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Tuesday, February 27, 2024
Courthouse News Service
Tuesday, February 27, 2024 | Back issues
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Feds Must Reconsider Denial of Estate Records

WASHINGTON (CN) - The IRS and Treasury Department must reconsider their denials of a philanthropist's son's requests for records he hoped would uncover the mishandling of his father's trusts and estate, a federal judge ruled.

In 2013, Richard Goldstein filed a Freedom of Information Act (FOIA) request with the Internal Revenue Service, looking for tax returns and other documents related to the estate and trust of his father, Samuel Goldstein, a prominent philanthropist.

Samuel Goldstein, who created a multibillion dollar company out of a small oil trading venture, died in 2000, leaving behind a "substantial" estate, according to an opinion filed Friday in Washington, D.C., Federal Court.

After his father's death, Richard Goldstein became suspicious that his sister, his father's lawyer and others were making fraudulent transfers from Samuel Goldstein's trusts and estate in order to avoid paying taxes on $4.6 million in capital gains that belonged to the estate, according to court records.

In 2006, Goldstein sent his lawyer, David Capes, to the Criminal Investigations Division of the IRS in St. Louis to tip the agency off to his suspicions.

What Capes gave the IRS, and whether the agency investigated his claims, eventually became one point in the nine-part FOIA request Goldstein sent to the IRS looking for tax documents for his father's estate and trusts.

In addition to the Capes documents, Goldstein wanted to see the administrative file for the audit of his father's estate, tax returns and fiduciary income returns for the estate and trusts, audit files and tax returns for the family's limited partnership, SRG Investment, as well as two sets of documents from Bank of America.

The IRS responded to Goldstein's July 2013 request, telling him that, while it found more than 4,000 documents responsive to his request, it could only turn over 2,248 of them in full. The agency held on to more than 1,700 of the documents in full and 89 in part, citing various privileges and protections, court records show.

For the SRG Investment audit files, the IRS entered a so-called Glomar response, neither confirming nor denying the records existed. It withheld the Capes files, claiming it had to protect the identity of a confidential source, according to Friday's ruling.

After he failed on appeal, Goldstein filed a FOIA request with the Treasury Inspector General for Tax Administration, looking for files related to Capes' meetings with the agency.

Goldstein eventually filed lawsuits against the IRS and the Treasury Inspector General, claiming they wrongfully withheld documents he had a right to see.

U.S. District Judge Amit Mehta largely agreed with Goldstein in two opinions filed Friday, and ordered the agencies to reconsider their denials.

While the IRS claimed it could withhold the estate's tax examination file from Goldstein because he did not show he had a "material interest" in the records, Mehta noted it never gave Goldstein a chance to change his FOIA request to state one.

"Instead the IRS unilaterally assumed Plaintiff's material interest in seeking the estate's tax records," Mehta wrote in a 29-page ruling. "The IRS cannot now claim that plaintiff failed to perfect his request when, according to its own regulations, it denied him the opportunity to do so." (Emphasis in original).


He used similar reasoning to remand Goldstein's request for the tax returns and return information for the estate. The IRS wrongfully claimed Goldstein was looking for tax returns, which he could get through a non-FOIA process, and it never let him correct his request to make it clear he wanted more than just the returns, Mehta wrote.

As for the fiduciary tax return information for the estate and trusts, which the IRS didn't even treat as part of the litigation because it again claimed Goldstein could get the records through a non-FOIA process, Mehta ruled Goldstein's relationship to the trust constitutes a "material interest" to review the documents.

Similarly, the IRS "clearly erred" in determining Goldstein did not have a relationship to SRG Investment that would allow him to see the partnership's tax audits and returns, as a living trust that Goldstein is a beneficiary to owns 99 percent of the partnership, Mehta ruled.

The final set of documents Mehta sent back to the IRS concerned Capes' interactions with the IRS. The agency again claimed Goldstein sought records that included tax return information of a third party, which Goldstein would not have access to.

But Mehta also found this claim weak, finding that Goldstein's request included more than return information.

"The IRS appears not to have considered whether returning documents turned over by a whistleblower, as plaintiff claims to be here, would run afoul of section 6103," the judge wrote.

He was not so kind to Goldstein in his second opinion filed Friday, which dealt exclusively with the Capes files.

Two years after Capes went to the agency to report the suspected fraudulent transfers, Goldstein filed an application for a whistleblower award with the IRS, only to have his request denied because the tip did not produce any actionable evidence, according to Mehta's opinion.

Goldstein sent his new attorney, T. Scott Tufts, to find out what happened with Capes' claims. The agency said it had told Capes in 2008 it would not pursue an investigation related to his charges, which directly opposed what the lawyer told Goldstein in 2009, the ruling states.

So Goldstein filed another FOIA request looking for the agency's files on the Treasury Inspector General for Tax Administration investigation into Capes' whistleblowing. After the request was denied with a Glomar response, Goldstein sued in December 2014, claiming he had a right to examine the files under the Privacy Act and FOIA.

The Treasury Inspector General disavowed its Glomar response in its answer to the complaint and admitted to finding 457 pages related to Goldstein's request.

Nevertheless, the agency claimed it could withhold the documents based on an exemption that protects personnel and medical files and another that does so for law enforcement records, according to the ruling.

While the Treasury Inspector General improperly claimed a protection under the law enforcement proceedings provision, Goldstein did not show a compelling enough public interest to force the agency overcome the personnel files protection, Mehta ruled.

"To be certain, the inconsistencies that plaintiff discovered raise legitimate questions about the extent of Capes' interactions with the IRS and seemingly led [the Treasury] to conduct an investigation," Mehta wrote in the 23-page opinion. "But those facts alone would not cause a reasonable person to have more than a suspicion of impropriety by the government."

Like the records in the other case, however, Mehta decided the agency should take a second look at the documents to see if there are any that it can reasonably hand over. In the case against the Treasury Inspector General, Mehta ordered the agency to look at where it could reasonably separate protected information from unprotected information.

The IRS and the Treasury Inspector General must file status reports by April 25 describing their efforts to comply with Mehta's order sending the request back to the agencies for reconsideration.

Tufts, who represents Goldstein in both matters, did not respond to an emailed request for comment.

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