Obama’s Defense in IRS Case Is Pre-Election Ignorance

Whether the Internal Revenue Service controversy explodes into something bigger comes down to this: Did anyone in the Obama administration know before the Nov. 6 election that the agency singled out Tea Party groups for extra screening?

Graphic: Who Knew What and When?

“The first question is who knew what when before the elections,” said David Gergen, an adviser to Republican and Democratic presidents from Richard Nixon to Bill Clinton.

“It’s a lot more relevant if people withheld sensitive information in a controversy that is, at its heart, about political power,” said Gergen, now a professor at Harvard’s Kennedy School of Government.

What’s now an embarrassment to President Barack Obama’s administration would be elevated to a lasting stain if evidence emerges that anyone outside the IRS knew or was involved, either in inspiring the selective scrutiny or in withholding disclosure to the public, during the sensitive election season. So far, no such evidence has emerged.

White House Counsel Kathryn Ruemmler was briefed on the findings on April 24 and informed White House chief of staff Denis McDonough, White House Press Secretary Jay Carney said yesterday. Obama said he wasn’t informed of the politically sensitive findings and said he first learned of the scandal when it was publicly disclosed on May 10.

Carney said yesterday it was Ruemmler who decided that the president shouldn’t be told earlier.

Administration Explanations

The account Carney provided yesterday went beyond previous White House explanations. Dan Pfeiffer, an Obama senior adviser, said on NBC’s “Meet The Press” on May 19 that the White House had “no idea what the facts were” when Treasury officials informed Ruemmler of the audit. Carney said yesterday that Ruemmler was told that certain words such as “Tea Party” and “patriot” were used to identify groups for extra screening.

A Treasury Department official said this morning that the department deferred to the IRS in deciding how to make the report’s findings public. The IRS first suggested using a speech by Lois Lerner, the head of the division overseeing tax-exempt organizations. While Treasury officials expressed concern, they deferred to the IRS, according to the official, who wasn’t authorized to discuss the matter publicly.

The IRS also suggested using congressional testimony by the acting commissioner, Steven Miller, during which the agency expected he would be asked about the matter, the official said.

Planting Question

When Miller wasn’t asked in the congressional testimony, the agency suggested planting a question in the audience about the matter during a public speech Lerner was to make May 10, the strategy which the agency ultimately used to reveal the findings. The Treasury department deferred to the IRS in both instances, the official said.

Deputy White House Chief of Staff Mark Childress was consulted on the first two strategies for disclosure, though not the third option ultimately deployed, said a White House official, who asked for anonymity to discuss internal deliberations.

Congressional testimony today from Douglas Shulman, who was IRS commissioner through the election, might provide some more answers.

Miller, who was Shulman’s deputy, was aware of the improper targeting by May 3, 2012 -- six months ahead of the election, according to testimony Miller gave last week. Miller, who became acting commissioner after Shulman left last November, is being forced out of the IRS.

‘Not Surprising’

Among the questions Shulman will encounter is why he didn’t inform Congress of the improper targeting. In March of that year, Shulman testified there was no targeting, a statement which by May he learned was misleading.

“It’s not surprising to me that members of Congress took umbrage that the earlier testimony from senior leadership of the IRS was not clarified once they knew more about what was going on,” said Jack Quinn, a Washington lobbyist and White House counsel in the Clinton administration.

A clarification of misleading testimony is “expected” by veteran members of Congress, including Orrin Hatch, the top Republican on the Senate Finance Committee, Gergen said. The panel is holding a hearing on the IRS controversy today.

“It’s why Orrin Hatch has every reason to be angry,” Gergen said. Shulman’s failure to correct the record is “not just imprudent. It’s stupid,” he said.

Any evidence that shows administration officials knew details of the IRS activity before the election would undercut their story and open them to accusations of withholding information for partisan gain.

Independent Agency

Unlike the Securities and Exchange Commission, for example, the IRS isn’t an independent agency. It’s housed inside the Treasury Department, and IRS officials work with Treasury counterparts.

Although the IRS is prohibited from sharing information about individual taxpayers, the tax agency routinely discusses emerging issues and priorities with the administration.

After Tea Party and small-government groups’ complaints became public in early 2012, the IRS could have informed Treasury as to what it was doing or Treasury could have sought an explanation from the IRS, said a former senior Treasury official.

Such a conversation would be expected, given the politically sensitive nature of the issue, said the former official, who spoke on condition of anonymity because of business contacts with the IRS and Treasury.

The barrage of questions Carney confronted yesterday, over the Obama administration’s response after it was notified last month of a Treasury Department inspector’s report on the IRS controversy, have more to do with the political positioning.

Informing President

“It’s a management question: What do we tell the president?” Gergen said. “I have been in White Houses where there have been fights about what to tell the president and when. Usually, it’s whether to tell the president tonight or tomorrow, not wait two weeks.”

A central theme of congressional complaints so far has been how the IRS singled out Tea Party and Patriot groups, which have been more friendly to Republicans than Democrats, for tougher scrutiny when applying for tax-exempt status.

In 2010, IRS employees in Cincinnati began looking for a way to sort which applications for tax-exempt status they should scrutinize. Their job was to prevent groups that were primarily political -- involved in elections -- from being approved for tax-exempt status.

Setting Criteria

They settled on criteria that included such phrases as “Tea Party” and “patriot.” Those terms caught groups that favor Republicans and smaller government. Other criteria didn’t have the same effect and some groups with opposite views did.

Lerner, the mid-level Washington official who oversaw the effort, found out what was happening in June 2011. She tried to change the criteria, only to see Cincinnati workers change them back and send out to the groups extensive questionnaires, some of which asked for reading materials and donor lists.

In early 2012, after the questionnaires went out, Republican lawmakers started complaining. Shulman, an appointee of Republican President George W. Bush and then the IRS commissioner, assured them in March 2012 that there was no “targeting.” At the same time, Miller, a deputy commissioner, dispatched an aide to figure out what was going on.

Miller learned the details on May 3, 2012, and he said Shulman found out, too. “I’m sure Mr. Shulman knew,” Miller said at the hearing. “I’m not sure that anybody above Mr. Shulman knew.”

Inspector General

Even as the inspector general informed officials outside the IRS about the existence of his audit -- including Deputy Treasury Secretary Neal Wolin and House Oversight and Government Reform Committee Chairman Darrell Issa, a California Republican -- the knowledge of what the IRS had done remained inside the agency, at least based on the evidence that has become public.

It started spreading beyond the IRS in mid-March 2013, when the inspector general began sharing his draft report. The IRS informed the Treasury Department of the findings shortly after that, according to a Treasury statement.

The Treasury Department -- though neither Wolin nor Secretary Jacob J. Lew -- received an updated draft report in late April. The IRS acknowledged that it had singled out small-government groups on May 10, when Lerner responded to a planted question at a tax conference.

The inspector general’s report came out May 14, and by the next day, Obama announced Miller’s resignation.

To contact the reporters on this story: Mike Dorning in Washington at mdorning@bloomberg.net; Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editors responsible for this story: Steven Komarow at skomarow1@bloomberg.net; Jodi Schneider at jschneider50@bloomberg.net

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