The Internal Revenue Service is proposing a new Privacy Act system of records exempt from release for Tax Exempt and Government Entities (TE/GE) case management, which could have implications for audited 501(c)(3) organizations. The system would contain records emanating from investigations into individuals and other taxpayers involving money laundering, statutory compliance violations, and other areas of non-compliance. The records may contain information about individuals that describe TE/GE's methods of investigating exempt organizations, as well as information regarding informants in investigations. The IRS is proposing to exempt this system of records from release under the Privacy Act. Specifically, it allows the IRS to:

• refuse release of records pertaining to an individual
• refuse to acknowledge the existence of records pertaining to an individual
• refuse to disclose the agency procedures relating to accessing records
• refuse to inform the requester of civil remedies available to the individual in the event of an adverse determination by an agency concerning access to information contained within the record systems

The IRS argues that the release or acknowledgement of these records would provide an individual or entity subject to an investigation with significant information concerning the nature of the investigation, and could result in the altering or destruction of documentary evidence, or the influencing of witnesses. While the IRS' concerns may be valid as applied to the investigatory period, the notice does not allow for the release of records once an investigation has been concluded, even with redaction of informant-identifying information. The Federal Register notice also does not provide for the release of records during the determination period of an audit, even if the investigation is over. Nonprofits are urged to comment, in order to retain their rights to view the records of allegations made against them. Nonprofits' rights under the Privacy Act could prove particularly beneficial in understanding IRS interpretation of 501(c)(3) issue advocacy in cases such as the audits of the NAACP or All Saints Episcopal Church. Comments are due by Jan. 6.