Congress Demands Answers from IRS about Destroyed Hard Drive

Register now

The Internal Revenue Service is facing a fresh backlash from Congress after destroying a hard drive from a former employee whose documents were subject to a legal investigation.

The hard drive belonged to Samuel Maruca, formerly the director of transfer pricing of the IRS’s Large Business and International Division. Last week, the IRS admitted it had accidentally destroyed the hard drive, even though some of the files on it were subject to a court’s document preservation notice in an ongoing Freedom of Information Act lawsuit against Microsoft. The IRS said the hard drive “was inadvertently not captured by the litigation hold for these cases,” and thus was “sanitized” in April 2015 while the litigation was pending.

The documents being sought related to the IRS’s use of outside law firms to conduct examinations of taxpayers. Microsoft has been fighting with the IRS in a long-running tax dispute over its international tax strategies. In 2013, the IRS engaged the law firm of high-profile attorney David Boies, who won an antitrust case against Microsoft in 2000. Microsoft filed a lawsuit last year requesting documents about the IRS’s decision to contract with Boies’ firm (see Microsoft-IRS Dispute Escalates, Now about Company Nemesis Boies).

Two of the leaders of the House Ways and Means Committee, chairman Kevin Brady, R-Texas, and Oversight Subcommittee chairman Peter Roskam, R-Ill., said they were concerned the IRS’s document retention practices are inadequate to ensure compliance with the law. They cited the loss of emails from Lois Lerner, the former director of the IRS’s Exempt Organizations unit, who was ousted in 2013 for her role in the scandal that erupted over the IRS’s use of terms such as “Tea Party” to scrutinize applications from political groups for tax-exempt status.

“This is not the first time the IRS has lost key records that were subject to a document hold,” Brady and Roskam wrote in a letter last Friday to IRS commissioner John Koskinen. “In the course of this Committee’s investigation into the IRS’s targeting of conservative organizations, the IRS disclosed that it had destroyed backup tapes containing thousands of Lois Lerner’s records. Furthermore, the IRS did not inform Congress of the destruction for several months. In the Microsoft case, the IRS discovered the loss of records in December 2015, but did not disclose the loss until January 19, 2016. In order for taxpayers to trust the IRS, they need to know that the IRS is dealing with them fairly and playing by the rules. The IRS, however, has demonstrated now at least twice that it is either unwilling or unable to obey basic rules of discovery before federal courts and before Congress.”

Leaders of the Senate Finance Committee also sent a letter last week to Koskinen requesting more information about the loss of the hard drive. Senate Finance Committee chairman Orrin Hatch, R-Utah, and ranking member Ron Wyden, D-Ore., asked Koskinen for answers about the IRS’s recordkeeping practices.

“This disclosure comes months after the IRS deleted electronic evidence related to a Finance Committee investigation,” Hatch and Wyden wrote. “During the Committee’s bipartisan investigation into the treatment of tax-exempt organizations, the IRS accidentally destroyed 422 back-up tapes and up to 24,000 emails subject to our document requests. The IRS’s missteps in preserving documents—whether they be the subject of a congressional investigation, court order, or FOIA request —are concerning, and necessitate further oversight into the agency’s document preservation practices.”

For reprint and licensing requests for this article, click here.
Tax practice