Continuing Developments on the IRS Scandal

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June 26, 2013; Assorted


The IRS scandal, as it has come to be known, has been the subject of constant media coverage for a few weeks, through allegations, disclosures, and seven different congressional committee hearings. The news coverage ebbed as several separate investigations were pursued, including an FBI probe, along with continued work by the U.S. Treasury’s Inspector General for Tax Administration, or TIGTA, whose initial audit report was released on May 17.

The IRS now has several different issues to explain. In addition to the initial report from the Treasury Department’s inspector general on the IRS’s targeting of conservative groups’ applications for tax-exempt recognition, the inspector general has reported on excessive spending on training and conferences and, separately, on incidences of IRS-issued credit cards being misused by agency employees. A congressional investigation recently disclosed that IRS contracts worth hundreds of millions of dollars with an information technology vendor may have been tainted by conflicts of interest and misuse of federal contracting preferences offered to disabled veterans and businesses located in blighted urban areas.

Finally, the IRS itself has provided documentation to congressional investigators documenting that liberal and progressive groups as well as conservative groups were targeted for special scrutiny based on keywords in their names and/or activities. The Treasury IG’s report noted that there were multiple versions of the selection criteria, and that many of the tax-exemption applications flagged for additional scrutiny came from non-“Tea Party” groups, though the term “Tea Party” was used to apply to all such cases. None of these liberal or progressive groups has yet reported encountering the multiple-year delays and additional inquiry letters reported by the targeted conservative groups. The House Ways and Means Committee issued a terse press release in the form of a table comparing the lack of evidence (so far, at least) for progressive organizations suffering the negative effects of targeting documented for conservative groups.

Some have criticized the IG’s May 2013 report for not documenting more comprehensively the nature of the targeting of applications for nonprofit tax exemption. The IG was quick to emphasize, in congressional testimony and elsewhere, that his inquiry was limited in scope to the targeting of conservative groups. Further, his inquiry was an audit, not an investigation. Not only is an audit more limited in scope than an investigation, it relies on the representations of the entity being audited and typically involves a sampling of records and testimony rather than exhaustive examination of all data and conversations.

Recent polling data indicate that the general public cares about the IRS scandal and follows it in the news. According to Rasmussen, 82 percent of Americans are following the story, with about 44 percent following it “very closely.” Seventy percent of Americans believe the targeting of conservative groups by the IRS was not the rogue action of IRS staff in the Cincinnati field office, but controlled from Washington (substantially agreeing with the Treasury IG’s report’s conclusions). CNN/ORC reports that 47 percent of Americans believe the scandal started in the White House, though no evidence has yet been produced to substantiate this belief.

In all the reporting on the scandal, some misinformation has become accepted as fact. The central mistaken impression is that the IRS scandal is about 501(c)(4) social welfare organizations. There are two arguments against this mistaken impression. Two come from the Treasury inspector general’s May report. First, the audit the IG conducted included exemption applications sampled from four different classes of nonprofit organizations: 501(c)(3) charities, 501(c)(4) social welfare organizations, 501(c)(5) labor unions and agricultural organizations, and 501(c)(6) business leagues. The IG did not report separately on 501(c)(4) organizations seeking exemption; the audit reported on all cases examined from all four categories of nonprofits.

Second, the report documented that a spike in the number of 501(c)(4) applications did not occur for more than a year after the targeting began. In fact, the total number of applications for tax exemption handled by the Cincinnati office declined in 2010 from 2009 numbers, and was only six percent higher in 2012 than it was in 2009. This examination refutes the initial assertion that targeting of applications was done in response to a deluge of 501(c)(4) applications in early 2010.

Today, the IRS will once again testify on the scandal, providing a 30-day report on what has been done to address the issues raised and recommendations made in the Treasury IG’s report. The early reviews from Republicans on the House Ways and Means committee are not encouraging, but read more like partisan “red meat” rather than substantive analysis.

In separate action, Chairman Darrell Issa (R-CA) is meeting Friday with House Government Reform and Oversight Committee members to decide how and whether to pursue testimony from former IRS executive Lois Lerner (video). Lerner, the former Director of the Exempt Organizations (EO) Division of the IRS, invoked her Fifth Amendment rights and refused to testify to Issa’s committee only after being sworn in and making self-serving statements protesting her innocence. The committee needs to decide whether her statements caused her to forfeit her right to avoid answering the committee’s questions.

The scandal continues to unfold and the investigations are still only starting. We are still nearer the beginning than the end of reporting on this developing story.—Michael Wyland