Rick Cohen reports live from the Congressional hearing regarding how the IRS handled the Tea Party groups’ applications for tax-exempt status.
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Senator Max Baucus speaking; talking about IRS employees ignorant of tax laws and blind to dictates of their supervisors Wants to know who was responsible; wants to know who the other 200 or so groups were that weren’t Tea Party/Patriot groups Points out that political groups masquerading as social welfare groups because it allows them to keep their donors secret Baucus asked is the tax code being used to eliminate transparency in elections; asked this years ago; once this issue clears, we need to examine the 501(c)(4) laws; no clear definition of what qualifies as political activity, how much; statute says one thing, IRS says another; Baucus uses the statute language that 501(c)(4)s must be exclusively devoted to social welfare but IRS reg says “primarily”; these ambiguities might have led to the problem today
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Senator Orrin Hatch: “the IRS targeting of citizens for their political views is a scandal”; says this committee hearing is not a partisan fishing expedition of Republicans, not a sideshow to distract from the President’s agenda; “this committee will pursue this wherever it leads”; “many Americans are already afraid of the IRS”; “sadly, more than a hint of political bias in the IRS processing…”;
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should note that both Baucus and Hatch acknowledged the suffering of the people of Oklahoma, particularly Moore, OK, where tornadoes devastated the communities and left many people missing and dead
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Hatch: we don’t know why the IRS purposely mislead Congress that no groups were being purposefully targeted; Hatch asked about targeting earlier, received two separate responses from Steve Miller, not hinting at the targeting; “IRS didn’t choose to come clean…” until the TIGTA report was coming out; Hatch is outraged that the revelation came from a planted question at a press conference (Note: it wasn’t a press conference, it was Lois Lerner’s response to a question at an American Bar Assn conference)
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witnesses: Russell George (IG), Miller (acting commissioner); Douglas Shulman (former commissioner); like Ways and Means committee, witnesses sworn in
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George: criteria were names (Tea Party, Patriot, 9/12); policy positions regarding government spending; plans for advocacy; questions of concern about how country was being run; from May of 2010 through 2012, selected 298 groups for special criteria; criteria remained in effect for 18 minutes; changed in July 2011, but staff in Cincinnati changed the criteria back except for focusing by names; took until May 2012 for the practice to end; zero cases were denied; some cases open three years, crossing two election cycles; of 100 or so cases approved, 31 were Tea Party, Patriot, or 9/12;
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George: IRS was guilty of gross mismanagement; in the exempt organizations function
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Miller: given time considerations, IRS was unable to prepare written testimony (Note: same thing he said at Ways and Means on Friday); says partisanship did not motivate the people who reviewed; foolish mistakes were made; “the listing was a mistake, not an act of partisanship;”
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Shulman: commissioner from March 2008 through Nov. 2012; dismayed and saddened to read IG’s conclusions; the effect has been bad for the agency and the American taxpayer
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Baucus: why weren’t people fired when the criteria were shut down in June 2011; why not more definitive action Miller: first became aware of this in May of 2012; Shulman: wasn’t aware of this in June 2011; Miller: … Baucus: asks who did know, if you don’t know, it sounds like someone wasn’t doing their job
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Baucus: agency had a second chance in January 2012 when they started again, this was outrageous; Miller: we were unaware, I was unaware; when I found out in May, I took action; I was briefed, group reported back to me in May 2012 with much of what was shown in the IG report; we then trained our folks, held workshops, took a look at the cases grouped in a fashion that those that looked they should be approved were approved, those that needed work got work; despite TIGTA, took some action to reassign individual who was involved in the letters; Baucus: clear we’re not going to get the answer what caused this culture; what happened in Cincinnati Shulman: can’t say that he knows; I’m six months out of office; I don’t think I can answer that question Baucus: disappointed,
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Hatch: wrote in 2012 about IRS practices; IRS responded on April 26th and September ? 2012, Miller said it had no reason to believe that it had improperly targeted Tea Party groups or asked for improper donor lists; why Shulman never corrected Shulman: says he didn’t know the full set of facts that were in the IG report; he knew in 2012 that Tea Party was on the list, didn’t know other terms, didn’t know scope or severity; Hatch: You should have corrected the letter; Miller–you knew and never indicated that the IRS was targeting etc….says Miller’s responses were “a lie by omission”; what we have learned “goes far beyond horrible customer service” Miller: did not lie; I answered the questions truthfully; did not agree with the idea that IRS was politically motivated in targeting conservative groups; Hatch: you knew this was going on, why didn’t you correct the record Miller: TIGTA was looking at the cases;
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Senator Stabenow: doesn’t know how it took so long for actions to be taken; took almost two years for the IRS to finally fix the problem, including 11 months after it came to the attention of the division head; how could it take so long to fix the problem Shulman: “I’m not there to ask a set of questions of what happened where and when”; this is an issue that when someone spotted it, they should have run up the chain Miller: not going to disagree with your characterization of bad management; not going to understand the concerns with the list; should be looking at the facts;
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George: IG has not completed analysis of IRS response to IG recommendations; Cincinnati did seek clarification from headquarters, took almost a year before a response was received;
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Senator Grassley: Citing an Iowa applicant that applied for a (c)(3) that was told by IRS that it would agree not to protest at Planned Parenthood; IRS also inquired about its prayer meetings; says this is a quid pro quo Miller: not appropriate Grassley: how could this happen under your leadership Miller: doesn’t know what happened in that case and cannot speak to it under 6103 rules; “the service that folks got was not the service they should have received: Grassley: Lerner originally said her response was not planted, but Miller said it was prepared Q&A Miller: takes responsibility for it; thought we’d get out an apology; we wanted to reach out to Hill staff at about the same time; did not happen; what happened was incredibly bad
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Grassley: asked whether it was policy to release information through planted Q&A in advance of an IG report; (Miller mumbled an apology again); did Lerner give misleading testimony (Miller no); does IRS plan to discipline Lerner? (Miller–discussions are ongoing)
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Nelson: getting back to the question of the original purpose of the statute; how could you allow the tax breaks funded by the tax payer on these political campaign expenditures Miller: statute talks about exclusively social welfare; the regulation talks about primarily (promulgated some 50 years ago) Nelson: precludes direct participation in political campaigns in support of or opposition to candidates; but have seen enormous money going through c4 organizations for intervention in political campaigns; where is the IRS in enforcing its rule; Miller: as a 501c4 organization, you are permitted to engage in a certain amount of political activity; centralization here was warranted; we have to look at what an organization does; the way we centralized (the listing) was wrong; Nelson: “I understand the King’s English…the statute says that social welfare doesn’t permit political intervention”; how that could be interpreted to mean some George: TIGTA will be looking at IRS oversight of political expenditures Nelson: If we could get the IRS to follow the law, we wouldn’t be here Baucus: Agrees, we have to enact some changes in teh statute and IRS has to do a better job in following the status
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Senator Roberts: no one is taking responsibility other than apologizing and offering horrible customer service; what we have here is targeted harassment; what we have on our hands is abuse, harassment, and suppression of the First Amendment and no one is owning up to it; says IRS has been operated politically for three years; find it very hard to believe that IRS employees were given free reign to set up a BOLO list, must have been given some direction from Washington
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Roberts: how on earth can the IRS have authority to oversee Obamacare Senator Crapo: It seems that an argument is being made that there was no political motivation; George–in the interviews conducted, so far that it is our conclusion; interviews not done under oath; they said they received no direction from people beyond the IRS; the statements from the people engaged saying that they were not politically motivated; we have not found any political motivation; an audit, not an investigation; suffice it to say that this matter is not over as far as we are concerned; there will be continued review by us, and if it leads to an investigation… Crapo: unbelievable to look at what’s happening and say that there was no political motivation;
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Senator Ensi: says that a church told him that the IRS had requested membership list of the church; doesn’t the IRS have a policy not commenting about issues subject to an IG audit prior to its release; Miller: we do have a practice of not talking about audits, the audit was done, so we thought we should get in front of it, we made a mistake Ensi: why information was shared with ProPublica Miller: a referral was made to TIGTA on that… Ensi: inappropriate actions but not illegal? why? could there have been illegal activity? George: release of taxpayer information does have criminal penalties attached to it; if we find evidence of that activity, we would refer it to prosecutors; action can be taken with using/abusing taxpayer information; thus far, we have not uncovered any actions that we would deem illegal
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Senator Wyden: If political entities do not want to be examined by government, they should not seek tax advantaged treatment; the lines have blurred between 527s (which disclose) and c4s (which don’t); organizations that should be 527s are applying to be c4s, choosing their tax status if they want to hide their donors; why was this problem not corrected Shulman: Can you clarify the problem? (Note: Oh my, Shulman’s responses to most questions have been really terrible); Shulman: the law in the tax area is very complex; the treasury regulations are longstanding regulations; IG said that Treasury ought to look at the regulations; this is a very hard task given to the IRS; to also give the IRS this piece of the law that has them asking about political activities, very difficult Miller: we have put out some guidance, but not enough; we get 70,000 applications for tax exemption every year, number of c4s much smaller, but still c4 application # has doubled; when orgs chose c4, it’s our obligation to look hard to see whether they should be 527s; but we cannot convert a c4 into a 527 Wyden: on your watch, you did nothing to correct the problem in a meaningful way
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Miller: re TIGTA recommendation for a template for reviewing c4s, the cases are very fact specific Baucus: Not satisfied; wrote to Shulman in 2010 about the c4 issue, response was basically, “yeh we’re looking at it”
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Senator Menendez: two scandals here–one is the management failures re singling out groups; and how we take statutory authority and extrapolate it to something different than what the Congress meant; I saw a vote for exclusively, not primarily; there is a reason you seek a 501c4 status is because you can hide your donors; wants to see what it costs the American taxpayers when these c4s are not being used for social welfare but political advocacy
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Senator Cardin: the regulation was issued in 1958 (primarily rather than exclusively); in 1958 the political parameters were entirely different than they are today; 72 tea party, 11 9/12, 13 patriots; George: cannot describe the others; names were very generic; when names Tea Party, Patriot, or 9/12, it was easy; for the 202 that weren’t Tea Party, etc., the other 202 were selected to determine whether significant campaign intervention had occurred Miller: cannot describe how the other 202 were selected; Cardin: you don’t know what standard they used? trying to figure out how these were selected Miller: there was evidence of political activity that the screener believed was there; hopes that some of these things will become more clear Cardin: we need to have more information on how determined
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Cardin: Portman and I worked on IRS reform a few years back, we were concerned whether the IRS had the resources it needed to have properly trained staff Miller: we’ve cut training pretty drastically; we have 140 of our folks who do this work in Cincinnati and reporting to Cincinnati; don’t believe we have the resources Sen. Sherrod Brown; not worthy of public trust to suggest that trouble is from out of control staff and asleep managers; clear that there’s a vacuum of leadership; three years of Citizens United, two federal elections, how long do we wait for IRS from Washington…
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Senator Thune: re Lerner plant, gets Miller to acknowledge that he was aware of the planted question; Miller said that he was unaware of any conversations with White House about Lerner; Miller and Shulman both say that they had no conversations with Treasury Department; Shulman: everybody knew that it was very difficult to administer the c4 laws; doesnt have any memory about it, but there could have been conversations about the policy matters; when found about about the list that was being used, what I knew was that there was a list, did know that Tea Party was on it, didn’t know what else was on it, knew that the IG was going to be looking into it, knew the practice had been ended; made right decision to leave it to the IG
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George: May 30 2012, we first briefed the commissioner about this as an issue; personally brought the issue to Dep Sec Wolin, just to describe the nature of the audit; Jun 4 2012, briefed general counsel of treasury; chief counsel of IRS was briefed earlier; office of the chief counsel was provided with a briefing Miller: believe that the name/criteria search did stop, though the second listing is still problematic because it talks about policy positions, but not partisan like it was before Miller: selection process has been modified; has worked on getting people the technical knowledge to work on these cases. but some of these cases need additional work;
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Senator Isakson: need to restore confidence of the United States of America in the Internal Revenue Service; George: we have no information as who ordered the revival of the policy (the reversal of the instruction not to pursue this technique of review of c4s Miller: “it breaks my heart” ; next commissioner needs to take a hard look, put in place changes
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Shulman: denies personal responsibility; regrets that this happened on my watch; Senator Cornyn: says that qualifies as only an expression of regret (pushed on “where the buck stops”) Cornyn: Has IRS deviated from its core function and shouldn’t be given additional functions until it gets its house in order; Shulman: IRS administer’s nation’s tax laws, tax laws are used for more and more things;
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Senator Portman: mentions March 2012 letter he and others sent to IRS regarding IRS requests of Tea Party applications for c4 status; letter asked about the inappropriate disclosures; Miller says he was aware around the March 14th letter of these instances; Miller says he directed Nancy Marks to review, Marks reviewed and reported that inappropriate criteria; sent a team out to correct, for six weeks didn’t look into what the team was doing;
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Sorry NPQ readers, but I’m going to have to sign off here. Look for more reports on Twitter.
