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May 13, 2013
IRS Sparks Outrage With Admission It Mistreated Tea Party Groups
by Fred Stokeld

Full Text Published by Tax Analysts®

by Fred Stokeld

Congressional Republicans erupted in anger on May 10 after an IRS official acknowledged that exemption applications of many Tea Party organizations were handled inappropriately.

Lois Lerner, director of exempt organizations in the agency's Tax Exempt and Government Entities Division, apologized on behalf of the IRS, and the IRS released a statement addressing the matter, but Republicans demanded that the agency come clean about its "harassment" of conservative organizations.

Between 2010 and 2012, the IRS received a large number of applications from Tea Party groups seeking section 501(c)(4) status, many of which indicated they would be involved in advocacy, Lerner said at the Exempt Organizations Committee session of the American Bar Association Section of Taxation meeting in Washington. Employees in the IRS determinations center in Cincinnati inappropriately referred applications for further review because the organizations used the words "Tea Party" or "patriot" in their names, she said.

Referring cases for further review based on organizations' names was wrong and insensitive, Lerner said. "That's not how we go about selecting cases for further review; we select them for further review because they need further review, not because they have a particular name," she said.

In some cases, applications took too long to process. In other cases, IRS agents asked organizations for unnecessary information, including contributors' names, she said, adding that the requests were inappropriate.

"There are some very limited times when we might need [contributors' names], but in most of these cases when they were asked, they didn't do it correctly and they didn't do it with a high level of review," Lerner said.

Lerner said the mishandling of the applications was not the result of political bias by IRS employees. "They did it because they were working together, this was a streamlined way for them to refer the cases, and they didn't have the appropriate level of sensitivity about how this might appear to others," she explained.

When the IRS National Office discovered the problem, it amended the procedures to require staff to seek the approval of the IRS Exempt Organizations Rulings and Agreements Office before changing the list of cases submitted for further review, Lerner said. "Line staff can no longer change or add to that list" without review, she said.

Applicants that have been asked unnecessary questions have been given more time to respond and more leeway not to answer some questions, Lerner said. "In some cases we told them, 'Just ignore the letter we already sent you; we're going to send you a new list of questions,' and in some cases we said, 'We don't need those questions to be answered; we can deal with your application without responses,'" she said.

The IRS has separated the cases to learn which require further review and which require additional information from the applicants, Lerner said.

According to the IRS statement, the agency fixed the problem last year and has made significant progress in moving the applications. All applications referred for further review received the same even-handed treatment, and most of the referrals were not based on a specific name, the IRS said.

During a May 10 briefing, White House press secretary Jay Carney said he believed the Treasury Office of the Inspector General would investigate. The Obama administration expects the investigation to be thorough and expects corrections to be made, he said.

"What we know about this is of concern, and we certainly find the actions taken, as reported, to be inappropriate," Carney said.

Republicans Pounce

GOP lawmakers were not satisfied with Lerner's apology and explanation or Carney's remarks. House Majority Leader Eric Cantor, R-Va., said the House will investigate, and House Ways and Means Committee Chair Dave Camp, R-Mich., released an announcement that the committee will hold a hearing.

"The IRS cannot target or intimidate any individual or organization based on their political beliefs," Cantor said.

House Speaker John A. Boehner, R-Ohio, said in a release that the IRS's admission "echoes some of the most shameful abuses of government power in 20th-century American history."

Ways and Means Oversight Subcommittee Chair Charles W. Boustany Jr., R-La., who last year sent then-IRS Commissioner Douglas Shulman a letter about the Service's treatment of Tea Party groups, said in a release that the IRS's "too little, too late" response is unacceptable. He fired off a letter to acting IRS Commissioner Steven Miller demanding all communications containing the words "Tea Party," "patriot," or "conservative," and seeking the names and titles of IRS employees "involved in this discrimination." (Prior coverage.)

Sen. Carl Levin, D-Mich., chair of the Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations, agreed that more scrutiny is necessary. Noting that the subcommittee has investigated the IRS's lack of enforcement against section 501(c)(4) organizations not engaged exclusively in social welfare activities, Levin said in a release that the IRS's announcement "raises a second issue: whether the IRS, to the extent it has enforced its rules, has been impartial in doing so. Both issues require investigation."

Senate Minority Leader Mitch McConnell, R-Ky., said in a release that the IRS engaged in a "thuggish practice" that bordered on infringing on conservative activists' rights to free speech.

"We need to send a clear message to the Obama Administration that the First Amendment is non-negotiable, and that apologies after an election year are not a sufficient response to what we now know took place at the IRS. This kind of political thuggery has absolutely no place in our politics," McConnell said.

Senate Finance Committee member Rob Portman, R-Ohio, who last year joined Hatch and other Senate Republicans in a letter asking the IRS about reports of excessive inquiries of section 501(c)(4) applicants, in a release asked the IRS for details about the Cincinnati group's actions and said that additional safeguards are needed.

"I expect quick action from the IRS as to how this happened in the first place and what steps are being taken to ensure that it never happens again," Portman said.

The IRS also took heat from National Taxpayer Advocate Nina Olson, who, reacting to Associated Press reports, called the revelations disturbing and said she wanted to know more.

In response to news reports that no IRS officials knew what was going on and that only low-level employees were involved, Olson said, "I really don't like it when we just say it's our low-level employees." Regarding her own position as national taxpayer advocate, she said, "I am responsible for what my employees do, and I have to make sure I have systems in place and reviews in place that will catch people going off in the wrong direction. I may not be able to always stop them from going off in the wrong direction, but I've got to have systems in place that stop them as quickly and as immediately as possible."

Practitioners Weigh In

After Lerner's remarks, Celia Roady of Morgan Lewis & Bockius LLP told Tax Analysts she's glad the IRS has found a better approach. There was an unusual level of detail in the questions the Cincinnati group asked the Tea Party groups, she said, adding that the IRS should only rarely ask about contributors.

Marcus S. Owens of Caplin & Drysdale, who headed the IRS EO office in the 1990s, said it was unfortunate that some of the employees in the Cincinnati office used nomenclature rather than a description of activities when deciding to select applications for further review. He noted that Lerner did not specify whether groups other than Tea Party groups were included in the mishandled applications.

Elizabeth J. Kingsley of Harmon Curran Spielberg & Eisenberg LLP said she hoped the scandal would lead to better training and greater sensitivity among IRS line staff, adding that she hoped it wouldn't contribute to a perception that political bias motivates the IRS.

William Hoffman, Meg Shreve, Lindsey McPherson, and Michael M. Gleeson contributed to this article.

Additional documents

  • Release from Senate Finance Committee ranking minority member Orrin G. Hatch, R-Utah.
  • Release from Finance Committee member John Thune, R-S.D.
  • Release from Finance Committee member John Cornyn, R-Texas.
  • Release from Finance Committee member Pat Roberts, R-Kan.
  • Release from Sen. Lamar Alexander, R-Tenn.
  • Release from House Ways and Means Committee member Mike Kelly, R-Pa.
  • Letter from the IRS, April 26, 2012.
  • Letter from the IRS, September 11, 2012.

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