IRS Delinquent in Handling Tea Party Cases, Report Says

The Internal Revenue Service (IRS) building stands in Washington, D.C., U.S., on Wednesday, April 6, 2011. The IRS would have to suspend tax audits, the Small Business Administration's processing of loan applications would be halted and National Parks would close if the federal government is forced into a partial shutdown because of the budget impasse in Congress.

Photographer: Andrew Harrer/Bloomberg

The management of the IRS was “delinquent” in its treatment of Tea Party groups seeking nonprofit status and the agency’s poorly planned efforts to address the issue “ended in predictable failure,” according to a U.S. Senate report released on Wednesday.

The report is the first bipartisan inquiry into how the Internal Revenue Service treated politically oriented nonprofit groups when they applied for tax-exempt status. It also provides new details about the actions of Lois Lerner, the agency’s former director of exempt organizations.

The inquiry, more than two years in the making, is bipartisan only to a point. The Republican and Democratic staffs and lawmakers each issued lengthy separate reports, highlighting the continued political divide over the IRS’s motives and over what Congress should do to change how the tax agency examines nonprofits engaged in politics.

“The committee found evidence that the administration’s political agenda guided the IRS’s actions with respect to their treatment of conservative groups,” Republican Orrin Hatch of Utah, the committee chairman, said in a statement. “Personal politics of IRS employees, such as Lois Lerner, also impacted how the IRS conducted its business.”

The Republican report contends that Lerner was much more responsive to Democratic members of Congress than to Republicans and that senior IRS executives “misled” Congress repeatedly.

‘Targeted’ By IRS

“These Tea Party and other conservative groups were, in fact, ‘targeted’ by the IRS based on their political views,” the Republican report said. “We found no evidence that the IRS scrutinized left-leaning organizations in the same manner, or for the same politically motivated reasons, as it targeted Tea Party and other conservative organizations.”

Democrats disputed those findings and contend that the IRS’s missteps affected a range of political organizations and weren’t limited to conservatives.

“Groups on both sides of the political spectrum were treated the same, and they were treated badly,” Senator Ron Wyden of Oregon, the top Democrat on the committee, told reporters.

The Democratic report said the charge of divergent responses to members of Congress was based on only a few cases, and that there was no evidence that employees’ views influenced their actions.

“You are not going to find a partisan political scandal or proof of life on Pluto,” Wyden said.

Improper Scrutiny

In 2013, the IRS acknowledged that it had given improper scrutiny to Tea Party groups seeking tax-exempt status, by selecting them for a closer look based solely on their names, delaying their applications and asking inappropriate questions.

“IRS managers forfeited the opportunity to shape the IRS’s response to the influx of political advocacy applications by simply failing to read reports informing them of the existence of those applications,” the bipartisan report said. “IRS managers did not take appropriate steps to ensure that the applications were processed expeditiously and accurately.”

The agency apologized and the acting commissioner resigned. Lerner, who was at the center of the controversy, was suspended and then retired. She has refused to testify before Congress, invoking her constitutional right against self-incrimination.

IRS Response

The IRS said in a statement Wednesday that it’s looking forward to reviewing the report.

“We want to do everything we can to help taxpayers have confidence in the fairness and integrity of the tax system,” the agency said. “We have already taken many steps to make improvements in our processes and procedures, and we are pleased to have other suggestions from the committee to help us in our continuing effort.”

Since an initial bipartisan outrage, views in Congress on the IRS have polarized. Republicans have been investigating the agency aggressively, seeking criminal prosecutions and searching for links to the White House. Little evidence has emerged to bolster the idea of a politically motivated plot.

Most recently, some House Republicans have threatened to impeach the current commissioner, John Koskinen, over the way the IRS handled and disclosed what it says was the inadvertent destruction of some of Lerner’s e-mails.

Democrats say the agency’s actions were ham-handed and poorly managed and they blame a vague law.

Social Welfare

Groups organized under section 501(c)(4) must “exclusively” promote social welfare. The IRS has interpreted that to mean that politics can’t be their primary purpose, a rule that requires the IRS to both define and measure politics.

Operating as a social welfare organization is beneficial to political groups, not because of the tax exemption but because they don’t have to disclose their donors. Such groups have poured money into politics in recent years.

The IRS is working on rules that would provide a clearer definition of politics and what’s allowed for each type of tax-exempt group. Those won’t be in effect until after the 2016 election and an earlier version was so controversial that the agency had to start over.

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