One lesson that Watergate teaches us is that nothing says “scandal” better than prison sentences. And prison sentences are on the table in a long-developing scandal involving the IRS, but apparently not Lois Lerner.  In the words of John Hinderaker of Powerline, “…there is strong reason to believe that one or more White House political appointees have illegally accessed private taxpayer information and used it for political gain.”

This is a serious crime, punishable with serious prison sentences. Bad though the abuses of the IRS tax-exempt section may be, they pale in comparison with the exploitation of confidential taxpayer information for political purposes. Hinderaker does an excellent job of covering a lot of ground and explaining the latest developments that could explode in the face of the Obama administration, so I recommend you read his article here. However, in sum, the incident started when:

[Chairman of Obama’s Council of Economic Advisers Austan] Goolsbee conducted a telephone press briefing in which, according to the Washington Post, he purported to reveal confidential taxpayer information:

So in this country we have partnerships, we have S corps, we have LLCs, we have a series of entities that do not pay corporate income tax. Some of which are really giant firms, you know Koch Industries is a multibillion dollar businesses. So that creates a narrower base because we’ve literally got something like 50 percent of the business income in the U.S. is going to businesses that don’t pay any corporate income tax.

There are three possibilities here: either Goolsbee just made up the claim that Koch Industries doesn’t pay corporate income taxes; or he learned Koch’s tax status from some proper, legal source; or else he illegally accessed Koch’s tax returns and used the information he learned for political purposes in a call with reporters.

Koch Industries is a privately-held corporation, one with 50 or fewer shareholders, and that means it does not publicly report its income. Very few large companies enjoy the substantial advantages of remaining private (the other notable example is Cargill, the grain trading and logistics giant), a status that not only enables them to keep competitors in the dark, it also enables them to escape the tyranny of quarterly earnings reports, and therefore plan and execute long term strategies that may involve temporary earnings declines in order to invest and grow promising businesses. The stunning growth of Koch Industries is an excellent indicator of the wisdom of remaining private, assuming capable management is in place. (Cargill is no slouch, either).

The damage to Koch Industries of political exploitation of its private tax returns is therefore potentially enormous, for there is no telling how far the pillaged secret data would travel, once the decision was made to violate the law and spread it among people hostile to Koch interests.

Koch challenged this leak, and what has followed includes multiple explanations from Goolsbee, including some that he later tried to suppress by deleting a tweet.  

Republicans on the Senate Finance Committee asked for an investigation, and the Treasury Department’s Inspector General looked into the matter and wrote a report. On August 10, 2011, a TIGTA [U.S. Treasury Inspector General for Tax Administration] Special Agent sent an email to Koch Industries, stating that “the final report relative to the investigation of Austan Goolsbee’s press conference remark is completed, has gone through all the approval processes, and would now be available through a [FOIA] request.”

However, when Koch Industries asked for a copy of the report, the Obama administration refused, asserting that it could not legally turn the report over, because it would disclose the identity of the wrongdoers, and it also contains confidential taxpayer information…about Koch Industries! The shamelessness of the Obama administration is almost beyond comprehension.

That has gone to court, and on September 29:

...a federal district judge in Washington ruled in Cause of Action’s favor. Cause of Action had asked for all documents related to any investigation by TIGTA into the unauthorized disclosure of tax return information to anyone in the Executive Office of the President. The Obama administration made a “Glomar response,” which means that it would neither confirm nor deny the existence of any responsive records, on the theory that doing so would itself reveal information protected under FOIA.

The court’s ruling was limited: it found that the administration has already admitted that an investigation took place, and sent the issue back to TIGTA to “determine whether the contents — as distinguished from the existence – of the officially acknowledged records may be protected from disclosure” by a FOIA exemption.

I am no lawyer, but it seems to me that Koch Industries could offer a waiver of its confidentiality related to disclosures from the TIGTA investigation to break the Catch-22 conundrum. But Koch has top legal talent, and I am sure this has occurred to them.

Meanwhile, Goolsbee continues to offer comments that are, in Hinderaker’s words, “from outer space.”

It may well be that the Obama administration will continue to delay unfolding of the scandal until it is out of office. But that should not prevent the eventual uncovering of what is either a vicious lie or a violation of serious tax law.

Hat tip: Mark Levin and Instapundit