Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-03-05019/USCOURTS-caDC-03-05019-0/pdf.json

Parties Involved:
Judicial Watch, Inc.
Appellant
United States of America
Appellee

Document Text:

Notice: This opinion is subject to formal revision before publication in the

Federal Reporter or U.S.App.D.C. Reports. Users are requested to notify

the Clerk of any formal errors in order that corrections may be made

before the bound volumes go to press.

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 20, 2003 Decided June 15, 2004

No. 03-5019

UNITED STATES OF AMERICA,

APPELLEE

v.

JUDICIAL WATCH, INC.,

APPELLANT

Appeal from the United States District Court

for the District of Columbia

(No. 02ms00144)

David Barmak argued the cause and filed the briefs for

appellant.

Stuart D. Gibson, Attorney, U.S. Department of Justice,

argued the cause for appellee. On the brief were Roscoe C.

Howard, Jr., U.S. Attorney, and Frank P. Cihlar and Gretchen M. Wolfinger, Attorneys, U.S. Department of Justice.

 Bills of costs must be filed within 14 days after entry of judgment.

The court looks with disfavor upon motions to file bills of costs out

of time.

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Before: GINSBURG, Chief Judge, and EDWARDS and TATEL,

Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: The district court enforced a summons issued by the Internal Revenue Service that requires

Judicial Watch to produce certain documents for an audit.

Judicial Watch appeals, arguing the district court should have

either quashed the summons or afforded Judicial Watch

discovery and an evidentiary hearing on its claim the audit

was politically motivated. Judicial Watch also argues the

summons violates the First, Fourth, and Fifth Amendments

to the Constitution of the United States. For the reasons set

forth below, we affirm the order of the district court.

I. Background

Judicial Watch, a self-described ‘‘non-partisan, public interest law firm that uses the courts to fight corruption in the

government and legal profession,’’ was founded by attorney

Larry Klayman in 1994. It is exempt from the income tax as

an educational organization pursuant to § 501(c)(3) of the

Internal Revenue Code, which applies to (among others):

Corporations, and any TTT foundation, organized and

operated exclusively for TTT educational purposes,

no part of the net earnings of which inures to the

benefit of any private shareholder or individual, no

substantial part of the activities of which is carrying

on propaganda, or otherwise attempting, to influence

legislation TTT and which does not participate in, or

intervene in (including the publishing or distributing

of statements), any political campaign on behalf of

(or in opposition to) any candidate for public office.

26 U.S.C. § 501(c)(3).

In 1997 the attention of the IRS was drawn to Judicial

Watch by a letter from a recipient of a Judicial Watch fundraising solicitation who questioned whether the organization

is entitled to its tax exemption. In December 1997 a committee of three IRS bureau chiefs reviewed information and

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documents regarding Judicial Watch’s tax-exempt status and

approved an audit of its 1996 tax return. The IRS did not

notify Judicial Watch that it had been selected for an audit

until October 1998.

Judicial Watch’s principals immediately objected, both in

writing and in meetings with IRS officials, that the audit was

an attempt by the Clinton Administration and IRS Commissioner Charles Rossotti to retaliate against the organization

for having sued the IRS on behalf of the Western Journalism

Center in mid–1998. Judicial Watch also claimed the Clinton

Administration and congressional Democrats had pressured

the IRS to audit Judicial Watch in retaliation for its having

alleged, in a report it sent to the Congress in September

1998, that President Clinton had committed a host of impeachable offenses.

The IRS brought Judicial Watch’s claims to the attention of

the Treasury Inspector General for Tax Administration (TIGTA), an independent investigative office within the Department of the Treasury. The TIGTA twice investigated whether the IRS pursued the audit for political reasons. The first

report (September 1999) found the IRS ‘‘recommended TTT

select[ing Judicial Watch] for audit’’ in December 1997, that

is, before it had sued the IRS or filed its impeachment report,

and concluded ‘‘[n]o information was developed’’ to support

Judicial Watch’s claims. The second report (October 2000)

found ‘‘no evidence’’ to support Judicial Watch’s ‘‘allegation of

political intervention’’ during the audit process. A report by

the Staff of the Joint Congressional Committee on Taxation

covering the same period likewise found ‘‘no credible evidence’’ that the IRS selected taxpayers for audits ‘‘based on

the views espoused by [an] organization[ ] or individuals

related to the organization.’’ Joint Committee on Taxation,

Report of Investigation of Allegations Relating to Internal

Revenue Service Handling of Tax-exempt Organization Matters (JCS–3–00), at 6–11, 17–18 (March 2000).

In April 2000 the IRS notified Judicial Watch it was

proceeding with the audit, and over the next two years

expanded the audit to cover tax years 1996–2000 and to

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require additional documents. According to the IRS, the

audit now addresses whether Judicial Watch: (1) provides a

private benefit either to Larry Klayman or to his law firm,

Larry Klayman and Associates; (2) is entitled to tax-exempt

status either as a private foundation or as a public interest

law firm; and (3) earns unrelated business income for which

it must pay taxes.

Late in 2000 the IRS agreed to delay the audit until

President Clinton left office, in exchange for which Judicial

Watch waived any potential statute of limitations defense. In

January 2001 the IRS informed Judicial Watch ‘‘the audit is

now continuing’’ and asked Judicial Watch to produce certain

documents. Judicial Watch again protested, however, and

the IRS again delayed the audit. In August 2001 the IRS

notified Judicial Watch it was examining the corporation’s tax

returns and again requested documents.

In September Judicial Watch sued the IRS in the United

States District Court for the District of Maryland, seeking

damages for constitutional violations allegedly committed by

the IRS in pursuing the audit and an injunction barring the

IRS from conducting the audit. See Judicial Watch, Inc. v.

Rossotti, 217 F. Supp. 2d 618 (D. Md. 2002), aff’d, 317 F.3d

401 (4th Cir. 2003). The IRS then served Judicial Watch

with a summons pursuant to 26 U.S.C. § 7602(a)(2), which

authorizes the Service ‘‘to summon the person liable for tax

TTT to produce such books, papers, records, or other data, and

to give such testimony, under oath, as may be relevant or

material to such inquiry.’’ Judicial Watch moved to enjoin or

to stay enforcement of the summons, but the district court

denied the motion and dismissed the case. See Rossotti, 217

F. Supp. 2d at 623–27 (injunctive relief barred by the Anti–

Injunction Act, damages barred by defendants’ qualified immunity).

In March 2002 the IRS repaired to the United States

District Court for the District of Columbia to enforce its

summons. The district court ordered the IRS to provide for

the court’s review in camera ‘‘all documents relating to its

motivation and purpose’’ for the audit. After a hearing at

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which it heard arguments regarding the purpose and the

scope of the audit, and the necessity, if any, of further

discovery, the district court ordered the IRS to produce

additional documents and certain affidavits for in camera

review.

In December 2002 the district court enforced the summons

with a modification; the original request for all of Judicial

Watch’s internal and external correspondence was narrowed

to reach only correspondence that is not privileged, is relevant to the audit, and is described with reasonable particularity.* See United States v. Judicial Watch, Inc., 266 F. Supp.

2d 1, 23 (D.D.C. 2002). The district court concluded ‘‘there is

no evidence of political vindictiveness or a retaliatory motive,

respondent’s constitutional challenges are without merit, and

the summons [as modified] is not so overbroad as to be

unlawful.’’ Id. at 5.

II. Analysis

Judicial Watch presents four arguments on appeal: (1) The

audit lacks a legitimate tax-related purpose. (2) Judicial

Watch is entitled to discovery and to an evidentiary hearing

regarding the alleged retaliatory purpose of the audit. (3)

The summons is overbroad. (4) The summons violates the

first, fourth, and fifth amendment rights of Judicial Watch or

of its supporters.

* As modified ¶ 15 of the summons requests ‘‘all minutes of

meetings of the Judicial Watch Board of Directors and any other

internal committees,’’ ¶ 15(a), as well as ‘‘all internal written correspondence for the calendar years 1994 [to] 2000’’ pertaining to: ‘‘(1)

the financial and business relationship between Judicial Watch and

all related entities and individuals TTT; (2) the process by which

Judicial Watch selects cases for litigation; (3) fund raising activities;

(4) compensation of attorneys who do work for Judicial Watch; (5)

advocacy on legislative matters; and (6) the exempt function [that

is, educational] activities carried on by Judicial Watch.’’ ¶ 15(b).

The IRS also modified ¶ 23 of the summons to request ‘‘all outgoing

and incoming correspondence for the calendar years 1994 [to] 2000’’

pertaining to the same subjects identified in ¶ 15(b), with the

exception of fund raising activities.

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A. Tax-related Purpose

Judicial Watch argues the district court should not have

enforced the summons because the audit lacks any legitimate

tax-related purpose. According to the taxpayer, the district

court ‘‘ignore[d] the wealth of competent evidence presented

by Judicial Watch of an improper, political and retaliatory

motive for the audit and summons.’’

We review the district court’s ‘‘determination of whether

the factual conditions for enforcement of a summons have

been met for clear error.’’ United States v. Ins. Consultants

of Knox, Inc., 187 F.3d 755, 759 (7th Cir. 1999); see Mazurek

v. United States, 271 F.3d 226, 229 (5th Cir. 2001); Spell v.

United States, 907 F.2d 36, 39 (4th Cir. 1990). For the court

to enforce the summons the Government must have established a prima facie case by showing: (1) ‘‘the investigation

will be conducted pursuant to a legitimate purpose’’; (2) ‘‘the

inquiry may be relevant to the purpose’’; (3) ‘‘the information

sought is not already within the [IRS’s] possession’’; and (4)

in issuing the summons ‘‘the administrative steps required by

the [tax] Code have been followed’’ by the IRS. United

States v. Powell, 379 U.S. 48, 57–58 (1964). This initial

burden, however, ‘‘is a slight one, for the statute must be read

broadly in order to ensure that the enforcement powers of the

IRS are not unduly restricted.’’ United States v. Kis, 658

F.2d 526, 536 (7th Cir. 1981); see Alphin v. United States,

809 F.2d 236, 238 (4th Cir. 1987) (burden ‘‘is fairly slight

because this is a summary proceeding’’).

The district court properly concluded that declarations in

which the IRS agents and officials responsible for the audit

attest to each of the four elements of the prima facie case

discharged the slight burden placed upon the IRS. See Kis,

658 F.2d at 536 (‘‘No more than [such affidavits are] necessary to make the prima facie case’’). It then fell to Judicial

Watch to ‘‘disprove the actual existence of a valid civil tax

determination or collection purpose’’ by showing the enforcement of the summons would be an abuse of the court’s

process. United States v. LaSalle Nat’l Bank, 437 U.S. 298,

316 (1978). The court’s process would be abused ‘‘if the

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summons [was] issued for an improper purpose, such as to

harass the taxpayer.’’ Powell, 379 U.S. at 58.

Judicial Watch argues the timing of the audit, coming

shortly after Judicial Watch had sued the IRS and immediately after Judicial Watch had issued its report on impeachment, demonstrates the retaliatory motive behind the audit.

This post hoc, ergo propter hoc argument would be fallacious

even if it were consistent with that. The IRS decided to

audit Judicial Watch in December 1997, six months before

Judicial Watch filed suit against the IRS and nine months

before it accused President Clinton of impeachable offenses.

Judicial Watch also argues the political motivation for the

audit is shown by two statements an IRS agent made to the

taxpayer’s counsel early in 2000, both of which Judicial Watch

characterizes as ‘‘warnings’’ that the organization was still on

the Service’s ‘‘radar screen.’’ Judicial Watch portrays these

statements as menacing solely because each ‘‘followed shortly

after important developments in Judicial Watch corruption

litigation against the Clinton Administration.’’ The timing

point does not deserve a further response. There is nothing

nefarious, moreover, about a notice to counsel that a matter is

still pending; such notice is ordinarily a courtesy to the

taxpayer and is in no event suggestive of an abuse of government power.

Judicial Watch next argues the comments of several IRS

agents evidence an improper retaliatory motive. According

to the taxpayer, one agent said the audit was a ‘‘hot potato,’’

and another rhetorically asked, ‘‘What do you expect when

you sue the President?’’ Such expressions of opinion by front

line revenue agents are of no moment. If there was an

improper motive for initiating the audit, then that motive has

to have been harbored by a person or persons with authority

to initiate it. Two independent investigations by the TIGTA

turned up no evidence that the Clinton Administration or any

political appointee at the IRS used the audit process to

retaliate against Judicial Watch. More important, Judicial

Watch proffers no evidence they did.

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Judicial Watch does proffer two pages of notes written by

James Carville, a political advisor to President Clinton, and

letters and e-mails from members of the public that were

forwarded to the IRS by the White House and by Democrats

in the Congress. None of these communications, however,

suggests the ‘‘[i]mproper political pressure’’ Judicial Watch

claims. The Carville notes do not so much as mention the

IRS, an audit, or Judicial Watch; although they do suggest

Democrats should make known ‘‘how right-wing foundations

TTT provide funding for much of the Republican attack ‘machine,’ ’’ they primarily suggest establishing a ‘‘clearinghouse

for information which exposes the motives and methods behind Republican partisan attacks.’’ The letters and e-mails

forwarded by the White House and by Members of Congress

‘‘simply evidence constituent service, which our political system accepts and even applauds.’’ Rossotti, 317 F.3d at 406

n.2. Those forwarding the inquiries asked only that ‘‘appropriate action’’ be taken; they made no demand upon the IRS

either to audit Judicial Watch or to rescind its tax exemption.

Finally, Judicial Watch argues that even if the initiation of

the audit was legitimate, the later decisions of the IRS to

reinstate and to expand the audit were made solely ‘‘to punish

Judicial Watch for its advocacy and anti-corruption activities.’’

There simply are no facts, however, to support this assertion.

We agree with the district court, therefore: Judicial Watch

failed to show enforcing the summons would be an abuse of

the court’s process.

B. Discovery and an Evidentiary Hearing

Judicial Watch next claims it is entitled to discovery and to

an evidentiary hearing regarding the IRS’s motive for the

audit because it has ‘‘develop[ed] facts from which a court

might infer a possibility of some wrongful conduct by the

Government.’’ Kis, 658 F.2d at 540. In response the IRS,

quoting SEC v. McGoff, 647 F.2d 185, 194 (D.C. Cir. 1981),

characterizes Judicial Watch’s allegations as no more than

‘‘diffuse speculations [that] do not establish the exceptional

circumstances necessary to take this case out of the general

rule’’ against discovery when resisting enforcement of an

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administrative summons. We review the district court’s decision to deny Judicial Watch discovery and an evidentiary

hearing only for an abuse of discretion. See United States v.

Gertner, 65 F.3d 963, 969 (1st Cir. 1995) (decision ‘‘to withhold an evidentiary hearing in a summons enforcement proceeding’’ reversible ‘‘only if the appellant demonstrates an

abuse of the trial court’s substantial discretion’’); Brune v.

IRS, 861 F.2d 1284, 1288 (D.C. Cir. 1988) (district court’s

‘‘decision to allow or deny discovery is reviewable only for

abuse of discretion’’).

In this circuit discovery regarding the motivation for an

audit is permitted only when the movant has shown ‘‘extraordinary circumstances,’’ McGoff, 647 F.2d at 193, that take him

out of ‘‘the class of the ordinary taxpayer, whose efforts at

seeking discovery would, if allowed universally, obviously be

too burdensome’’ to the IRS. United States v. Fensterwald,

553 F.2d 231, 231–32 (D.C. Cir. 1977); see United States v.

Exxon Corp., 628 F.2d 70, 77 n.7 (D.C. Cir. 1980). Judicial

Watch has not established such ‘‘extraordinary circumstances.’’ Indeed, as we saw in Part II. A. above, it has not

established anything out of the ordinary about the motivation

of the IRS.

Judicial Watch urges us to follow the Seventh Circuit in

requiring that it establish only the ‘‘possibility’’ of an improper motive before it may obtain further discovery. But that

would not avail it. What Judicial Watch calls the ‘‘possibility

standard,’’ the Seventh Circuit has explained, ‘‘is significantly

more stringent than [the standard that must be met by] a

party opposing a motion for summary judgment,’’ Kis, 658

F.2d at 543; that is, Judicial Watch would have to have

evidence sufficient to raise a genuine issue of fact material to

whether the audit is an act of political retaliation. Again as

we have seen, Judicial Watch has proffered no evidence of

that sort.

In any event, the district court did not merely, as Judicial

Watch states in bold type and italics, ‘‘refus[e] it all discovery and an evidentiary hearing.’’ Rather, the district court

itself required the IRS to produce affidavits, see Fensterwald,

553 F.2d at 232–33 (holding ‘‘the District Judge should allow

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some measure of discovery, preferably by specific interrogatories TTT or perhaps by an overall affidavit made by a TTT

responsible and knowledgeable official as to all relevant details of how taxpayer TTT was selected for this audit’’); the

court also required the IRS to produce ‘‘all documents relating to its motivation and purpose’’ for the audit — which

came to more than 1,000 pages — and it held a hearing at

which it heard arguments regarding the materials produced.

Although Judicial Watch was not allowed to propound its own

requests for further discovery, the decision whether to permit

party-directed discovery is within the sound discretion of the

district court. See id. at 233 (requiring only ‘‘discovery

procedures deemed appropriate by the district court’’). Nor

is Judicial Watch entitled to an evidentiary hearing at which

to cross-examine the various IRS agents and officials who

submitted sworn declarations at the request of the court. ‘‘If

the taxpayer cannot develop even the evidence necessary to

[suggest an audit was improper], then an evidentiary hearing

would be a waste of judicial time and resources.’’ Kis, 658

F.2d at 540. In sum, the district court did not abuse its

discretion in denying Judicial Watch further discovery and

another hearing.

C. Scope of the Summons

Judicial Watch also argues the summons, even as modified,

is excessive and overbroad because of the number of years

covered and the number of documents sought. Drawing upon

the declaration of former IRS Commissioner Donald Alexander, Judicial Watch claims ‘‘the scope of the documents and

information requested is unheard of and cannot be explained

by any legitimate tax enforcement objective.’’ The IRS argues in response that the modified summons is not overbroad

because it ‘‘clearly advised Judicial Watch what was required

of it’’ and sought documents that ‘‘clearly shed light on the

various issues under investigation’’ in the audit. We review

for abuse of discretion the district court’s determination the

summons was not overbroad. See Rogers Transp., Inc. v.

Stern, 763 F.2d 165, 167 n.2 (3d Cir. 1985); United States v.

Malnik, 489 F.2d 682, 686 n.4 (5th Cir. 1974); United States

v. Ruggiero, 425 F.2d 1069, 1071 (9th Cir. 1970) (per curiam).

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Although the IRS seeks records spanning a number of

years and regarding a number of subjects, see p. 5 n.* above,

the summons is not overbroad. Section 7602 grants ‘‘broad

and expansive’’ authority to the IRS to summon documents

from taxpayers, United States v. Bichara, 826 F.2d 1037, 1039

(11th Cir. 1987), provided the documents ‘‘may be relevant or

material’’ to the inquiry of the IRS, United States v. Arthur

Young & Co., 465 U.S. 805, 814 (1985) (use of ‘‘ ‘may be’

reflects Congress’s express intention to allow the IRS to

obtain items of even potential relevance to an ongoing investigation’’) (emphasis in original). The relevance threshold is ‘‘a

low one,’’ and the Government need show only ‘‘that inspection of the desired records ‘might throw light’ upon the

correctness of the taxpayer’s return and liabilities.’’ Kis, 658

F.2d at 537 (quoting United States v. Turner, 480 F.2d 272,

279 (7th Cir. 1973)). Here, each type of document sought

‘‘throw[s] light’’ upon whether Judicial Watch is entitled to its

tax-exemption. In particular, the documents are relevant to

whether Judicial Watch: is entitled to tax-exempt status

either as a private foundation or as a public interest law firm;

provides a private benefit either to Larry Klayman or to his

law firm; or earns unrelated business income upon which it

must pay taxes — either from its relationship with Larry

Klayman and Associates or from its sale of merchandise over

the internet.

That the records sought are ‘‘extensive is not material’’ so

long as the records are relevant to the matters at issue in the

audit. United States v. Luther, 481 F.2d 429, 433 (9th Cir.

1973); see Spell, 907 F.2d at 39 (rejecting taxpayer’s claim

summons posed ‘‘burden of significant proportions’’ where

summoned records were relevant to ‘‘legitimate purpose of

determining the correctness of his tax returns’’). Therefore,

the district court did not abuse its discretion in holding the

summons was not overbroad.

D. Constitutional Challenges

Finally, Judicial Watch argues the audit, the summons, or

both violate the First, Fourth, and Fifth Amendments. None

of these constitutional claims is meritorious.

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1. First Amendment

Judicial Watch argues the audit and the summons violate

the First Amendment for two reasons, the first of which is

that the IRS initiated the audit in retaliation for Judicial

Watch’s exercise of its first amendment rights of speech and

of association. As we have seen, however, Judicial Watch has

failed to establish the factual predicate for this argument.

The second argument is that enforcement of the IRS’s

request for the names of all donors who contributed more

than $3,000 to Judicial Watch will chill the exercise of its

supporters’ and potential donors’ first amendment rights

because they will reasonably fear the IRS will audit them

individually, for which proposition it cites United States v.

Church of World Peace, 775 F.2d 265, 266–67 (10th Cir. 1985)

(denying IRS request for names of persons married by

church on ground of chill to first amendment right of religious

freedom). Judicial Watch, however, proffers no evidence

remotely like the unchallenged affidavits the taxpayer submitted in Church of World Peace. In that case, it was undisputed that each ‘‘member known to the IRS has had his or her

income tax return audited, and that the additional names are

requested [by the IRS] for that purpose.’’ Id. at 266. Although Mr. Klayman claims ‘‘[s]upporters who are potential

donors frequently ask TTT whether they will be audited if

they make a donation,’’ a general fear of the IRS is insufficient to establish that speech will be chilled. See United

States v. Northcutt, 680 F.2d 54, 56 (8th Cir. 1982) (‘‘generalized dread, undoubtedly shared by many taxpayers, of investigation by the IRS’’ held insufficient to establish first amendment violation). Nor is it significant, without more, that

‘‘several’’ Judicial Watch ‘‘clients, donors, and others sympathetic to its mission’’ have been audited. For all the evidence

in the record, that could be fewer audits than one would

expect among the same number of taxpayers chosen at random. Therefore, unlike the taxpayer in Church of World

Peace, Judicial Watch has not produced sufficient evidence to

support its allegation that enforcement of the summons will

chill its members’ speech.

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2. Fourth Amendment

Judicial Watch’s fourth amendment claim is based upon its

argument the summons is excessive and overbroad. A summons is not overbroad for the purpose of the Fourth Amendment ban on ‘‘unreasonable searches and seizures’’ if the

inquiry is ‘‘within the authority of the agency, the demand is

not too indefinite[,] and the information sought is reasonably

relevant.’’ United States v. Morton Salt Co., 338 U.S. 632,

652–53 (1950); see Oklahoma Press Pub. Co. v. Walling, 327

U.S. 186, 209 (1946). As stated in Part II. C., the summons

seeks documents ‘‘reasonably relevant’’ to the audit and is

neither overbroad nor excessive to the investigation of Judicial Watch’s tax-exempt status. Furthermore, there is no

dispute the summons, as modified, described the requested

documents ‘‘with sufficient particularity’’ to enable Judicial

Watch to comply. United States v. Linsteadt, 724 F.2d 480,

483 (5th Cir. 1984). Therefore, Judicial Watch’s fourth

amendment claim must fail.

3. Fifth Amendment

Finally, Judicial Watch contends the IRS is violating its

fifth amendment rights to equal protection and due process

by ‘‘selectively prosecuting’’ it ‘‘on constitutionally impermissible grounds,’’ namely, ‘‘retaliation for protected speech.’’

These claims, too, depend upon the IRS having a retaliatory

motive for the audit, which Judicial Watch has failed to

establish.

III. Conclusion

For the foregoing reasons, the order of the district court is

Affirmed.

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