Traverse City Record-Eagle

May 25, 2013

Fact Check: IRS officials misled Congress, public

By FactCheck.org
Traverse City Record-Eagle

---- — IRS officials gave false or misleading information on numerous occasions regarding its now discredited practice of targeting conservative groups that sought nonprofit status.

A Treasury inspector general’s report issued May 14 found the IRS used “inappropriate criteria,” beginning in March 2010, to identify potential political groups seeking nonprofit status based on their names and policy positions. It also found that a high-level IRS official in Washington learned in June 2011 that the criteria targeted groups with specific conservative names, such as “tea party,” and conservative descriptors, such as concern with government spending and debt.

Nevertheless, the IRS failed to publicly acknowledge the problem until May 10 — four days before release of the IG report - even though allegations of harassment surfaced in news accounts in February 2012 and Congress pressed the IRS for information.

Here are several specific incidents in which IRS officials gave false, misleading or incomplete information to Congress and the public:

Lois Lerner, director of the IRS’ exempt organizations division, falsely claimed that she first learned of employees singling out conservative groups in 2012, because of media reports. But the inspector general’s report shows she was briefed on the practice in June 2011 and took action to correct it.

Lerner told a House committee in May 2012 that the IRS is justified in requesting information from conservative groups about their donors and policy interests in certain cases. That’s true, but she failed to disclose that nearly a year earlier she learned that IRS staffers in Ohio were making what she deemed “unnecessary” requests for such information in dozens of instances.

Lerner blamed a heavy workload for the problem, telling reporters that the applications for 501(c)(4) nonprofit status had “more than doubled,” from 1,500 in 2010 to over 3,400 in 2012. That’s true, but use of the “inappropriate criteria” began in March 2010 and 501(c)(4) applications declined in the fiscal year that ended Sept. 30, 2010, according to the inspector general’s report.

Acting IRS Commissioner Steven Miller was asked at a July 2012 congressional hearing, “What kind of … action is taking place at this time that you are aware of” to address complaints that groups seeking nonprofit status were being harassed. Miller said an increase in 501(c)(4) applications was causing processing delays, but he did not disclose that he had learned two months earlier that conservative groups were being inappropriately singled out for extra scrutiny.

Douglas Shulman, the IRS commissioner at the time, falsely told a House committee in March 2012 that there was “absolutely no targeting” of conservative groups. Shulman testified at a Senate hearing on May 21 that he learned in spring of 2012 that the list of group names targeted for review included the term “tea party,” but he did not know “the scope and severity of the list” until this month.

At issue is the IRS process, from March 2010 to July 2012, for reviewing applications filed by organizations seeking 501(c)(4) nonprofit status. Such groups are considered “social welfare” organizations, but they can be involved in politics as long as it is not their “primary activity” — a vague term that the inspector general’s report says led to abuse because of poor management guidance. Specifically, the IRS Determinations Unit in Cincinnati, Ohio, began in March 2010 to flag groups with conservative descriptions, such as “tea party” or “patriots,” for extensive and lengthy reviews.

Lerner, director of the IRS’ exempt organizations division since 2005, acknowledged the agency’s mistakes shortly before release of the IG report. Lerner did so at an American Bar Association meeting on May 10, as reported by the Associated Press. Later that day, Lerner was asked in a media conference call how she learned of the problem, and she said “we started seeing information in the press that raised questions for us.” The press began reporting on conservative groups complaining about harsh scrutiny from the IRS in early 2012.

IG report, May 14: The briefing paper noted that the Determinations Unit sent cases that met any of the criteria below to a designated team of specialists to be worked:

“Tea Party,” “Patriots,” or “9/12 Project” is referenced in the case file.

Issues include Government spending, Government debt, or taxes.

Education of the public via advocacy/lobbying to “make America a better place to live.”

Statements in the case file criticize how the country is being run.

Over 100 applications were identified by this time. It was decided to develop a guide sheet for processing these cases.

Lerner, who was identified in the report by her title “Director, EO,” had “raised concerns over the language of the BOLO [’be on the lookout’] listing criteria” and “instructed that the criteria be immediately revised,” the report said. Lerner’s office broadened the criteria to “focus on the potential ‘political, lobbying, or [general] advocacy’ activities of the organization,” according to the report.

In January 2012, the Determinations Unit then changed the criteria again to “political action type organizations involved in limiting/expanding government, educating on the constitution and bill of rights, social economic reform/movement” because the unit felt the criteria “was too generic.” The IG report says Lerner learned of the change in criteria in April 2012.

The report also said that Lerner learned in early 2012 that the IRS sent letters to applicants seeking nonprofit status that asked “unnecessary, burdensome questions,” including asking groups to identify their donors and issues important to them.

The report says Lerner on Feb. 29 “stopped any more additional information request letters from being issued” until a review could be conducted and new guidelines could be issued. Lerner’s senior technical advisor conducted the review. On April 25, 2012, the internal review turned up evidence of what the IG report called “a list of troubling questions.”

Lerner’s office identified seven “unnecessary” questions, including requests to identify donors and policy issues important to the group, the report says.

Ultimately, the IG report said that it reviewed the case file information for 170 organizations that received such letters and found that 58 percent “had received requests for information that was later deemed unnecessary” by Lerner’s office.

The IRS at the time didn’t disclose the existence of any of these problems, but there were news stories in which conservative groups complained about the questionnaires. In response to news accounts, the House Committee on Oversight and Government Reform wrote to Lerner on March 27, 2012. The House letter provided Lerner with a list of questions that the IRS sent to conservative groups and asked her to justify them. IRS questions contained in the letter included requests that the groups disclose donor information and identify policy issues important to them

At this point, Lerner’s office had completed its review and was aware of the extent of the problem, and Lerner herself had taken steps to address it. But she made no mention of it in her May 4, 2012 response to the committee. Instead, she explained to the committee that IRS sends such letters “in the ordinary course of the application process.”

In her recent conference call with reporters, Lerner acknowledged the letters sent to groups “were far too broad and they included things like asking for the organization’s donor list, which generally is not what we do.”

Heavy Workload to Blame?

Lerner cited a heavy workload as a reason for developing the inappropriate criteria. In her May 10 conference call with reporters, Lerner said applications for 501(c)(4) nonprofit status had “more than doubled,” from 1,500 in 2010 to over 3,400 in 2012.

That’s true, but the inspector general’s report shows that development of the “inappropriate criteria” began in March 2010 and there was a slight decline in 501(c)(4) applications in the fiscal year that ended Sept. 30, 2010. The report said there were 1,751 applications for 501(c)(4) organizations in fiscal 2009 and 1,735 in fiscal 2010.

The IG timeline and report says that all these actions were taken before the end of fiscal 2010 and, subsequently, before there was an increase in 501(c)(4) applications:

March-April 2010: The Determinations Unit began searching for other requests for tax exemption involving the Tea Party, Patriots, 9/12, and I.R.C. § 501(c)(4) applications involving political sounding names, e.g., “We the People” or “Take Back the Country.”

June 2010: Determinations Unit began training its specialists on issues to be aware of, including Tea Party cases.

July 2010: Determinations Unit management requested its specialists to be on the lookout (BOLO) for Tea Party applications.

August 2010: First BOLO listing issued with criteria listed as ‘…various local organizations in the Tea Party movement … applying for exemption under 501(c)(3) or 501(c)(4).’

Acting IRS Commissioner Steven Miller, who has resigned from his position effective next month, also cited an increase in 501(c)(4) applications during his May 21 testimony before the Senate Finance Committee. He said such applications doubled and cited the Citizens United court case decided Jan. 21, 2010 that allowed labor groups and corporations to spend an unlimited amounts of money to influence political campaigns.

IRS records show there was an increase over time, but neither Lerner nor Miller provided evidence that there was a significant spike less than two months after the Citizens United decision when the IRS first started to single out tea party and other conservative groups by name for review.

Did Miller Mislead Congress?

During the May 17 hearing, Republican Rep. Charles Boustany accused Miller of misleading Congress in his previous testimony and letters to the Ways and Means oversight subcommittee.

Boustany, May 17: Why did you mislead Congress and the American people on this?

Miller: Mr. Chairman, I did not mislead Congress nor the American people. I answered the questions as they were asked.

Who’s right? Let’s first examine what Miller knew and when he knew it.

He was asked at the May 17 hearing when he was made aware of the targeting - a word he takes issues with because he says it is a “loaded term.” He said he learned of it in March 2012 through media accounts. At the time, Miller was the Deputy Commissioner for Services and Enforcement. Miller said, and the IG report confirms, he sent a team of IRS staffers from Washington, D.C. to Ohio to investigate in late March 2012.

Miller testified (43 minute mark) that he was aware of problems with processing applications at that time, but he said he did not know about the BOLO list until he got a report back on May 3, 2012 that outlined the extent of the problem, including requests for what the IRS and IG deemed “unnecessary” information and “inappropriate criteria.”

“I thought there were problems with the processing of the cases,” he said. “They came back with both pieces. Yes, there were problems with processing cases and there were problems with the listing.”

More than two months after learning the scope of the problem, Miller appeared before the Ways and Means’ oversight subcommittee on July 25, 2012. At that hearing, Rep. Kenny Marchant opened his line of questioning by saying he wanted to “focus on some of the smaller local groups that are claiming tax‑exempt status.” He cited complaints of harassment and then asked Miller, “What kind of letter or action is taking place at this time that you are aware of?” Miller did not disclose problems he knew existed.

Miller responded by talking about how the agency works to “ensure consistency” in determining nonprofit status and that the process for approving applications was slowed by groups that don’t understand the rules.

Here is an excerpt of that exchange, from the subcommittee transcript:

Marchant, July 25, 2012: I have been contacted by several of the groups in my district. And they feel like they are being harassed. I don’t have any evidence that that is the case. But they feel like they have been harassed and feel like the IRS is threatening them with some kind of action or audit. What kind of a letter or action is taking place at this time that you are aware of?

Miller: So if we are talking about social welfare organizations, (c)(4)s, 501(c)(4)s, then we did receive quite a few. We received an uptick, an increase in the number of (c)(4) organizations that were advocacy organizations, they were advocating on various things, which is a fine thing for a 501(c)(4) to do. It is politics that isn’t really considered to be appropriate 501(c)(4) behavior past a certain threshold because they can do politics. And what is politics also, Congressman, is, you know, it may not be what you and I would think of politics as; it is politics under the Internal Revenue Code, which is really campaign intervention. It is endorsing or arguing against a particular candidate for public office, that is politics.

So you know I am aware that there is an uptick of organizations that came into us for exemption. So it was the determination letter process, not the examination process.

I am aware that some 200 501(c)(4) applications fell into this category. We did group those organizations together to ensure consistency, to ensure quality. We continue to work those cases.

My understanding, Congressman, is something over 50 of the 200 have received exemption already, more will. But many of these organizations fall into the category that I was talking about with Congresswoman Jenkins, where they are very small organizations and they are not quite sure what the rules are, and so we are working with them to ensure that they understand what the rules are. It is my hope that some of the noise that we heard earlier this year has abated as we continue to work through these cases.

Miller clearly had more information he could have shared but didn’t.

‘Absolutely No Targeting’

One of the clearest cases of providing false information came from the IRS commissioner at the time, Douglas Shulman, an appointee of President George W. Bush.

At a March 22, 2012 hearing of the Ways and Means oversight subcommittee, Shulman was asked about reports of conservative groups being targeted and he assured the subcommittee that “there is absolutely no targeting.”

Boustany, March 22, 2012: Can you give us assurances that the IRS is not targeting particular groups based on political leanings?

Shulman: Thanks for bringing this up. I think there has been a lot of press about this and a lot of moving information. I appreciate the opportunity to clarify. First, let me start by saying yes, I can give you assurances….

What has been happening has been the normal back and forth that happens with the IRS. None of the alleged taxpayers, and obviously, I cannot talk about individual taxpayers, and I am not involved in these, are in an examination process. They are in an application process, which they moved into voluntarily.

There is absolutely no targeting. This is the kind of back and forth that happens when people apply for 501(c)(4) status.

That’s obviously false.

On May 21, Shulman testified before the Senate Finance Committee, along with Miller and Treasury Inspector General for Tax Administration J. Russell George. Shulman said that he learned “sometime in the spring of 2012″ that “there was a list that was being used” to identify political groups for further review and that the term “tea party” was on the list. But, he added, that he did not know “the scope and severity of the list,” and he “did not have a full set of facts” until the IG report was issued earlier this month.

Sen. Orrin Hatch said that Shulman should have “corrected the record and you should have done it long before today.”

Correction, May 21: This article originally gave the wrong first name for former IRS Commissioner Douglas Shulman. We regret the error.

– By Eugene Kiely and Lori Robertson for FactCehck.org