IRS Targeting of Conservative Groups a Threat to Nonprofit Sector

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All individuals and groups should be treated equally under the law. In this case, that includes how their Form 1024 applications for tax-exempt recognition as 501(c)4 “social welfare” organizations are processed by the IRS. The integrity of the civil sector, including nonprofits of all kinds, depends on the IRS for even-handedness in approving applications for tax exemption. Lacking that, democracy and our sense of fair play are severely compromised, and even legitimately achieved social change will be scrutinized endlessly for its administrative backing or lack thereof. Given that, the admission on Friday by Lois Lerner, the Director of the Exempt Organizations Division of the Internal Revenue Service (IRS) at the American Bar Association’s Tax Section meeting was shocking.

In response to a question from the audience, Lerner admitted that the IRS had targeted applications for tax-exempt recognition for additional attention based in part on whether the organizations’ names included such words as “tea party” and “patriot.” She told the audience that inappropriate targeting was done by lower-level employees at the IRS’s Cincinnati office, which handles much of the IRS’s work related to nonprofit organizations. She apologized on behalf of the IRS for the activity, which, she assured the audience, had stopped.

That afternoon, in a hastily-called telephone news conference, Lerner said that the IRS noted a doubling in 501(c)4 applications between 2010 and 2012. Processing was centralized in the Cincinnati IRS office, Lerner said, to leverage knowledge and expertise. About 300 applications were selected for special scrutiny, and about one-quarter of those were selected using keywords indicating conservative political activity. (At one point during the conference call, she stumbled over the numbers associated with the story. In a very unfortunate quote for a senior IRS official, Lerner said, “I’m not good at math.”)

Lerner said the targeting was done by revenue agents, without managerial involvement. About half the cases singled out have been “closed,” and no group has “lost” tax-exempt recognition (no mention on how many were denied). About 20 groups out of the 300 withdrew their applications. According to CNN, Lerner initially said that no employee had been disciplined, but later corrected herself to say that she couldn’t say whether anyone had been disciplined.

Why the Admission and Why Now?

An investigation report by the Treasury Department’s Inspector General is expected as soon as this week, which may have been the reason that Lerner chose to address the issue on Friday. Investigations by the Treasury and the IRS were requested by a variety of Congressional committees, individual senators, and conservative interest groups after hearing in 2011 that Tea Party affiliates and other conservative groups seeking 501(c)4 recognition were being sent detailed questionnaires by the IRS. The questionnaires asked about political activity by individual members of the groups, sources of gifts and other financing, and even requested printouts of entire web sites and Facebook accounts.

The IRS had steadfastly denied that any targeting had occurred. Then-Commissioner Dennis Schulman testified at a March 22, 2012 hearing that, “There’s absolutely no targeting. This is the kind of back and forth that happens to people.” However, the Associated Press (AP) reports that a draft of the Treasury Inspector General’s report tells a different story. It asserts that Lerner knew in June 2011 that certain 501(c)4 applications were being targeted for additional inquiry based on “conservative-sounding” keywords, including “9/12 Project,” a term associated with talk radio host Glenn Beck.

Political Reactions

Even before Lerner finished her session at the ABA conference, the media had picked it up and political responses to it have continued through the weekend. Republican politicians have called for investigations and hearings. Senate Minority Leader Mitch McConnell (R-KY) called for the White House to conduct “a transparent, government-wide review aimed at assuring the American people that these thuggish practices are not underway at the IRS or elsewhere in the administration against anyone, regardless of their political views.” U.S. House Ways and Means Chairman Dave Camp (R-MI) will convene hearings to investigate and said, “The admission by the agency that it targeted American taxpayers based on politics is both shocking and disappointing.” U.S. Rep. Charles Boustany (R-LA), chair of the Oversight Subcommittee, sent a letter insisting the IRS provide copies to the House Ways and Means Committee of all correspondence containing the words “tea party,” “patriot,” or “conservative,” as well as the names and titles of any agency employees involved in delaying the approval of the applications in question. While fierce and immediate reaction from Republicans is to be expected, it is unfortunate that Democratic Congressional leaders have been almost silent to date on this affront to civil liberties.

White House spokesman Jay Carney said Friday that the activities were “inappropriate,” noted that the IRS is an independent agency, and that the President expects that the IRS will take action to correct any problems.

Media Reactions

In the media, the Washington Post’s editorial board said, “At this point, the IRS has lost any standing to determine and report on what exactly happened. Certainly, Congress will investigate, as House Majority Leader Eric Cantor (R-VA) promised. Mr. Obama also should guarantee an unimpeachably independent inquiry.” The Wall Street Journal’s editorial board said, “Just because you’re paranoid, doesn’t mean the IRS isn’t out to get you.” New York Times columnist Maureen Dowd agreed with this assessment. In a column about Benghazi, Dowd mentioned the IRS when she wrote: “(Though now that the IRS has confessed to targeting Tea Party groups, maybe some of the paranoia is justified.)” Mother Jones posted an article titled, “Finally, a Real Scandal for Conservatives to Chew On.”

Lerner indicates that 300 applications were selected, of which about 75 were selected for presumed conservative content in their names. Who were the other 225? Jewish Press asserts that pro-Israel groups may also have been targeted. The Jewish Press reporter was a leader of a pro-Israel group that filed a lawsuit against the IRS over its application, but the accusation is gaining credibility in some press reports simply because it becomes more credible in light of the IRS apology. Expect other groups with pending applications to come forward, many claiming discrimination based on political allegiances.

Finally, USA Today examined whether this issue will distract from other investigations of the IRS. There have been efforts in Congress to have the IRS expand its scrutiny of political activity by 501(c)4 groups, citing the more than $250 million spent by these groups in the 2012 election cycle. These efforts have not been successful yet, and the current IRS issues with approving 501(c)4 applications will likely make it even less likely that the IRS will be trusted with additional power to regulate these organizations.

What It May Do to The IRS

It is way too early to speculate on the totality of effects that this admission might have on the IRS and the Exempt Organization Division, specifically. Scrutiny may further accelerate the “brain drain” at the IRS that Nonprofit Quarterly reported on earlier this year. One can only speculate on how this story, and the investigations likely to occur over the next months or longer, will affect the career decisions of IRS agents and managers in the EO Division who are eligible for retirement now or in the foreseeable future.

Also, given limited IRS resources and the likely investigation-related stresses on the EO Division, IRS and Congressional initiatives on issues such as regulation of nonprofit entities’ unrelated business income and executive compensation practices, hospital-specific Form 990 implementation issues, and other concerns may be slowed down for the time being.

As if this weren’t enough, the IRS has significant responsibility in administration of the Affordable Care Act (ACA), also referred to as Obamacare. Boustany’s U.S. House Ways and Means Subcommittee on Oversight has held hearings on the IRS’s capacity to fulfill its role, the additional budget and staff required, and how the ramp-up for oversight will be paid for. Doubts about the IRS’s ability to enforce the tax code impartially will be used, no doubt, when discussing the IRS’s implementation of regulations for a law that’s still controversial, especially in Republican and conservative circles.

* * *

Is it possible that revenue agents in Ohio were able to engage in this activity without the knowledge or approval of managerial IRS officials? If Lerner knew in 2011 that this activity was occurring, what did she do, or could she have done, to stop it and assure that the affected groups’ applications were processed appropriately? The timeline doesn’t quite work, either. The reviews were engaged in during 2010 and 2011, but Lerner said they were done as a response to increased numbers of applications between 2010 and 2012. Then-Commissioner Schulman’s denial to Congress in March 2012 happened nine months after the reported date Lerner knew of the Cincinnati revenue agents’ activities. Is it possible that Lerner did not communicate information central to answering pending Congressional requests and a Treasury investigation to her boss? The White House was quick to point out Friday that Schulman was appointed as Commissioner by George W. Bush, not President Obama; could Lerner have been protecting Schulman, or could she have been concealing information necessary to his role in representing the IRS to Congress and the public?

Releasing bad news on a Friday in the hope that its sting will soften over the weekend is an old Washington tradition that has become something of an outdated joke, but the odd venue of this announcement—in response to a question at a pre-scheduled conference—has made the whole scenario look, well, odd and unprofessional, and almost disrespectful or manipulative. The civil sector must depend upon the IRS to act with some semblance of integrity in terms of non-partisanship; that is a vital component of our scaffolding as a sector. Nonprofits and the sector, no matter their political leanings, should be clear and loud about our outrage at this “Friday Surprise.”

  • Sal

    Has anybody wondered why this information was leaked at this time? Obama wants focus on anywhere, except bhenghazi.

  • RMQ

    First, if an IRS official stands up in front of a pool of reporters and states this is happening, it’s not a leak. Second, if you had read the entire article, you would have read the speculation that this information was released prior to a poissibly damaging report from the Inspector General’s office.

    Finally, that you don’t understand the difference between a statement and an anonymous leak, and that you don’t bother to read all of the facts offered in a rather short article indicates the intelligence of someone who ignores multiple embassy attacks and deaths that occurred during the last GOP administration but then goes ballistic over a single embassy attack during a Democratic administration. Don’t you ever get tired of being told what to think by Fox News?

  • Mark W. Fuller

    This is a serious admission of guilt by officials of the IRS.
    We the people depend on neutrality when it comes to IRS oversight and review.
    Regardless of your political point of view, we must all agree that the IRS must guarantee that it will not discriminate against individuals, corporations, etc. Those involved must be held responsible for these reprehensible acts. Higher levels of management must be held responsible as well.

  • Scott Walter

    Excellent, balanced report on a true scandal. The very latest NY Times article, reporting on a leaked portion of the Inspector General report, shows that the problem may have started with low-level staffers who did indeed have a grudge against conservative groups. Lois Lerner apparently tried to have them broaden their concerns so as to be more generic, but the staffers, observes the Times, repeatedly kept turning the searching in a partisan direction. That is not a good sign, given the way the Affordable Care Act is beefing up the number and power of low-level IRS staffers.

    One other concern not mentioned here: HHS Sec’y Sebelius has recently raised eyebrows by hitting up businesses to give to nonprofits very closely associated with the Administration, who are helping it sell & implement ACA. She justifies this by the failure of Congress to give her enough money, but imagine what would have happened if Cheney had asked Blackwater & Halliburton to pony up cash to conservative nonprofits to help him do things in Iraq that Congress had failed to fund….

  • Bill Pickle

    “As if this weren’t enough, the IRS has significant responsibility in administration of the Affordable Care Act (ACA), also referred to as Obamacare.”

    Now that is freaking scary! Under Obamacare, your survivability will depend on your politics?

  • Matt Scholtes

    If the IRS could do this to target conservative groups today, they could do it to target progressive groups in the future. This should deeply concern us no matter what our political leanings. There should not only be an investigation of what happened, but there must be systemic changes in the application review process to ensure that the process will be strictly fair and non-partisan from this point forward.

    On a side note, it is interesting to learn of the upsurge in 501(c)4 applications in the wake of the Citizens United decision.

  • Terry Fernsler

    Well, I see the conservative apologists are quick to respond. While this may very well be a case of organizational profiling, it may also be a case of certain nonprofit applicants drawing attention to themselves. There is little doubt that many of the tea party applicants crossed or came very close to crossing the line between allowable activities and electoral politics. If one believes that close scrutiny of progressive applicant organizations that do the same–although on the opposite end of the political spectrum–does not occur by the IRS, I suggest one pulls one’s head from the sand, blink, and observe carefully.

    The worst reaction to this might be to approve tax-deductible status to organizations that do cross the line, simply to appear unbiased. Let’s try to keep cool heads here.

  • sal

    Circle the wagons, man the bilge pumps…. All hands to the bloggers and comments sections. Put this fire out before it takes hold!!! Obama

  • Linnea Michel

    If you look at the Internal Revenue Manual (it’s on the IRS website) regarding screenings for determinations, you will see a whole list of organizations whose applications require “mandatory review”, including “applications that present sensitive political issues”. I am more concerned about the larger context, that so many well-intentioned organizations are suffering extreme delays in receiving their determinations which effectively holds up their work–their ability to help their communities. Over the last couple of years, the length of wait time for response from IRS has gone from 3 months to 6 months, and it appears to me, in many cases, it’s even longer. The reason usually given is that IRS is “swamped”. This is due in significant part to Congress’s imposition of automatic revocation; not only must IRS EO examine all the applications that would normally be in their in-basket, but now must also review full applications from revoked organizations seeking reinstatement. As you’ll see from the “mandatory review” list, applications from revoked organizations are on that list. The whole thing has grown like Topsy, but now, with these developments, it will grow exponentially.

  • Ron Pagnucco

    I was surprised to see that Tea Party organizations have 501c3 tax exempt status. I thought they were very involved in advocacy on behalf of political candidates and crossed the line a non-profit cannot cross. Why some much worry in Republican primaries about the Tea Party? And Michelle Bachman of Congressional Districy #6 in Minnesota is the proclaimed leader of the Tea Party caucus in congress. Looks to me an investigation of Tea Party organizations to see if they are violating tax emempt requirements is quite in order. I could not imagine my nonprofit being so politically engaged as Tea Party groups are engaged. Theey are not supporting candidtaes? They are only advocating on issues? Really? No organizing for Republican primary candiddates? Really?

  • Ruth McCambridge

    I think you are right on the money Linnea. When I consider all of the potential consequences from this, they are truly mind boggling.

  • Ron Pagnucco

    Given all the apparent abuses of 501(c)4 tax status, which has become a joke, why not just abolish it? Why should we taxpayers be subsidizing partisan political action?

  • michael

    If, as the IRS claims, it was “low-level” employees who carried out this political vendetta then it sets off all sorts of alarm bells that petit bureaucrats have such power over the liberty of the citizenry. Beyond scary. And to think, under Obamacare these people will have enormous influence over your health care. Power corrupts… know the rest

    Under present conditions, it would only take a slight change in the political winds for the IRS to put The Nonprofit Quarterly out of business. That’s the threat which comes from have ‘big government.

  • Kelly Kleiman

    Yes, but. The IRS was attempting to determine whether so-called “social welfare” agencies were in fact political organizations who were misusing the tax exemption for partisan purposes. Independent reporting on the issue made clear that there were plenty of such crypto-campaigns, and that the preponderance of them were conservative and funded by right-wing billionaires. It was certainly ham-handed to do a search under “Tea Party” while not also doing a cover-your-ass search on “Progressive,” but there’s no genuine suggestion that it was an attempt to use the IRS to target enemies as [Republican] Richard Nixon did in the 1970s. I respect the need for Democratic politicians, especially the President, to express shock and horror as a way to palliate the Republicans (not that they’re ever palliable); but here in the world of journalism, let’s get the facts straight.

  • Steven Plourde

    Schulman & Lerner should resign or be fired – that will instill the “fear of the Lord” in the minds of their successors to single out any group or groups for “special scrutiny” – whatcha gonna do when your group gets singled out?

  • Lisa Deutsch Harrigan

    Turns out they also targeted Liberal Groups, and several Liberal Groups had their applications Denied.
    AND the People in Charge were Bush Appointees.
    This is a Section of the Non-Profit code 501(c)4, that the Conservatives have been exploiting for some time, ever since the Citizens United Ruling. And there have even been instructions on the Tea Party Websites on how to apply for and give money to Directed Political Causes using this section.
    Sorry, but this does not really affect this group, and repeating this very badly written report does not help us.

  • Lisa Deutsch Harrigan

    Interesting how the Low Level Staffers that “had it out for conservative groups” were actually Bush Appointees and conservatives. The NYTimes again is mis-reporting things.
    It was actually a Very Understaffed IRS Office (part of the Starve the Beast Program run by Republicans), who took the Lazy Way Out of their Work Overload and went after the easy targets.