foundation in 2007 and the case was transferred to a different agent in 2009. In November 2009, the IRS sent a letter to the group saying it was proposing to revoke the foundation’s tax-exempt status. The group sued the IRS in 2011 seeking a declaratory judgment that it is a tax-exempt organization under section 501(c)(3).

The group said that the audit’s case chronology record, a daily account of revenue agents’ activities, contains an entry on Nov. 23, 2009, saying that the revenue agent destroyed certain files because they could not be opened and he had no way of knowing what was in them, in violation of IRS rules.

The revenue agent’s destruction of the files amounts to spoliation of evidence, the group said. The files destroyed by the IRS may have contained evidence about agency wrongdoing in obtaining a letter the service relied on in reaching its decision to revoke the foundation’s tax-exempt status that was protected by attorney-client privilege, the group said.

The destruction of evidence is egregious and a punitive sanction against the IRS is appropriate to ensure that the agency doesn’t engage in similar behavior in its audits of other tax-exempt entities, the group said.

The IRS does not comment on ongoing litigation.

The IRS’ handling of documents came under scrutiny in the congressional inquiries into former IRS executive Lois Lerner’s handling of conservative groups’ exemption applications. The IRS announced last year that it had lost years’ worth of Lerner’s emails requested by congressional investigators probing allegations that the agency targeted conservative groups. The admission prompted investigations by the U.S. Department of Justice and the FBI.

In September, NetJets Large Aircraft Inc. alleged the IRS improperly destroyed documents that NetJets had requested in discovery, in some cases even after the company asked for them.

The Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts Inc. is represented by Charles A. Murray of the Law Offices of Charles A. Murray PA and Kenneth W. Ravenell of Ravenell Law.

The United States is represented by Joseph E. Hunsader of the U.S. Department of Justice, Tax Division.

The case is Educational Assistance Foundation for the Descendants of Hungarian Immigrants in the Performing Arts Inc. v. U.S., case number 1:11-cv-01573, in the U.S. District Court for the District of Columbia.

Law360

By Eric Kroh

Edited by Patricia K. Cole

January 21, 2015

See the full story at: Group Seeks Sanctions Against IRS For Destroying Evidence

 

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