Correction: An earlier version of this article incorrectly stated that Eric E. Hampl is the Treasury Department’s undersecretary for terrorism and financial intelligence. Hampl is director of Treasury’s executive office of asset forfeiture. This version has been corrected.
RICHMOND — Attorney General Ken Cuccinelli II (R) seemed to be spoiling for his next big fight with the federal government, announcing Wednesday morning that the Internal Revenue Service was refusing to pay $125 million owed to Virginia, possibly in retaliation for his legal battles with the Obama administration.
By afternoon, the Treasury Department had acknowledged in a letter that it owed more than $100 million to the commonwealth, that it was ready to turn over the first $10 million and that it would provide the rest once Cuccinelli’s office had answered a few questions about how it would be spent.
Cuccinelli’s gubernatorial campaign then trumpeted news that his use of the “bully pulpit” had led federal officials to agree to pay $115 million, a figure slightly higher than what was noted in the letter.
But a spokeswoman for Sen. Timothy M. Kaine (D-Va.), who, like other members of the state’s congressional delegation, have worked to resolve the matter, said the agreement did not come as a surprise to her office. “After working with the Department of Treasury on this issue for the last few weeks, our office was told last Friday that it was very likely a letter would be sent this week to the attorney general to resolve this issue,” Lily Adams said.
By early evening, Democrats were accusing Cuccinelli of using his office for a political stunt, noting that his gubernatorial campaign issued a fundraising letter on the matter just before 5 p.m., at least an hour after the Treasury letter had gone out.
“Months later, Virginia still has not seen a dime,” the letter said. “The money is sitting in Washington, D.C. waiting for the IRS to fill out a simple two-page form.”
Brian J. Gottstein, a spokesman for the attorney general, said Cuccinelli was fighting for the commonwealth. “The attorney general had been working for months behind the scenes to find a resolution with the federal government,” he said. “When the government decided to no longer respond to our e-mails and letters after April, the AG concluded the only way to motivate the feds was public pressure.”
Chris LaCivita, the Cuccinelli campaign strategist, denied the Democrats’ charge. “This is manufactured damage control from the IRS’s allies in Washington . . . the Democrat Party,” he wrote in an e-mail. “It’s no surprise that Terry McAuliffe or Tim Kaine would be defending the IRS.”
Cuccinelli is in a bitter fight with McAuliffe, a Democrat, to succeed Gov. Robert F. McDonnell (R). The attorney general called a morning news conference to announce that the IRS was refusing to release $125 million, part of the assets forfeited in a Medicaid fraud investigation that his office led. The case produced a $1.6 billion plea agreement with Abbott Laboratories for illegally promoting unapproved uses of its drug Depakote.
It was the second-largest Medicaid fraud settlement in U.S. history.
Cuccinelli said he had been seeking his office’s share of the proceeds for eight months without success. He blamed the IRS for holding up a payment that he said should have taken weeks or, at most, a couple of months to complete. But he also acknowledged that his office had not directly contacted the IRS, working instead through the state’s congressional delegation and the U.S. Treasury Department, which oversees the agency.
Cuccinelli said the Treasury Department had told his office that the IRS was refusing to complete paperwork needed to provide the payment.
IRS officials did not respond to a request to comment.
A Treasury spokesman declined to comment but directed a reporter to the department’s Wednesday letter to Cuccinelli’s office, which agreed that the money was due and suggested that the two offices had been in frequent communication on the subject. “As you noted, our offices have maintained, for quite some time, open dialogue and communication about the status of this record-high and potentially precedent-setting sharing request,” Eric E. Hampl, director of Treasury’s executive office of asset forfeiture, wrote to Virginia Deputy Attorney General John Childrey.
Cuccinelli was zeroing in on the IRS at a time when the agency is in turmoil over revelations that it targeted tea party organizations and other conservative groups, subjecting them to greater scrutiny when they applied for tax-exempt status.
A tea party hero who was the first attorney general in the nation to file a lawsuit over President Obama’s health-care reform law and who successfully sued the Environmental Protection Agency over storm-water regulations, Cuccinelli said his politics might be behind the delay.
“Needless to say, I’ve been on the other side of some issues from this administration,” he said.
Cuccinelli said he had no proof that he had been targeted, but he said that was a logical conclusion.
“There’s incompetence or there’s malevolence,” he said. “The level of incompetence here is so astoundingly high that it does become hard to believe that even a federal agency like the IRS is capable of that level of incompetence.”
Abbott forfeited the money in October after an investigation found that the pharmaceutical giant had promoted the drug, approved for epileptic seizures, migraines and mania, for the “off-label” purpose of sedating elderly nursing home patients. Virginia’s Medicaid Fraud Control Unit, which is part of the attorney general’s office, did 80 percent of the investigative work on the case, putting in more than 38,000 hours, Cuccinelli said.
Cuccinelli said at the news conference that his office had not directly contacted the IRS about the money. “We don’t have that option,” he said when asked why not.
When a reporter asked why he didn’t write a letter to the director of the IRS, Cuccinelli said, “Well, we know that the congressional reps have been talking to their office, and we thought that would be a more effective form of communication.”