IRS targeting controversy

See also: Political profiling at the Internal Revenue Service

In May 2013, the U.S. Internal Revenue Service (IRS) revealed that it targeted certain conservative groups for closer scrutiny. This led to both political and public condemnation of the agency and triggered further investigations.

Background: IRS criteria and requirements

Under the United States federal law Section 501(c)4 of the Internal Revenue Code (26 U.S.C. § 501(c), certain types of organizations, or nonprofits, are exempt from some federal income taxes. C4 organizations are allowed to focus on "civic betterment" and civic activities, including in the political realm. They are allowed but limited in the amount of direct involvement in specific legislation. In practice, IRS regulations traditionally applied a more relaxed standard, namely, that an organization exempt under IRC 501(c)(4) may engage in political campaign activities if those activities are not the organization's primary activity.

Description

Beginning in March 2010, the IRS more closely scrutinized certain organizations applying for tax-exempt status as not-for-profit organizations by focusing on groups with certain words in their names. IRS employees in at least Cincinnati, Ohio, El Monte, California, Laguna Niguel, California, and Washington, D.C. flagged applications for closer scrutiny from organizations that

• included words like "tea party" or "patriot" in their names
• "criticized how the country is run."
• were focused on challenging the Affordable Care Act — known by many as Obamacare
• questioned the integrity of federal elections.
• supported Israel

Flagged organizations had their applications delayed for up to 27 months, and/or were required to provide further documentation that was "overreaching and impossible to comply with" . Documentation requested varied between different groups but included:

• Resumes for all directors, officers, and key employees
• Estimated future budgets for several years
• Full copies of all web pages, including internal members-only pages
• Plans by any officers, employees, or family members of officers or employees to run for public office in the future
• Copies of every letter ever sent by the organizations to legislators
• A description of the organization’s "religious belief system towards the land of Israel"
• copies of “any contracts” or “training material” the groups may have exchanged with Koch foundations.

Organizations were informed that if they did not provide this information, they would not be certified as tax exempt.

While conservative organizations were delayed or burdened with extra reporting requirements, comparable liberal organizations that also focused on activities like "citizen participation" or "voter education and registration" had their applications approved in much shorter time periods:

As applications from conservative groups sat in limbo, groups with liberal-sounding names had their applications approved in as little as nine months. With names including words like "Progress" or "Progressive," the liberal groups applied for the same tax status and were engaged in the same kinds of activities as the conservative groups

Early investigation and denials

At least as early as mid-2011, higher-ranking IRS officials knew that conservative groups primarily were being targeted.

On 4 August 2011, the chief counsel of the IRS met with the agency's Rulings and Agreements unit "so that everyone would have the latest information on the issue."

By March 2012 the issue was enough in the public eye that the New York Times editorialized that

Taxpayers should be encouraged by complaints from Tea Party chapters applying for nonprofit tax status

Targeted groups complained to various members of Congress. In response, a congressional committee asked then-IRS Commissioner Douglas Shulman about the allegations in 2012. Shulman told the committee that the agency wasn't targeting conservative groups.

In November 2012, according to investigative website ProPublica, "the same IRS office that deliberately targeted conservative groups applying for tax-exempt status in the run-up to the 2012 election released nine pending confidential applications of conservative groups".

Exposure and investigation

In early May 2013, the Treasury Inspector General for Tax Administration released a report confirming the targetings to congressional investigators but not to the public.

On 10 May 2013, Lois Lerner, head of the IRS tax-exempt-organizations division, said the agency was "apologetic" for what she termed "absolutely inappropriate" actions. She asserted that the targeting had not been centrally planned and had been done by lower-level "front line people" in the Cincinnati office. Media reports soon revealed that IRS officials in two other regional offices had also been involved in targeting conservative groups and that the activity had been overseen by a task force in Washington DC.

On 11 May 2013, Politico reported that the internal report would be released to the public shortly.

On 12 May 2013, some Republican lawmakers called for a full investigation of the Internal Revenue Service. President Obama and Senator Dianne Feinstein (D-CA) also raised concerns over the IRS' actions and White House Press Secretary Jay Carney calling the actions "inappropriate.".

On 13 May 2013, the Washington Post reported that Marcus Owens, head of the IRS department examining tax-exempt groups in 1990-1999, said that the IRS routinely categorized similar groups which sought the status of social welfare organizations.

At a 13 May 2013 press conference, President Obama called the charges "outrageous," if true, and said that anyone found to be responsible for such actions should be held accountable.

Also on 13 May 2013, ProPublica reported that the same IRS office responsible for the targeting, was also responsible for the release of documentation and confidential applications that were pending approval relating to conservative tax exempt organizations. Other groups not with the terms "Tea Party" and "Patriot", such as Crossroads GPS, Citizen Awareness Project, the YG Network, SecureAmericaNow.org, Freedom Path, Rightchange.com II, America Is Not Stupid, A Better America Now, and Americans for Responsible Leadership, were also targeted with excess scrutiny.

On 14 May 2013, the Washington Post reported Attorney General Eric Holder had begun an investigation into whether the activities amounted to criminal behavior.

Also on 14 May 2013, the President Obama released a statement saying that "The IRS must apply the law in a fair and impartial way, and its employees must act with utmost integrity. This report shows that some of its employees failed that test."

On 15 May 2013 the full report (dated the previous day) was released: Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review.

The Treasury Inspector General For Tax Administration's Report

The highlights section of the report read, in part:

INAPPROPRIATE CRITERIA WERE USED TO IDENTIFY TAX-EXEMPT APPLICATIONS FOR REVIEW

Final Report issued on May 14, 2013 Highlights of Reference Number: 2013-10-053 to the Internal Revenue Service Acting Commissioner, Tax Exempt and Government Entities Division.

IMPACT ON TAXPAYERS

Early in Calendar Year 2010, the IRS began using inappropriate criteria to identify organizations applying for tax-exempt status to review for indications of significant political campaign intervention. Although the IRS has taken some action, it will need to do more so that the public has reasonable assurance that applications are processed without unreasonable delay in a fair and impartial manner in the future.

WHY TIGTA DID THE AUDIT

TIGTA initiated this audit based on concerns expressed by members of Congress. The overall objective of this audit was to determine whether allegations were founded that the IRS: 1) targeted specific groups applying for tax-exempt status, 2) delayed processing of targeted groups’ applications, and 3) requested unnecessary information from targeted groups.

WHAT TIGTA FOUND

The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention. Ineffective management: 1) allowed inappropriate criteria to be developed and stay in place for more than 18 months, 2) resulted in substantial delays in processing certain applications, and 3) allowed unnecessary information requests to be issued. Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months. This was due to delays in receiving assistance from the Exempt Organizations function Headquarters office. For the 296 total political campaign intervention applications TIGTA reviewed as of December 17, 2012, 108 had been approved, 28 were withdrawn by the applicant, none had been denied, and 160 were open from 206 to 1,138 calendar days (some for more than three years and crossing two election cycles). More than 20 months after the initial case was identified, processing the cases began in earnest. Many organizations received requests for additional information from the IRS that included unnecessary, burdensome questions (e.g., lists of past and future donors). The IRS later informed some organizations that they did not need to provide previously requested information. IRS officials stated that any donor information received in response to a request from its Determinations Unit was later destroyed.

Further reading

• Treasury Inspector General for Tax Administration Michael McKenney (14 May 2013). "Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review" (PDF). ABC News. Department of the Treasury. Retrieved 14 May 2013.