IRS Scandal: Excuses Denials and Justifications

We live in the era stultifying, bureaucratic complexity, imposed by government.  The serpentine federal tax code is beyond human comprehension and is almost universally hated. 

Then there’s federal election law.  The First Amendment to the US Constitution says, “Congress shall make no law…abridging the freedom of speech, or of the press.”  It’s simple and easily understood.  Yet, somehow  Congress has manifestly abridged both freedoms with a bewildering system of laws and regulations that control who may pay for campaigns, how much may be spent and who is permitted to advocate for or against candidates.

The Obama Administration’s IRS scandal is a collision at the intersection of impenetrable tax law and byzantine election law.

While businesses are taxed on their profits, not-for-profit activities and organizations are tax exempt. But in most cases one can’t simply engage in a tax exempt, not-for-profit activity unless one’s “tax-exempt status” has first been applied for and approved by the IRS bureaucracy.

The current scandal is over applications from conservative groups to the IRS seeking officially recognized tax exempt status as 501(c)(3) or 501(c)(4) organizations.  The numbers are chapter and verse of the tax code.

An understanding of the scandal requires a brief lesson in bureaucratic vocabulary:

Campaign Intervention is IRS speak for activities that support or oppose candidates for public office.  Tax exempt organizations may support causes but support of or opposition to candidates is either forbidden or limited, depending on the 501 category.   The rules are completely arbitrary and thus make no sense, but that much is is not the fault of the IRS, nor within it’s power to change.  Congress enacted and Presidents signed the nonsensical laws.  The job of the IRS is to interpret and enforce them, evenly, without prejudice, treating everyone the same.

The Determinations Unit of the IRS Exempt Organizations Office is charged with reviewing tax-exempt applications to ensure compliance with restrictions on “campaign intervention.”

The 25 to 40 pages of IRS application forms include scores of questions, demanding lots of meticulously detailed information on the organization’s leaders, employees, mission, operating plans and finances.  Many organizations find they must hire attorneys and/or accountants with specialized expertise just to complete the forms.

After several years of Complaints from Conservative groups and their representatives in Congress The Treasury Department Inspector General for Tax Administration launched an “audit” of the IRS Exempt Organizations Office to investigate allegations that the Determinations Unit, in the passionless prose of the Inspector General:

1) targeted specific groups applying for tax-exempt status, 2) delayed the processing of targeted groups’ applications for tax-exempt status, and 3) requested unnecessary information from targeted organizations.

The criteria the Determinations Unit applied to identify “specific groups” who were targeted was overtly biased against the administration’s ideological adversaries.  Applications that evidenced any of the following were flagged:

  • Buzzwords such as “Tea Party,” or “Patriots” or “9-12 project:
  • Opposition to government spending, deficits or tax increases
  • Education of the public by advocacy/lobbying to “make America a better place to live”
  • Criticism of how the country is being run
  • References to the Constitution
  • References to the Bill of Rights

Inside the Exempt Organizations Office the flagged applications were all called “tea party cases” until mid-2011 when someone apparently decided it might look less biased if they were called “advocacy cases.” 

The Inspector General notes that criteria for selecting applications for further investigation “should focus on the activities of the organizations and whether they fulfill the requirements of the law.  Using the names or policy positions of the organizations is not a appropriate basis for identifying applications for review…”  Yet, Every application with “Tea Party” or “Patriots” or “9/12” in the organization’s name was flagged.

Rather than approve or disapprove the tea party applications The Determinations Unit would forward them to “a team of specialists” who would investigate the possibility that the group might, in the future, engage in forbidden acts of “campaign intervention.”  The team of specialists turned out to be a black hole.  the Inspector General found that many applicants had not received either approval or denial for more than two years.   In fact, the specialists simply stopped working on what they called “political cases” from October 2010 through November 2011!

After delays of a year or more the team of specialists would send letters to applicants demanding that additional information be provided within three weeks.  The IG report lists these examples:

  • Identity of donors.  The tax code states that applications are confidential until tax exempt status is approved by the IRS.  After approval the applications are public information.  The tax code does not require public disclosure of the names of donors to approved 501(C)(3) and (C)(4) organizations.  But because the identities of donors would become part of the organization’s application they would eventually become public information.
  • A list of all issues that are important to the applicant organization, and it’s position on those issues.
  • List of any organization’s leaders who had ever or would ever in the future run for public office.
  • Party affiliation of the organizations leaders, speakers, and candidates they supported.
  • Information on the organization’s leaders employment and hours worked;
  • Information on the activities of another organization not affiliated with the applicant.
  • Roles of the organization’s leaders, members and non-members in activities;
  • Types of conversations and discussions that took place among members and non-member participants in the organization’s activities.

Congressmen and Senators report that constituents were asked for even more offensive information than is in the above list, including paper copies of all Facebook articles and tweets they had ever posted.  One of Senator Grassley’s Iowa constituents complained that his pro-life organization was told it’s application would be approved only if leaders signed a letter under oath that they would never demonstrate in front of a Planned Parenthood abortion clinic.

When asked by a reporter President Obama reacted with a show of sanctimonious indignation and claimed, preposterously, that he knew nothing about IRS persecution of Conservative groups until media reports appeared on May 10.  In a just completed Senate Finance Committee hearing the last two IRS Commissioners testified that they knew almost nothing and could not say who had developed the criteria that flagged Conservative organizations for further investigation and delay, or who developed the invasive, intimidating questions.

Predictably, the White House and the President’s supporters in the media say “there is no evidence” that anyone in the Obama Administration directed, suggested or encouraged the IRS Exempt Organizations Office to undertake said targeting.  That would be true if one excludes from “evidence” the facts that:

  • Obama’s agenda and reelection campaign benefited because opposition was muted;
  • Obama’s political adversaries suffered delays, and unnecessary expense, while some were intimidated into withdrawing their applications;
  • IRS staff, like all Americans, heard the speeches and media appearances wherein the President and his top appointees aggressively demonized tea party and patriot groups, portraying them as sinister agents of dark special interests;
  • The IG report notes that after the buzzwords and other criteria listed above had been operational for about a year they were discovered by the Director of the Exempt Organizations office who ordered them to be changed to criteria that legitimately focused on activities rather than applicants’ beliefs or positions.  But after only six months someone yet to be identified changed them again, back to targeting beliefs and policy positions.

Some on the Left say the targeting was justified as legitimate extra scrutiny of nefarious “far right” groups.  President Obama may eventually wish he had chosen this defense rather than pleading ignorance, but since he has so vehemently denounced the targeting activities it’s now too late for him to “pivot.”

Some of the President’s supporters have adopted the incompetence defense: misdeeds were done by low level, apparently stupid, IRS employees with no direction from above.  Indeed Steven Miller, the acting IRS Commissioner said in both House and Senate hearings:

I think that what happened here is that foolish mistakes were made by people trying to be more efficient in their workload selection.  The [criteria] described in the report while intolerable was a mistake and not an act of partisanship.

The incompetence defense may seem to protect the President from being convicted in the public mind of what he appears to be, a ruthless, Chicago-way politician who would use the government’s most feared agency to punish and intimidate political adversaries. 

But dismissing the targeting as incompetence doesn’t serve Obama’s agenda of rapidly expanding government and concentrating power in Washington D.C.  One of the legitimate fears of Big Government is the effects on hapless individuals, businesses and organizations that get caught in the gears of indifferent, unresponsive bureaucracy charged with enforcing a regulatory behemoth so complicated and vast that it’s unmanageable, even by those who work within it every day.

ObamaCare, implementation has already produced some ten thousand pages of new regulations that no doctor or patient will ever be able to read and comprehend.  ObamaCare will be managed in part, by the IRS.  Pollsters tell us the Public is already skeptical and a majority supports repeal of of the health care leviathan.  Washington elites who dismiss outrageous offenses against freedoms of speech and the press as insignificant because they were acts of incompetence don’t help the effort to sell ObamaCare.

We don’t yet have all the answers but the Inspector General continues to investigate and more Congressional hearings are scheduled. 

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