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

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. 501(c)(4) organizations are required by the statute to be operated exclusively for the promotion of social welfare, and are allowed to focus on "civic betterment" and civic activities, including those in the political realm. They are allowed but limited in the amount of direct involvement in specific legislation and election activity. 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.

On January 21, 2010, the U.S. Supreme Court decided Citizens United v. Federal Election Commission, which overturned many previous restrictions on political campaign spending. By March of that year, some members of Congress had pressured the IRS to investigate the legitimacy of the tax-exempt status of some conservative organizations which took advantage of the newly-relaxed rules to engage in campaign activities. At that time, leading members of Congress not only were aware that the Internal Revenue Service had begun investigating the political activity of would-be 501(c)(4) Tea Party groups that winter, but were actively putting pressure on the agency to take a closer look at tax-exempt conservative organizations in the wake of the Supreme Court's Citizens United ruling.

Controversial "intensive scrutiny" of political groups

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. In May 2010, some employees of the "Determinations Unit" of the Cincinnati office of the IRS, which was tasked with reviewing applications from non-profit groups, began developing a spreadsheet that became known as the "Be On The Lookout" list. This list, first distributed in August 2010, suggested intensive scrutiny of applicants with names related to the Tea Party movement and other conservative causes. By June 2011, the criteria also included names such as "patriot" and "9/12." Eventually, 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:

• referenced words such as "Tea Party," "Patriots" or "9/12 Project" in the case file;
• outlined issues in the application that included government spending, government debt or taxes;
• do advocating or lobbying to "make America a better place to live";
• had statements in the case file that criticize how the country is being run;
• advocated education about the Constitution and the Bill of Rights;
• were focused on challenging the Affordable Care Act — known by many as Obamacare;
• questioned the integrity of federal elections.

For a 27-month period that began in February 2010, the IRS did not approve any Tea Party organizations that had submitted applications. During that same time period, numerous liberal organizations with names including words such as “progress” or “progressive” did receive approval. However, several liberal organizations were also targeted for increased scrutiny by IRS officials with the same letter sent to many Tea Party groups, leading to an organization called Emerge America being denied tax-exempt status for alleged election spending concerns.

Flagged organizations were required to provide further documentation that Rep. Bill Flores said was "overreaching and impossible to comply with" Documentation requested varied between different groups but, in some cases, included copies of “any contracts” or “training material” the groups may have exchanged with Koch foundations. Some organizations were asked what books their members were reading, as well as what they had posted on social networking websites, according to Politico. Organizations were informed that if they did not provide the information sought, they would not be certified as tax-exempt.

One pro-life group said it was asked to "Please detail the content of the members of your organization's prayers.".

During the time period in which the applications were being scrutinized, the Cincinnati office of the IRS violated policy by releasing nine pending applications from conservative groups to ProPublica, an investigative reporting organization. Pending applications are confidential and may not be released. ProPublica had made a records request to the office seeking only completed applications, which are public information.

An IRS watchdog report found that some IRS employees were “ignorant about tax laws, defiant of their supervisors, and blind to the appearance of impropriety.”

When Media Trackers, a conservative organization, applied to the IRS for non-profit status, after waiting 16 months, it received no response. When the organization's founder reapplied with what he said was a "liberal-sounding name" ("Greenhouse Solutions"), the re-application was approved in just three weeks.

2012 Congressional investigation and denials

Republicans had been concerned about politically-motivated IRS actions as far back as October 2010, when Senators Orrin Hatch and Jon Kyl wrote to the IRS concerning a review of political activities that had been requested by Senator Max Baucus, saying that such action could “chill the legitimate exercise of First Amendment rights”.

The alleged misconduct began when the IRS was under the leadership of Douglas H. Shulman, who was appointed by George W. Bush in March 2008 and retained by the Obama administration. Steven T. Miller served as deputy commissioner for services and enforcement. At least as early as mid-2011, higher-ranking IRS officials knew that conservative groups primarily were being targeted.

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

After Shulman denied that the IRS was unfairly targeting conservative groups, the congressional committee ended the investigation. Shulman resigned his post in late 2012, before the scandal came to light.

2013 Exposure and Treasury Inspector General investigation

In early May 2013, the Treasury Inspector General for Tax Administration released a report confirming the targetings to congressional investigators.

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. Inspector General report showed that Lerner herself had been informed of the targeting at a meeting that she had attended on June 29, 2011.

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 called 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 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.

On May 14, 2013, the Daily Caller reported that White House press secretary Jay Carney and President Obama had conflicting accounts of when the White House had been told about this. While Carney stated that the White House had been informed "several weeks ago," President Obama said "I first learned about it from the same news reports that I think most people learned about this. I think it was on Friday."

Also on 14 May 2013, 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 May 14, 2013, the report (without appendices) was released to the public on the IRS web site. The next day, the full report (dated the previous day) was released.

Further investigations

On 15 May IRS sources reported that the inspector general's office is conducting a new investigation. As part of this, IRS employees in the Tax Exempt Government Entity group received an email warning them "URGENT: Do not wipe laptops/desktops". The investigation involves "copying every hard drive in TEGE across the IRS [in order to preserve] all the data on every hard drive that TEGE employees use."

On 15 May 2013 the House Oversight Committee requested that Holly Paz, John Shafer, Gary Muther, Liz Hofacre and Joseph Herraz be interviewed beginning 20 May 2013.

Reaction

On May 14 and 15, several Senators and Congressmen called for acting commissioner of the IRS, Acting Commissioner Steven T. Miller, and Lois Lerner, who runs the IRS's section on tax-exempt organizations, to resign.

Later in the day on May 15, 2013 Miller announced his resignation, to be effective early June.

On 16 May 2013 Sen. Rand Paul (R-KY) offered a resolution "Expressing the sense of the Senate condemning the targeting of Tea Party groups by the Internal Revenue Service and calling for an investigation".

Michael Macleod-Ball, chief of staff at the ACLU’s Washington Legislative Office, said, "Even the appearance of playing partisan politics with the tax code is about as constitutionally troubling as it gets. With the recent push to grant federal agencies broad new powers to mandate donor disclosure for advocacy groups on both the left and the right, there must be clear checks in place to prevent this from ever happening again."

U.S. Senator Claire McCaskill (D-Missouri) said, "We should not only fire the head of the IRS, which has occurred, but we’ve got to go down the line and find every single person who had anything to do with this and make sure that they are removed from the IRS and the word goes out that this is unacceptable."

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.