May 11 (Bloomberg) -- The Internal Revenue Service, under pressure to regulate political spending by nonprofit groups, now faces investigations into its scrutiny of some organizations seeking nonprofit status.
The IRS acknowledged yesterday that it gave extra scrutiny to groups that applied for nonprofit status if they had “tea party” or “patriot” in their name. Congressional Republicans and President Barack Obama’s administration called for probes into how that happened.
White House spokesman Jay Carney called the action ‘inappropriate’’ and said it should be “thoroughly investigated.” House Ways and Means Committee Chairman Dave Camp, a Michigan Republican, said he would hold a hearing. House Majority Leader Eric Cantor, a Virginia Republican, said the chamber would conduct an investigation.
Earlier yesterday, Lois Lerner, the IRS’s director of exempt organizations, said career employees singled out the groups for further examination based solely on their names, not their applications.
“They didn’t do it correctly,” Lerner said at a conference of tax lawyers in Washington. “We would like to apologize for that.”
At the same time, advocacy groups say the investigations shouldn’t stop the IRS from examining whether groups spending millions of dollars on elections, such as Crossroads GPS and Patriot Majority USA, should be able to claim nonprofit status and keep secret their contributors.
“The IRS has not been rigorous enough in its enforcement of tax laws,” said Paul Ryan, a lawyer with the Campaign Legal Center in Washington. “This may make it more difficult but the IRS needs to pull on its grownup pants and do its job.”
Senator Carl Levin, a Michigan Democrat and chairman of the Permanent Subcommittee on Investigations, said U.S. tax law prevents nonprofit groups from spending money on elections. He said he wants to know why the IRS is not enforcing that prohibition and why the agency gave extra scrutiny to applications from Tea Party groups.
“Both issues require investigation,” he said.
Lerner said the number of groups seeking nonprofit status more than doubled to 3,400 in 2012 from 1,500 in 2010. By being categorized as nonprofit groups under Section 501(c)(4) of the U.S. tax code, organizations don’t have to disclose their donors even when engaging in political activity.
In this case about 75 of the 300 groups singled out for scrutiny by IRS employees were added to the list solely because of their names, not the information they provided.
“They didn’t do this because there was any political bias going on,” Lerner said. “They didn’t have the appropriate level of sensitivity.”
Spending by groups that don’t identify their contributors has increased since the U.S. Supreme Court, in its 2010 Citizens United decision, removed limits on independent spending by corporations and labor unions. Nonprofit groups spent $1 billion in 2012 on campaigns, with more than two-thirds benefiting Republican candidates, according to the Center for Responsive Politics, a Washington-based research group that tracks campaign spending. That was triple the $300 million they spent in 2008.
“The IRS is apologizing for the wrong thing,” said Melanie Sloan, executive director of the watchdog group Citizens for Responsibility and Ethics in Washington. “It seemed reasonable to ask for more information from organizations that indicated they were political. It just shows how cowed they are on this entire issue, that they’re even apologizing just for doing the bare minimum of their job.”
CREW has sued the IRS and petitioned the agency to ban nonprofit organizations from political spending because it says the law requires such groups to be “operated exclusively” for social welfare activities. Lerner said that political activity just “can’t be their primary activity.”
Congressional Republicans, including Senate Minority Leader Mitch McConnell of Kentucky and House Speaker John Boehner of Ohio, yesterday criticized the IRS action.
“Who is ultimately responsible for this travesty?” Boehner said. “What actions will the Obama administration take to hold them accountable?”
Senator Rand Paul of Kentucky, a Tea Party favorite, yesterday told reporters in Cedar Rapids, Iowa, that he was “offended when any kind of government entity targets people for their political or religious beliefs.”
A national anti-tax Tea Party group rejected Lerner’s apology.
“This deliberate targeting and harassment of Tea Party groups reaches a new low in illegal activity and overreach,” Jenny Beth Martin, national coordinator for the Tea Party Patriots, said in an e-mailed statement.
Such criticism could make the IRS more reluctant to take action against the nonprofits, said Lisa Gilbert, director of Public Citizen’s Congress Watch, a Washington-based advocacy group that supports stronger campaign finance laws.
“Many of those will try to use this particular instance of misconduct to make it harder to enforce tax laws in the future,” Gilbert said. “What they did was problematic and it could make them more cautious.”
Republican senators had already pressured the IRS to leave the Tea Party groups alone after reports last year that they had been sent intrusive questionnaires. IRS Commissioner Douglas Shulman told a House subcommittee in March 2012 that the agency wasn’t “targeting” particular groups.
“While I’m glad to see the IRS apologize for unfairly targeting conservative groups, this frankly isn’t enough,” said Senator Orrin Hatch of Utah, the top Republican on the Senate Finance Committee who helped draft a letter to the IRS signed by 12 senators. “We need to have ironclad guarantees from the IRS that it will adopt significant protocols to ensure this kind of harassment of groups that have a constitutional right to express their own views never happens again.”
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