Senator Chuck Grassley, ranking Republican of the Finance Committee, has requested a formal investigation of the Obama administration over a senior administration official's comments on the tax status of Koch Industries--a private company targeted by Democrats, including President Obama himself, for funding libertarian and conservative causes.

Grassley and six other Republican senators on the Finance Committee sent a letter today to the Treasury Inspector General for Tax Administration, in which they asked the inspector general to investigate "a very serious allegation that Administration employees may have improperly accessed and disclosed confidential taxpayer information. As you know, section 6103 of the Internal Revenue Code protects the privacy of federal tax returns and return information. This law was enacted as a result of the use of tax information for political gain during the Watergate scandal."

At an August 27 press briefing, a senior administration official, who appears to be Austan Goolsbee, said:

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.

"[T]he statement that Koch is a pass-through entity implies direct knowledge of Koch’s legal and tax status, which would appear to be a violation of section 6103," the senators wrote in their letter today. "Alternatively, if the statement was based on speculation, it raises the question of whether the Administration speculating about any specific taxpayer’s liability is appropriate."

Grassley and his colleagues don't necessarily buy the Obama administration's claim that the information about Koch came from publicly available sources.

The senators write that the senior administration official "comments on the legal structure of Koch Industries, Inc. (Koch) and its impact on the group’s tax liability. While Koch’s website indicates some of the Koch companies are limited liability companies (LLC) or limited partnerships, there is no indication that Koch itself is a Subchapter S Corporation, which is one type of flow through entity, or a Subchapter C corporation. In addition, an LLC can choose to be taxed as Subchapter C corporation."

The senators conclude their letter with these requests to the Treasury Inspector General for Tax Administration:

we ask that you obtain and review a transcript of the August 27, 2010, press briefing to determine the basis for the Administrations employees’ statements and review the PERAB’s work in preparing its report on corporate tax reform. In particular, we ask you to address the following questions.

1) Did Administration employees, including PERAB employees, have access to tax returns and return information in compiling the PERAB report?

2) If yes, how many companies’ tax returns did the PERAB employees review and did they follow the procedures prescribed under the regulations governing section 6103 for accessing and protecting taxpayer information?

3) Did Administration employees, including PERAB employees, violate section 6103 when they discussed the tax status of Koch Industries, Inc. and its related companies?

4) If violations of 6103 did not occur, what was the basis for the statement regarding Koch’s legal and tax status and was the statement appropriate?

Update: A White House official writes in an email to THE WEEKLY STANDARD that the senior administration official's statement on Koch's tax status "was not based on any review of tax filings and we will not use this example in the future."

In a background call conducted on August 27, 2010 to provide an overview of the independent tax reform report done by the President's Economic Recovery Board (PERAB), a senior administration official used Koch Industries as an example when discussing an issue noted in the PERAB report that half of business income goes to companies that do not pay corporate income tax because they are pass-through entities and that many of them are quite large (report section IV, c, 2). The official's statement was not based on any review of tax filings and we will not use this example in the future.

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