Tag Archives | IRS

House Democrat to Challenge IRS Tax-Exemption Rules

The Washington Post reports that Rep. Chris Van Hollen (D-MD) will file suit today against the Internal Revenue Service’s regulations governing what organizations qualify for tax exempt status.

Current law says the organizations must engage “exclusively” in social welfare activities, but IRS tax code requires only that they are “primarily engaged” in such purposes. That discrepancy has led to confusion for application processors, who have struggled to determine what constitutes political activity and how much should disqualify groups from tax-exemption, according to agency officials.

“I don’t think the IRS should be in the business of determining whether the primary purpose of an organization is political or educational,” Van Hollen said in an interview Tuesday. “The statute is very clear they should not be in that business.”

Dean Patterson, an IRS spokesman, declined to comment on the planned suit but noted that the agency’s 2013-2014 work plan, released on Aug. 9, calls for new guidance on determining of 501(c)(4) eligibility. . . .

Three campaign-finance watchdog groups — Democracy 21, the Campaign Legal Center and Public Citizen — are joining Van Hollen in the lawsuit. They have scheduled a joint teleconference Wednesday to discuss the legal action.

Hat tip: Rick Hasen.

[Note: It’s been a sloppy day. I accidentally identified Van Hollen with an “R” in the body of the post.  It’s fixed now.] [...]

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IG Finds Improper Access and Disclosure of Private Tax Records

Accounting Today reports:

Sen. Chuck Grassley, R-Iowa, the former chairman of the Senate Finance Committee, is looking into findings from the Treasury Inspector General for Tax Administration that the confidential tax records of political donors or candidates have been inappropriately accessed or disclosed in several instances since 2006 and asking why the Justice Department has declined to prosecute the perpetrators.

The inappropriate access most likely occurred at the IRS, Grassley’s office noted, but since TIGTA did not name the specific agency, another entity or entities, such as a state tax office with access to federal tax records, could be involved. TIGTA is withholding details of the agencies involved and the names of the candidates and donors because of taxpayer confidentiality laws.

The inspector general found one case of access “willful” and sought Justice Department prosecution, Grassley’s office noted, but the Justice Department declined to prosecute. Grassley is asking the Justice Department for an explanation of the decision not to prosecute.

The story notes that the IG did not disclose the identity, or political affiliation, of those whose records were improperly accessed or leaked, and it should not matter. There should be a zero-tolerance policy for this sort of thing.

(Hat tip: Paul Caron) [...]

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IRS Chief Confirms Targeting of Tea Party Groups

Do recent reports and releases show that “progressive” groups received the same level of scrutiny as “Tea Party” and other conservative groups? No. CNN reports:

The acting head of the Internal Revenue Service said Thursday that evidence so far shows only conservative groups underwent extra scrutiny cited by an inspector general’s disclosure of the agency’s targeting of applications for tax exempt status. . . .

IRS screeners used conservative-themed criteria such as “tea party” on “Be on the Lookout” or BOLO lists to determine if groups underwent further review for political activity that would make them ineligible, according to Werfel and the inspector general who first revealed the targeting.

Another category of the BOLO lists also had liberal-themed criteria including “progressives,” but that category didn’t set off the automatic extra scrutiny for political activity faced by conservative groups, according to a letter to the panel this week by Treasury Inspector General for Tax Administration J. Russell George.

Under tough questioning Thursday at a House Ways and Means Committee hearing, Werfel acknowledged that the different BOLO categories meant liberal groups avoided the extra scrutiny cited by the inspector general . . .

The Treasury Department’s Inspector General also responded forcefully to claims that the investigation was artificially narrow of may have overlooked IRS targeting of progressive groups during the time period covered by the audit. In a letter to Representative Sander Levin, the ranking Democrat on the House Ways and Means Committee, the IG wrote:

Based on the information you flagged regarding the existence of a “Progressives” entry on BOLO lists, TIGTA performed additional research which determined that six tax-exempt applications filed between May 2010 and May 2012 having the words “progress” or “progressive” in their names were included in the 298 cases the IRS identified as potential political

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IRS Scandal Still a Scandal (But Still Not “Watergate”)

New revelations about the conduct of Internal Revenue Service (IRS) officials continues to trickle out. Paul Caron’s latest compilation is here. Some of these revelations are significant, but none of them contradict the account of the Inspector General’s report. Recently disclosed documents show that some BOLO (“Be on the Lookout”) documents called on IRS officials to flag groups based on the use of words like “progressive” or “Israel.” Yet these BOLO flags were largely limited “http://www.nationalreview.com/node/351718/print”limited to groups seeking 501(c)(3) status (whereas the “Tea Party” flagging occurred with (c)(4) applications), and these BOLO documents don’t call for the same degree of scrutiny. The distinction matters because (c)(3) organizations are subject to more stringent limitations on political activity than (c)(4) groups. This would justify greater scrutiny of the former than the latter, and if the IRS was more even-handed with its review of (c)(3)s that would be a good thing. Why wasn’t this other information in the IG report? Perhaps because the IG was asked to look at the treatment of groups applying for (c)(4) status, and because the IG only conducted an audit, and not a full investigation. The scope of IG reports (like GAO reports) is often limited by the nature of the initial request.

As for whether the scandal can be attributed to the actions of a few “rogue” employees in Cincinnati, new revelations add some context and nuance, but don’t really change the bottom line here either. As Eliana Johnson has reported, the various interview transcripts with IRS officials show that some of the initial reviews were initiated in the Cincinnati office, but also show that there was a fair degree of D.C. involvement and oversight when it came to “Tea Party” groups. In sum, they don’t undermine the basic claims that Tea Party [...]

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Political Contributions by Government Lawyers

Paul Caron notes data gathered by Robert Anderson showing that lawyers working for various federal agencies were far more likely to contribute to Democrats than to Republicans in the 2012 election cycle. in some agencies the disparity is quite extreme — much like what one finds on many college campuses. This is not particularly surprising in that Democrats are, on the whole, more supportive of the work of many federal agencies than are Republicans.

The data Anderson compiled is interesting, but it’s also incomplete. While he reports on the absolute number of attorneys in various agencies that made political contributions large enough to be reported to the Federal Election Commission, he has no data on smaller contributions and he does not report on whether those making contributions constitute a significant portion of an agency’s attorneys. Given that he reports on dozens of political contributors, when the federal government employs tens of thousands of attorneys, I suspect that only a small proportion of attorneys in most agencies are giving significant contributions to either party.

Take the IRS. Anderson reports that 38 of the 40 IRS attorneys who made political contributions in 2012 contributed to Democrats. Does this mean IRS attorneys lean to the left? They might, but without knowing how many attorneys work in the IRS, one cannot jump to this conclusion. Given that the IRS employs some 100,000 people, a non-trivial number of which are likely to be attorneys, I would not be surprised to learn that a relatively small percentage of IRS employees give political donations to candidates of any party. So it may well be true that IRS attorneys are more sympathetic to Democrats, but Anderson’s data do not prove the point. [...]

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A Month of IRS Scandal

As he has for the past 30 days, Paul Caron rounds up the latest on the IRS scandal.  Among the key developments are claims by IRS employees in the Cincinnati office suggesting D.C. involvement in the targeting of conservative groups and renewed allegations that an IRS employee released confidential tax information of a conservative group.  Meanwhile, the IRS has been further embarrassed by reports of lavish conferences, including one in 2010 that cost over $4 million. [...]

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Huffington Post Live Discussion on the IRS and Political Profiling

Today between 4:30 and 5 PM, I will be participating in a Huffington Post Live discussion on the use of political profiling by the IRS. You can watch it live here. I will also be drawing connections between this issue and the question of racial profiling, a parallel I discussed in this post.

UPDATE: You can now watch the video of the HuffPost discussion here. [...]

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Political Profiling and Racial Profiling

Slate columnist Farhad Manjoo has an interesting article arguing that conservatives are right to complain about the IRS’ use of political profiling, but argues that they should use the same reasoning to rethink their support for racial profiling in law enforcement. As he points out the IRS justification for political profiling is very similar to standard arguments for racial profiling in combatting terrorism and crime:

Pretend you work at the Internal Revenue Service… Every day, a big stack of files lands on your desk…. Each file represents a new application for a certain tax status—501(c)(4), a tax-exempt designation meant for “social welfare” organizations. Nonprofits with this status aren’t required to disclose the identity of their donors and they’re allowed to lobby legislative officials. The catch is that they must limit their political campaign activity….

It’s your job to decide which 501(c)(4) applications represent legitimate social-welfare organizations, and which ones are from groups trying to hide their campaign activities. What’s more, you’ve got to sort the good from the bad very quickly, as you’re being inundated with applications….

So what do you do? You look for a shortcut. Someone at your office notices that a lot of the applications for 501(c)(4) status are from groups that claim to be part of the burgeoning Tea Party movement. Aha! When you’re looking for signs of political activity, wouldn’t it make sense to search for criteria related to the largest new political movement of our times? So that’s what you do…

[T]here’s a name for the kind of shortcut that the IRS’s Cincinnati office used to pick out applications for greater scrutiny: “profiling.” By using superficial characteristics—groups’ names or mission statements—to determine whether they should be subject to deeper investigation, the IRS was acting like the TSA agent who pulls aside the guy in

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IRS Attorney to Take the Fifth

Via John Steele at Legal Ethics Forum comes news that Lois Lerner, the Internal Revenue Service official who oversees the tax-exempt office and who first disclosed her office’s targeting of Tea Party groups in response to a planted question at an ABA conference, will invoke her Fifth Amendment right against self-incrimination and refuse to testify before Congress.  Steele thinks Lerner is likely “smart” to take this step, but also suspects she and other IRS officials now wish they had played this issue differently.

In other IRS scandal-related news and commentary, Dave Weigel has a good piece explaining how and why agencies like the IRS are disproportionately staffed by those on the left side of the American political spectrum and, not coincidentally, are most likely to be unsympathetic to Tea Party types and others who call for shrinking the size and scope of the federal government.  As a consequence, there need not have been any orders from above, just as the EPA Administrator need not be responsible for, or even aware that, the EPA is more solicitous of environmentalists than anti-regulatory types in considering FOIA fee waiver applications.  Bureaucrats are people too, and are no less likely to be influenced by their own cognitive biases.  Peter Suderman adds that the real reason the IRS targeted Tea Party groups is that it could.  In other words, this is a problem of government power, not a given official’s particular ideological agenda.

As always, for those who want more, Paul Caron is rounding up coverage and commentary on the TaxProf blog.


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IRS Disclosure Was Planted

From the moment of the initial disclosure of IRS targeting of conservative groups, observers have speculated about the timing and location of the disclosure. Could this really have been an unplanned, impromptu remark? No. In fact, the question was planted and Lois Lerner’s statement was pre-planned. As additional information trickles it out, it is also becoming clearer that the actions at issue were more widespread, and more widely known within the agency, than initially suggested. Lerner herself sent at least one letter to a Tea Party group seeking additional information, and many of her initial claims don’t stand up to scrutiny. It’s no wonder Lerner has yet to agree to testify before Congress (though I doubt she’ll have much choice in the matter for long).

UPDATE: Was the decision to target Tea Party groups an understandable (if unwise) response to a surge in applications for 501(c)(4) status? Not according to this report in The Chronicle of Philanthropy.

Top IRS officials have been saying that a “significant increase” in applications from advocacy groups seeking tax-exempt status spurred its Cincinnati office in 2010 to filter those requests by using such politically loaded phrases as “Tea Party,” “patriots,” and “9/12.” . . .

The scrutiny began, however, in March 2010, before an uptick could have been observed, according to data contained in the audit released Tuesday from the Treasury Department’s inspector general for tax administration. . . .

The audit says the IRS began to use “inappropriate criteria” to single out applications in March 2010. By April 2010, a “sensitive case report” was issued on “Tea Party cases,” indicating that managers in Cincinnati were aware of the sensitive nature of the reviews.

According to the audit, 1,735 groups applied for 501(c)(4) exemption for the federal fiscal year that ended September

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Overreaching on the IRS Scandal

The targeting of Tea Party and other right-leaning groups by the IRS is a major scandal. Yet, as Walter Olson notes, some of the Administration’s critics have gone a bit overboard trying to tie the scandal to the White House.

It’s one thing to note the lopsided political contributions of IRS employees, including those in the relevant office (as reported by Tim Carney). It is quite another to try and tar some of the officials involved because of alleged political ties of their spouses simply because they work at a major law firm and the firm (or its partners) made political contributions to the President or anyone else. Making such charges, as Olson notes, amounts to “firing blanks.” [...]

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No, the IRS Is Not an “Independent Agency”

Responding to press questions about the IRS scandal, White House spokesperson Jay Carney claimed that the IRS is an “independent agency.” At the Federalist Society’s new Executive Branch Review blog, former Assistant Attorney General Eileen O’Connor, who oversaw the Justice Department’s Tax Division, explains that Carney was quite wrong on this point.

Most Executive Branch departments are headed by a Cabinet Secretary (except for the Department of Justice, which is headed by the Attorney General of the United States) who is nominated by the President and confirmed by the Senate. Within the Departments are agencies that carry out the various responsibilities of the Department. They, too, are headed by Senate-confirmed Presidential appointees. An “independent agency” is an agency of the federal government that is not part of an Executive Branch department. These are generally boards and commissions, like the National Labor Relations Board and the Federal Communications Commission.

But just as the Federal Bureau of Investigation is part of the Department of Justice, the Internal Revenue Service is part of the Department of Treasury. As with other federal agencies, each is headed by a Senate-confirmed Presidential appointee. Neither of these is an “independent agency.”

Ammon Simon offers more on this point here.

Not only is the IRS not an “independent” agency, but it appears that the substantial bonuses received by the head of the IRS tax-exempt division when the targeting of conservative groups occurred would have been approved by the White House because they exceeded $25,000. This official is now in charge of the IRS’ Affordable Care Act office. [...]

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President Calls IRS Conduct “Inexcusable”

President Obama harshly condemned the apparent politicization of the IRS today and announced the resignation of Acting IRS Commissioner Steve Miller. From the Washington Post:

In a furious statement at the White House, Obama said the IRS’s actions were “inexcusable and Americans are right to be angry about it and I’m angry about it.” He added, “I will not tolerate this type of behavior in any agency but especially the IRS given the power it has and the reach it has.”

Obama said Miller was asked to resign because the agency needs new leadership while it faces a broad probe of its conduct. Obama also said he would seek to put in place new safeguards to prevent the targeting from happening again.

CNN reports some Administration sources are blaming the conduct on two “rogue” IRS employees. In the meantime, USA Today reports that progressive political groups seeking 501(c)(4) statussailed through the IRS review process as tea Party groups were stalled.

Improper political conduct at the IRS may not be all that new, according to James Bovard. In a WSJ op-ed he discusses past IRS misconduct and notes the agency’s history of avoiding careful scrutiny. [...]

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The Media Push for IRS Action Against Pro-Israel Groups

In addition to the IRS’s particular interest in right-wing groups focussed on domestic policy, it has taken an unusual interest in right-wing pro-Israel groups. (I am friends with the leader of the group written about in the link.)

One major question raised by the IRS scandal is where these ideas came from. At least as far as Jewish groups go, the IRS scrutiny is not a fluke. That is not to suggest it was ordered by the White House – that is highly unlikely. At the same time, it certainly does not come out of the blue. The past several years have seen a concerted campaign in the mainstream liberal press to bring the IRS down upon certain pro-Israel groups, particularly those that support activities in the West Bank (or the Territories Formerly Occupied By Jordan).

For example, in 2009 David Ignatius had a story in the Washington Post, A Tax Break Fuels Middle East Friction. “Critics of Israeli settlements question why American taxpayers are supporting indirectly, through the exempt contributions, a process that the government condemns,” he wrote. The Guardian in 2009 also had a piece calling for IRS action.

In 2010, the New York Times continued the theme with a massive, expose-style front page story, which concluded that while such tax breaks do not seem to be exactly illegal, it creates :a surprising juxtaposition: As the American government seeks to end the four-decade Jewish settlement enterprise and foster a Palestinian state in the West Bank, the American Treasury helps sustain the settlements through tax breaks on donations to support them.” The article then tried to raise questions about whether such groups really satisfied U.S. tax-deductible requirements, suggesting the IRS should look into them. The activities the supported, the Times article suggests, were illegal and extremist.

Picking [...]

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