IRS Delay in Disclosing Groups’ Scrutiny Focus of Probes

The widening inquiries into the Internal Revenue Service are focusing less on why employees singled out small-government groups for scrutiny and more on agency executives who didn’t inform Congress earlier.

While an inspector general’s report released yesterday blamed “ineffective management” at the IRS for inappropriate and slow handling of applications for tax-exempt status, it didn’t show evidence of partisan motivation or influence from outside the agency.

“It is a truism in Washington investigations that more people get in trouble for their actions after the gun goes off and an investigation begins,” said Steven Ross, who leads the practice focusing on congressional inquiries at Akin, Gump, Strauss, Hauer & Feld LLP in Washington.

The probes are accelerating, with four congressional inquiries and a criminal investigation that Attorney General Eric Holder announced yesterday, even as the report didn’t confirm some lawmakers’ speculation about political intent.

Two House committees are pursuing why senior IRS officials failed to disclose what they knew for more than a year amid intense congressional interest. Darrell Issa, head of the House Oversight and Government Reform Committee, said the panel will hold a May 22 hearing to focus on “how this went wrong, was corrected and went wrong again.” The Senate Finance Committee will hold a hearing May 21, Chairman Max Baucus announced.

Obama Meeting

President Barack Obama scheduled a meeting for this afternoon with top Treasury officials, including Secretary Jacob J. Lew and Deputy Secretary Neal Wolin, to discuss the inspector general’s findings.

“The president believes that we need to look at the findings of the inspector general in his review; and to make determinations about the need to hold people accountable for their conduct,” White House press secretary Jay Carney said.

The IRS first disclosed May 10 that it singled out groups for extra scrutiny based on whether their names included words such as “tea party” and “patriot,” when Lois Lerner, a mid-level official who oversees tax-exempt groups, acknowledged the practice and apologized.

The controversy has prompted at least four Senate Republicans and one House Democrat to call for Steven Miller, the acting IRS commissioner, to resign or be fired.


Representative Sander Levin of Michigan, the top Democrat on the Ways and Means Committee, told MSNBC that based on the inspector general’s report, “there’s reason to believe” that Miller and Lerner should be fired.

“My question is who’s going to jail over this scandal?” House Speaker John Boehner told reporters today.

“Someone made the conscious decision to harass and to hold up these requests for tax-exempt status,” said Boehner, an Ohio Republican. “Clearly someone violated the law.”

Senate Minority Leader Mitch McConnell, a Kentucky Republican, demanded answers on how ProPublica, a New York-based nonprofit news organization, received IRS documents about political groups that weren’t supposed to be publicly released. ProPublica reported May 13 that nine pending requests for tax-exempt status were included among a batch of documents it received in November after making a public-records request.

Senate Republicans also sent a letter to Obama demanding that the administration be “fully forthcoming” with information requested for congressional inquiries into the IRS.

Obama called the IRS employees’ actions “intolerable” in a statement last night after reviewing the IRS report, and directed Lew to “hold those responsible for these failures” accountable.

IRS Employees

The president of the union representing IRS employees said today that she thought no one intentionally did anything wrong.

In her first substantive statement since the IRS acknowledgment on May 10, Colleen Kelley of the National Treasury Employees Union wrote that she thinks IRS employees do their work without partisan considerations.

The union “will work to ensure that front-line employees are not treated unfairly,” she wrote in a letter to members.

Also in a statement today, the IRS said Chief Counsel William Wilkins didn’t attend an August 2011 meeting with staff members involved in handling the targeting.

The timeline in the report said that “Chief Counsel” was involved in an Aug. 4, 2011, meeting. Wilkins, one of two presidential appointees at the IRS, is the agency’s top lawyer.

Inside the IRS, “chief counsel” is standard language for referring to any of the 1,600 attorneys who work for him. Wilkins “is not involved” in the issue involving nonprofit groups and didn’t discuss the applications with the Treasury Department’s general counsel, the IRS said.

‘Criminal Liability’

In a letter to Lerner, House Republicans suggested that Lerner may have misled Congress and suggested “potential criminal liability.”

Miller and then-commissioner Douglas Shulman learned details of the selective scrutiny in May 2012. That was several months after Republican lawmakers began raising questions, prompted by lengthy questionnaires that the groups started receiving in January 2012.

Contradicted Testimony

Those briefings provided Shulman and Miller with information that contradicted testimony Shulman had given in March, when he assured a Ways and Means subcommittee that no groups were targeted. Shulman’s term expired in November 2012.

“While flaws in our process were corrected last year based on our own review, we only recently discussed this publicly as there had been a concurrent ongoing” inspector general’s investigation, the IRS said in a statement after the report was released. “There was no intent to hide this issue, but rather we waited until” after the report was completed.

Those delays pushed the disclosure of scrutiny of the small-government groups past the November 2012 election.

The Ways and Means Committee, in a letter signed by Republican Chairman Dave Camp and Levin, sent Miller 13 questions yesterday, six of which focused on disclosure to Congress.

“The IRS had a continuing obligation to update and correct information provided to Congress if it was later determined to be incomplete or inaccurate,” Camp and Levin, both of Michigan, wrote to the acting chairman. “Why did your agency fail to be completely forthcoming with the committee in its responses to the committee’s ongoing investigation, and in testimony before the committee, regarding the IRS’s practice of targeting conservative groups?”

May 17 Hearing

The Ways and Means panel will hold the first hearing May 17 with Miller and inspector general Russell George as the only witnesses. .

Miller told lawmakers in July 2012 that the IRS had grouped together political nonprofit cases to ensure consistency. He didn’t say how the grouping decisions were made, which is at the center of the controversy and the inspector general’s report.

Senator John Thune, a South Dakota Republican, said today that Miller should resign.

In a letter to Lerner, Issa and Representative Jim Jordan wrote that information released in recent days “conflicts with statements you made to the committee last year.” In particular, he wrote, Lerner said the criteria for screening applications had never changed and she portrayed the extensive information requests to the groups as ordinary.

“It appears that you provided false or misleading information on four separate occasions last year,” wrote Issa, a California Republican, and Jordan, an Ohio Republican. “Providing false or misleading statements to Congress is a serious matter, with potential criminal liability.”

Cincinnati Office

So far, according to Issa’s letter, no IRS employees in the Cincinnati office that handled the applications have been disciplined and one person involved has been promoted or given some “career enhancement.”

IRS officials, trying to handle a surge in applications for tax-exempt status, used what the agency described as “inappropriate shortcuts” to determine which cases deserved additional scrutiny. Advocacy and lobbying groups can receive exemptions under section 501(c)(4) of the tax code as long as their primary purpose isn’t to engage in politics.

Disclosing Donors

Groups with 501(c)(4) status don’t have to disclose donors, making it an attractive vehicle for political activity.

The IRS lacks an effective way of determining whether politics is a group’s primary activity, the inspector general’s report found.

The criteria kept changing, at times without the knowledge of IRS managers. In June 2011, when Lerner saw the criteria that mentioned “tea party,” she ordered them changed.

At that point, no letters had been sent to groups. The IRS could have set clearer, more neutral criteria and restarted the screening process. That didn’t happen.

IRS officials told staff members from the House Oversight Committee May 13 that “there was no discussion” about redoing the screening, according to Issa’s letter.

Beyond the immediate crisis, the IRS will have a bigger challenge in resurrecting its reputation as a nonpartisan enforcement agency.

“The damage here is there could be a real reticence to do their job because they fear criticism from the Congress or others,” Mark Everson, who was IRS commissioner from 2003 to 2007, said in an interview yesterday. “That’s why it’s so damaging that they got into this political milieu.”

Before it's here, it's on the Bloomberg Terminal.