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First Amendment suit not a remedy for retaliatory tax audit

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NEWS MEDIA UPDATE   ·   SECOND CIRCUIT   ·   Newsgathering   ·   June 1, 2005

NEWS MEDIA UPDATE   ·   SECOND CIRCUIT   ·   Newsgathering   ·   June 1, 2005

First Amendment suit not a remedy for retaliatory tax audit

  • A federal appeals court ruling prohibits a newspaper from suing the Internal Revenue Service after the paper was harassed through an allegedly retaliatory tax audit.

June 1, 2005  ·   Two Internal Revenue Service employees cannot be forced to pay damages after conducting an allegedly retaliatory audit of a New York weekly newspaper after the paper published an article critical of the IRS, the U.S. Court of Appeals in New York (2nd Cir.) ruled last week. A three-judge panel upheld a district court ruling that the newspaper publisher could recover damages only if the damages were explicitly called for through administrative remedy.

In 1998, the Hudson Valley Black Press published an article criticizing the IRS after the agency was found liable for racially discriminating against a black employee. Within two weeks, the IRS notified the newspaper’s sole proprietor, Charles A. Stewart, that he was going to be audited.

The newspaper alleged that the IRS employee assigned to the audit made racially offensive remarks while in the newspaper’s office, attempted to coerce Stewart into signing a fraudulent report, filed a false audit report, and verbally threatened Stewart, according to court records. The IRS seized all of the newspaper’s tax records, including the originals. When the newspaper filed requests for copies of its own tax returns under the Freedom of Information Act, the IRS employee assigned to the case admitted the records should be made available but failed to produce them.

The newspaper sued, claiming that the agency’s conduct was retaliatory, causing the paper severe financial harm and damaging its reputation. The paper was temporarily unable to publish. In 2004, a New York district court dismissed the case for failure to state a claim.

In upholding the lower court ruling, the appeals court relied on two Supreme Court decisions, Bush v. Lucas and Schweiker v. Chilicky. Both cases, decided in 1983 and 1988, respectively, held that when Congress has created a specific regulatory scheme, the courts cannot award remedies not already provided for in federal administrative code. The federal appeals court ruled that because Congress has already provided a comprehensive scheme to handle potential taxpayer abuses by the IRS, the newspaper cannot be awarded damages for IRS interference with its First Amendment rights since such a remedy is not provided for in the IRS code.

“It’s really a shame that the court didn’t take note of how this decision can impact smaller newspapers,” said Stephen Bergstein, the attorney representing the newspaper. “These smaller papers just don’t have the resources to deal with these kind of audits. It can shut them down.”

Bergstein said the paper is not planning to appeal the decision.

(Hudson Valley Black Press v. IRS; Media Counsel: Stephen Bergstein, Thornton, Bergstein & Ullrich LLP, Chester, N.Y.)AG

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