While Americans remain focused on the IRS’s targeting of conservative groups applying for tax exempt status, two recently filed lawsuits reveal a far deeper level of alleged corruption at the agency. On May 2, a group of small businesses challenged the IRS’s attempt to illegally implement health insurance subsidies contained in the Affordable Healthcare Act, aka ObamaCare. On May 14, it was revealed that a class action suit has been filed by a California-based HMO, accusing the IRS of stealing 60 million medical records belonging to 10 million Americans.
The small business group’s suit, filed in the U.S. District Court for the District of Columbia, is the direct result of the Supreme Court’s decision that the part of the healthcare bill requiring Americans to purchase health insurance was constitutional. At the same time, the Court ruled that the federal government could not require states to set up the state-run exchanges necessary to facilitate the purchase of such insurance. As a result, 27 states have opted not to set up exchanges, forcing the federal government to fill the vacuum.
The employer mandate contained ObamaCare requires businesses to offer health insurance to employees, if they have at least 50 full time employees, defined as anyone working 30 or more hours per week. The law also provides IRS-implemented subsidies to help low-income people purchase insurance through the exchanges “established by the state.” If a company doesn’t offer its uninsured workers a policy and those workers end up getting a subsidy, the company will have to pay a fine.
The rub is the aforementioned phrase “established by the state.” The business group contends the subsidy can only be administered in states where the state itself has established the insurance exchange. They contend the IRS is ignoring the law’s constitutional limitations and illegally setting up subsidies in every state, forcing the employers to adhere to the law’s mandates. The IRS’s lawyers contend the language of the statute allows them to set up subsidies regardless of who is running the exchanges.
It appears the IRS is running roughshod over the rule of law, a reality pointed out in a paper written by Jonathan Adler and Michael Cannon last July, in which they anticipated lawsuits being filed in this regard. They noted that an IRS rule “purports to extend these tax credits and subsidies to the purchase of health insurance in federal exchanges created in states without exchanges of their own,” they wrote. “This rule lacks statutory authority. The text, structure, and history of the Act show that tax credits and subsidies are not available in federally run exchanges. The IRS rule is contrary to congressional intent and cannot be justified on other legal grounds. Because the granting of tax credits can trigger the imposition of fines on millions of individuals and employers, the IRS rule is likely to be challenged in court.”
It is worse than that. As the Washington Post’s Michael Gerson explains, the IRS “seized the authority to spend about $800 billion over 10 years on benefits that were not authorized by Congress.” By law, only Congress can authorize such spending. Michael Cannon notes the political implications. “It doesn’t look good from the road when IRS employees violate the clear language of federal law in a matter that just happens to rescue the top domestic policy achievement of their boss, the president,” he contends. Sam Kazman, general counsel of the Competitive Enterprise Institute, which is coordinating the lawsuit, echoed that sentiment. “ObamaCare is already an incredibly massive program,” he said. “For the IRS to expand it even more, without congressional authorization and in a manner aimed at undercutting state choice, is flagrantly illegal.”
“Flagrantly illegal” is a phrase that provides an apt segue to lawsuit number two. Last month in San Diego, attorney Robert E. Barnes, representing an unnamed firm identified in court records as the “John Doe Company” filed a suit alleging that 15 IRS agents illegally seized the medical records of 10 million Americans. Among those targeted were “every state judge in California, every state court employee in California, leading and politically controversial members of the Screen Actors Guild and the Directors Guild, and prominent citizens in the world of entertainment, business and government, from all walks of life.”
The alleged abuses are shocking. “No search warrant authorized the seizure of these records; no subpoena authorized the seizure of these records; none of the 10,000,000 Americans were under any kind of known criminal or civil investigation and their medical records had no relevance whatsoever to the IRS search,” the suit contends.
The John Doe Company is actually a Health Insurance Portability and Accountability Act (HIPAA) “secure facility,” meaning that it maintains sensitive data on patients that require security measures to be followed. The data include files on psychological counseling, gynecological counseling, sexual and drug treatment, as well as other sensitive medical treatment information.
None of it mattered to the IRS agents. “Despite knowing that these medical records were not within the scope of the warrant, defendants threatened to ‘rip’ the servers containing the medical data out of the building if IT personnel would not voluntarily hand them over,” the complaint reads. “Moreover, even though defendants knew that the records they were seizing were not included within the scope of the search warrant, the defendants nonetheless searched and seized the records without making any attempt to segregate the files from those that could possibly be related to the search warrant. In fact, no effort was made at all to even try maintaining the illusion of legitimacy and legality.”
According to the suit, the IRS had a search warrant authorizing the seizure “of financial records related principally to a former employee of the company.” Yet IRS agents not only seized the medical records, but “personal mobile phones, including all the data and information on those phones, without any employing the proper and procedurally correct screening methods to protect private and privileged information, all of which was completely unapproved by the search warrant.”
The theft of data is so large it affects “roughly one out of every twenty-five adult American citizens,” the complaint states. It further notes that the IRS refuses to reveal which agents participated in the seizure, who saw the records, or where they are currently located. Almost unbelievably, the suit alleges that after the raid was complete, the IRS agents used the company’s media system to watch the NCAA basketball tournament, even as they ordered soft drinks and pizza.
The complaint seeks $25,000 in compensatory damages “per violation per individual,” plus punitive damages for constitutional violations.
Unsurprisingly, Republicans see an opportunity to tie the healthcare bill to IRS corruption along with Democrats running in the 2014 election. Yesterday, Senate Minority Leader Mitch McConnell (R-KY) released an ad linking the president to the IRS scandal. Sen. Marco Rubio (R-FL) posted a YouTube video reminding Americans of the IRS’s ties to ObamaCare. “Now as far as the IRS’s role in Obamacare, well that’s chilling,” Rubio says in the video. “Because if you notice, the IRS is deeply involved in implementing Obamacare. They’re on the front lines of it.”
Rubio may be understating the case. When the healthcare bill is fully rolled out next year, it will require 2,137 IRS agents to implement and police its requirements. Moreover, a recent report by the Treasury Inspector General for Tax Administration reveals that the tax provisions included in ObamaCare “represent the largest set of tax law changes the IRS has had to implement in more than 20 years.”
Thus, as far as Republicans are concerned, the IRS is the gift that keeps on giving. Yesterday, it gave them even more political ammunition. The American Center for Law and Justice (ACLJ) filed a lawsuit on behalf of 25 Tea Party and other conservative organizations, alleging they were unfairly targeted by the IRS with regard to obtaining tax-exempet status. Top agency officials, as well as U.S. Attorney General Eric Holder and Treasury Secretary Jack Lew have been named as defendants. ACLJ contends that these officials violated the First and Fifth Amendments of the Constitution, the Administrative Procedure Act, and the IRS’s own rules and regulations. “The IRS and the federal government are not going to get away with this unlawful targeting of conservative groups,” said ACLJ Chief Council Jay Sekulow. “As this unconstitutional scheme continues even today, the only way to stop this flagrant and arrogant abuse of our clients’ rights is to file a federal lawsuit, which we have done.”
Americans haven’t needed much of a push to despise the IRS or ObamaCare–and that was before these ongoing revelations burst onto the national scene. Perhaps, as more of them unfold, the nation will finally reach a tipping point best expressed by former president Gerald R. Ford: “A government big enough to give you everything you want is a government big enough to take from you everything you have.”
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