A concerted effort by a mid-level Internal Revenue Service official last Friday, May 10, to confess to some minor irregularities in how the IRS has dealt with conservative organizations seeking tax exempt status has unraveled. Lois Lerner, who oversees tax exempt organizations for the IRS, attempted to get out the word under the radar. She failed miserably.
Lerner attempted to present the issue as having affected a small number of organizations, targeted by using a few key words, and acted out by only a few low level IRS employees in a remote office, for a limited period of time, which took place without the consent or even knowledge of higher level IRS officials. By Monday morning that cover had been entirely blown.
In the center of a scandal that continues to grow wider, deeper and longer by the day, the Acting Internal Revenue Service Commissioner will be sitting in the hot seat before the House Ways and Means Committee this Friday morning, May 17, starting at 9:00 a.m.
The hearing is to discuss the practice of targeting applicants for tax-exempt status based on political leanings. There will only be two people called to testify at this hearing: Acting Commissioner of the Internal Revenue Service, Steve Miller, and the Treasury Inspector General for Tax Administration, J. Russell George. Miller was the assistant to the former IRS commissioner, Douglas Shulman, under whose watch many of the complaining organizations experienced allegedly excessive and inappropriate probing by the IRS.
The first admission, last Friday afternoon, was that the IRS had been subjecting certain conservative groups to increased scrutiny but insisting that only “low level IRS employees” in a remote Ohio office were using inappropriate ways in which to flag certain groups, and that the practice was short-lived. The excuse was that in 2012 there were so many new groups seeking tax exempt status that the Agency had to figure out ways in which to more quickly help determine which groups were legitimate and which weren’t.
But as revelations continue to leak out of Washington, D.C., it appears the practice was much broader, it took place in multiple IRS offices in cities across the country, it went on for a much longer period of time than was originally admitted, and high level IRS officials were aware of some aspects of the progress for far longer than had earlier been admitted.
In addition to inappropriate questioning by IRS agents in Cincinnati, Ohio, the original site mentioned by Lerner, documents have revealed that agents in Washington, D.C. and at least one other IRS office were involved in providing increased levels of scrutiny to certain conservative organizations.
And it wasn’t only groups with the words “tea party” and “patriot” in their organization’s names that were pulled out of line for additional scrutiny. The IRS net included groups that opposed Obamacare, those that focused on vote fraud, ones that sought to educate about the Constitution and the Bill of Rights, and ones that sought to limit the role of government.
Although Lerner claimed only low-level agents in the Cincinnati office engaged in and knew about the practice, it is now known that IRS employees in Washington were aware of the practice. The Inspector General’s report states that officials at the Internal Revenue Service knew in June 2011 that their agents were targeting conservative groups for additional scrutiny on tax documents, CNN reported Monday.
The original revelation of IRS inappropriate activity suggested that the practice only began in 2012, but the Inspector General’s report revealed that the practice began as far back as 2010.
IRC 501(c)(3) versus 501 (c)(4)
Thus far it appears that almost all of the groups complaining about the inappropriate, politically-oriented targeting are organizations seeking tax exempt status as “social welfare” organizations, which come under the Internal Revenue Code section 501(c)(4). These groups, as distinct from 501(c)(3) organizations, are given more leeway in terms of engaging in political activity. There was a huge increase in the number of such organizations following a 2010 Supreme Court decision which gave a hecksher to political campaign spending by corporations, in Citizens United v. Federal Election Commission.
Both (c)(3) organizations and (c)(4) organizations are exempt from paying taxes, but only donations made to (c)(3) organizations are tax deductible. Organizations that are (c)(3)s can engage in only very limited lobbying activity and cannot engage in political activity at all, whereas (c)(4)s can engage in unlimited lobbying and can engage in political activity to the extent it is consistent with the organization’s mission and so long as it is not the organization’s primary activity.
The pro-Israel and Jewish organizations that have complained about inappropriate IRS activity by the IRS are 501(c)(3)s.
It may be that the next wave of congressional inquiry will focus on what other kinds of organizations have been targeted for special scrutiny by the IRS.
In addition to Friday’s House Ways and Means Committee hearing, the IRS can look forward to hearings before at least one more, if not two more, congressional committees.
On Monday, Senate Finance Committee Chairman Max Baucus (D-MONTANA) called for a full investigation into the IRS targeting of conservative groups. Senator John McCain (R-AZ) also announced on Monday that the Senate Permanent Subcommittee on Investigations plans to investigate the new IRS revelations.
President Barack Obama issued a statement on Monday calling the alleged misdoing by the IRS “outrageous, if true.” White House spokesperson Jay Carney said that Obama only found out about the matter last Friday.
