- The Washington Times - Wednesday, July 24, 2002

A legal foundation asked the Justice Department yesterday to investigate its own lawyers for disclosing the names of taxpayers, including California's Republican gubernatorial candidate William E. Simon, in a court case about a tax shelter.

The Landmark Legal Foundation urged the department's Office of Professional Responsibility to investigate the department's tax-division lawyers.

The lawyers filed documents identifying taxpayers in a government lawsuit not against them but against their accounting firm.

The Internal Revenue Service has strict rules against disclosing taxpayer information. The IRS and Justice Department contend that in this case the practice was permissible but a "misstep" and are looking at procedures to prevent a repeat.

The case involves a government challenge to a tax shelter promoted by KPMG LLP, the accounting firm that gave advice to Mr. Simon and scores of other taxpayers. The campaign of Democratic Gov. Gray Davis has seized on the disclosure to attack the Republican in what is shaping up in the polls as a close election.

Justice lawyers included the company's confidential client log in an administrative summons July 9 demanding the production of tax-shelter information.

A Landmark Foundation press release suggested yesterday that the lawyers' action was politically motivated. It said the lead Justice lawyer in the case, Stuart D. Gibson, is a "Democratic Party activist in Virginia."

A Justice Department spokesman and Mr. Gibson did not return calls yesterday seeking comment. Mr. Gibson is chairman of the Fairfax County School Board, and his candidacy was endorsed by the local Democratic Party.

Mark R. Levin, Landmark's president, said that identifying taxpayers in a lawsuit against a company "was not only gratuitous, but likely illegal."

"The government is not free to release the names of taxpayers except in extraordinary circumstances, and those circumstances did not exist in this case," said Mr. Levin, a Justice Department official in the Reagan administration.

"There is a serious question whether the Internal Revenue code and Justice guidelines were violated by the public disclosure of these taxpayers' names," he said. "It is especially troubling that this conduct has influenced the gubernatorial race in California, which raises the specter of partisan politics. This is as close to the politicization of the IRS as anything I've ever seen."

Landmark contends the disclosure violated federal IRS code that says taxpayer identities "shall remain confidential and except as authorized by this title no officer or employee of the United States shall disclose any return or return information."

Landmark's complaint quotes a federal law that allows disclosure of taxpayer return information "if the taxpayer is a party to the proceeding, or the proceeding arose out of, or in connection with, determining the taxpayer's civil or criminal liability."

Landmark said, "In this case, however, none of the taxpayers identified in the IRS exhibit are parties to the proceeding, and the proceeding is not concerned with a liability determination but rather with the sufficiency of an accounting firm's compliance with a summons."

After the Wall Street Journal editorialized against the Justice Department lawyers' tactic, senior Bush administration officials wrote letters to the newspaper also criticizing the action.

One letter was co-signed by B. John Williams Jr., the IRS' chief counsel, and Eileen J. O'Connor, assistant attorney general for the Tax Division, and Mr. Gibson's boss.

"It is clear in hindsight that, while such disclosure was permissible, it would have been better practice to redact the names from KPMG's privilege log before it was filed in federal court or to ask the court's permission to file it under seal," the two wrote in a letter published Monday.

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