The IRS and the Tea Party: Treasury Report Finds Big Bungling but Small Scandal

By :: May 15th, 2013

The IRS’s botched processing of requests for tax-exempt status by political groups isn’t the new Watergate. In fact, as scandals go, it is barely the Days Inn--based on what we've learned from a much-anticipated report by the Treasury Department’s Inspector General for Tax Administration (TIGTA).

That any report by TIGTA is much anticipated says something about Washington these days. This one, a detailed look at how the IRS seemingly targeted tea party and other conservative groups for special scrutiny, found bureaucratic bungling and a troubling bunker mentality up and down the agency.

The cost to groups seeking tax-exempt status was not insignificant, and is troubling. TIGTA confirms that some conservative organizations were singled out for special scrutiny and faced burdensome requests for information and long delays before approving requests (though it should be noted that delays are common at the IRS).  At the very least, this raises questions about fairness and impartiality from an agency that must be above reproach.

Yet, despite dark conspiracy theories, TIGTA found no evidence of political meddling. Despite allegations that the agency singled out tea party groups for special scrutiny, of the nearly 300 cases the IRS labeled  potentially political, only one-third were identified as tea party or other conservative organizations. And not one of those 300 cases, including the conservative groups, had its application for tax-exempt status denied, though some are still pending.

However, the TIGTA report also seems to confirm a long-standing unwillingness by top IRS officials to publicly acknowledge the mess.  As often happens in Washington, the coverup may turn out to be far more problematic than the “crime.” There is some irony afoot when the same government agency that demands full transparency from 150 million taxpayers stonewalls requests for information about its own operations from Congress and news organizations.

Here is the outline of the story: From 2010 to 2012 the number of applications for 501(c)(4) tax-exempt status  doubled, from 1,700 to 3,400.

While (c)(4) status was created 100 years ago for civic leagues and other community organizations, it became a valuable tool for political organizations in recent years. One reason: It allowed groups to collect money from contributors without disclosing the source of those funds.

The test for (c)(4) status is a difficult one: A group’s primary purpose must be enhancing the social welfare. It may engage in some political activity, but this may not be its primary role. The law does not clearly describe political activity.

In March and April of 2010, mid-level IRS staffers began screening groups with names that sounded “political” such as tea party. By May, agency staffers were told “to be on the lookout” for, among other applications, requests by groups with political-sounding names, such as tea party or patriot.

When the director of the Exempt Organizations office, Lois Lerner, learned of these activities in June, 2011, she ordered that the criteria be changed. The guidelines were somewhat revised in July, but then largely restored by the team reviewing the cases. In the end, it took 18 months for the agency to finally get staff to change its policy of focusing on political views of organizations.

The result: Conservative groups were required to answer wide-ranging and often unnecessary questions, 80 percent of applications were open for a year or more, and some were open for as long as 3 years and across two election cycles. The questions appeared to be an attempt to determine how political the organizations were (which, after all, is the test for (c)(4) status). But some were frankly weird: Whether an officer of the group will run for public office in the future, or what the roles were of audience members in group programs.

In sum, TIGTA found an IRS staff scrambling to keep up with requests for tax-exempt status in an area it did not understand well.  The staff seemed unaware of the political implications of what it was doing, and was poorly managed. Senior officials seemed to be aware of the problem as early as 2011, yet could not fix it for a year and a half.

This is a huge embarrassment for the IRS and likely to make it more difficult for the agency to police groups that have stepped over the political line.  But based on what we know so far, this is no Watergate scandal.

 

 

 

 

 

11Comments

  1. Ralph H  ::  4:08 pm on May 15th, 2013:

    I am a skeptic. Aside from harassing, I believe one goal was to discover names of donors. Believe me if I was inclined to give money it would be through one of these organizations. Local politics around here (Philadelphia & NJ) are completely controlled by Ds, with pretty corrupt organizations, while the governors are Rs. The last thing I want is someone in power to get upset as my company sells frequently to government entities. Also, many of my friends are of the opposition, and its not cool to be googled to check donations. My point being that many people are concerned but want to guard their privacy. If this had been done by the Bush or Nixon administration it would raise Holy Hell. It is gratifying to see both sides of the aisle condemming it. The adminstration seems to be quite ready to throw underlings under the bus when dumb stuff is discovered.

  2. Vivian Darkbloom  ::  5:27 am on May 16th, 2013:

    There’s little question that many organizations applying for section 501(c)(4) status are “political”. That explains the large increase in the number of applications running up to the 2012 presidential election.

    But, unlike Howard, I’m unable to read the minds of those IRS employees whom the IG determined singled out groups with names including the word “tea party” and other conservative sounding names. Did they simply “bungle” execution of the law and regulations as Howard suggests, or did they knowingly favor “progressive” applications in the run-up to the election? Howard knows. I don’t. But, it would be interesting to find out what proportion of applications containing the word “progressive” or similar “liberal-sounding” terms were selected for scrutiny and delay.

    Apropos delay, Howard writes this:

    “The staff seemed unaware of the political implications of what it was doing, and was poorly managed. Senior officials seemed to be aware of the problem as early as 2011, yet could not fix it for a year and a half.”

    That does not sound like low-level bungling to me. Here, Howard unwittingly makes an incriminating statement. It sounds like high-level foot dragging, if not downright encouragement. Failure to “fix the problem” until after the election certainly helped delay approval of many of these applications until they were no longer relevant to the election.

    There are, I think, several likely lessons from this:

    1. Nearly all section 501(c) organizations are inherently political and this is not limited to section 501(c)(4) organizations. It includes organizations such as the Urban Institute, the Brookings Institution and the Tax Policy Center. All these organizations enjoy not only tax exempt status, but also enjoy funding through tax deductible contributions (unlike the organizations under 501(c)(4)). It is futile and naive to think that one can sort out the “non-political” from the “political” ones. The proper solution is to eliminate this unjustified tax privilege for all of them. End of problem.

    2. If donors to section 501(c)(4) organizations are forced, as many argue they should be, to disclose their donors, then the time has also come for all section 501 organizations to do the same. Tax Policy Center: Why not tax the lead on this and voluntarily report all your donors and the amount of their donations?

    3. If you want to obtain section 501(c)(4) status (also in a timely manner), I would suggest that you not adopt a name that includes “tea party”, etc. As Shakespeare presciently wrote, “A section 501(c)(4) organization by any other name would smell as sweet”. I would suggest a sweet-smelling name might be the “Social Welfare Fund of America”. Then, go one to do whatever you originally intended to do, all in the interests of “social welfare”, of course.

  3. Tax Roundup, 5/16/2013: Acting-out edition. And a real Iowa economic development initiative. « Roth & Company, P.C  ::  10:23 am on May 16th, 2013:

    […] Howard Gleckman at TaxVox clings to the “botched processing” line: The IRS and the Tea Party: Treasury Report Finds Big Bungling but Small Scandal […]

  4. AMTbuff  ::  12:33 pm on May 16th, 2013:

    Howard, I’m disappointed. How did you miss the following 3 points?

    1. “From 2010 to 2012 the number of applications for 501(c)(4) tax-exempt status doubled, from 1,700 to 3,400…
    In March and April of 2010, mid-level IRS staffers began screening groups with names that sounded “political” such as tea party.”

    Do you see the problem here? The IRS does not own a time machine. They didn’t magically foresee this increase and crack down before it started. The applications increase line is part of the cover-up, and it ensnared even you! See http://reason.com/24-7/2013/05/15/data-doesnt-support-irs-explanation-for

    2. Delaying applications is tantamount to denying them. Time is of the essence, and the IRS was happy to waste as much of the applicants’ time as possible, as long as the applicants were conservative.

    3. The data requested from the targeted applicants was improperly broad, violating privacy. Then some of the data was leaked to a progressive group which then published it.

    An analogy may make this more clear to progressives. Imagine that a permit are required for an abortion. Imagine that the government agency that issues the permits decides to slow down all applications by minors (or by white people, if you want to feel even more outrage). Suppose the agency asks for details about sexual history and sexual partners, including names, addresses, and number of times. And then suppose the agency delays a decision a year and a half. Would this be considered mere mismanagement or an agenda-driven abuse of power?

    Here’s an apt quote from Stafford Beer: “the purpose of a system is what it does. This is a basic dictum. It stands for bald fact, which makes a better starting point in seeking understanding than the familiar attributions of good intention, prejudices about expectations, moral judgment, or sheer ignorance of circumstances.”

  5. Vivian Darkbloom  ::  1:05 pm on May 17th, 2013:

    AMT,

    I just watched most of the Congressional hearing held today on this issue. You may be interested to know that a Congressman Young (in both appearance and name) presented the very same question to Steven Miller that you raised above—that is, how can the excuse for the “targeting” of certain groups be based on an upsurge in applications when there was no upsurge when the policy began—-One wonders whether they read the reason blog or these comments….

    Miller had no answer for that and said that he would have to look at the numbers, even though those numbers were in the IG report that Miller had repeatedly indicated he agreed with.

    As far as “targeting” is concerned, Miller was very anxious to avoid that term and at times this deliberate avoidance was painful to watch and hear. The reason, it later dawned on me, was that in one of the documents quoted the IRS had previously denied to Congress that there had been any “targeting” going on. The need to now avoid use of that term is obvious. It is to avoid any perjury or obstruction charges. It reminds me of “I didn’t have sex with that woman”.

  6. Mary Beheler  ::  4:32 pm on May 18th, 2013:

    So, if the groups being investigated were not planning on getting involved in politics, why such distress over missing and election cycle or two?
    Two-thirds NOT tea-party? Who are the two-thirds?
    Quick! Tell me the primary purpose of a Tea-Party group!

  7. Michael Bindner  ::  1:00 am on June 26th, 2013:

    This is not even news, as anyone watching the Treasury Audit Report would know that this issue was under study. So would anyone paying attention to hearings where the Tea Party was complaining about the lack of speed of their applications. Of course, the reality is most Tea Party leadership is pretty much indistinguishable from local Republican Party activists – at least in Virginia.

  8. IRS Gets Hammered in the 2014 Budget Agreement | BriPay News Aggregator  ::  2:25 pm on January 14th, 2014:

    […] of course, explain what this budget is really about: More political payback for the IRS’s bungled efforts to sort out which non-profits qualify for 501(c)(4) designation. While congressional Republicans […]

  9. IRS Gets Hammered in the 2014 Budget Agreement | Make Money InMake Money In  ::  4:37 pm on January 14th, 2014:

    […] course, explain what this budget is really about: More political payback for the IRS’s bungled efforts to sort out which non-profits qualify for 501(c)(4) designation. While congressional Republicans […]

  10. IRS Gets Hammered in the 2014 Budget AgreementOlympic Accounting | Olympic Accounting  ::  8:37 pm on January 19th, 2014:

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