Part 3 - The Internal Revenue Service processing of exemption status applications for conservative and other interest groups
Arlington VA June 3, 2013
Judging by the various polls, emanating from the media over the past ten days, this is the major item bothering the American public about the administration. No other issue, in my view, comes even close, or has greater potential for bringing down the Obama presidency. That said, it is important, I believe, to state at the outset that all the facts are not yet in on this issue, with several important questions remaining to be answered, to include:
1- Who authorized the actions taken by personnel of the Exempt Organizations Division of the IRS?
2- Why did the IRS managers involved believe they were conducting legal reviews?
3- How broad was the activity of the IRS, and did it include groups other than the 'Tea Party-related' organizations?
4- What actions are occuring to discipline those in the management chain that authorized, abetted, or looked the other way?
Arriving at an assessment of these questions, then moving forward to a determination of the extent of seriousness is not an easy task. While there are specific regulations covering the duties of agents in the IRS, there is also a significant amount of latitude in meeting the requirements of the Internal Revenue Act (The Act), and its implementing regulations. So, to arrive at an assessment here, it is necessary to look at the questions, and determine the offsets; have the agents violated either the letter or spirit of the law, or have they used publicly onerous, but reasonable, latitude, however burdening that might have been, to assure that the provisions of the law are met.
With regard to Question #1, who authorized the actions taken by personnel in Cincinnati, and elsewhere, there is no simply answer, at least from the information made available thus far. testimony before the House Oversight Committee by Lois Lerner, and others. Their testimony indicates the decisions were made in Cincinnati, the decisions were designed to assure that only those organizations which deserved the exemption under Section 501(c) received it, and that no political benefit was to be derived from the extended reviews of the mostly conservative group applications. According to Ms. Lerner, when he determined, from a large amount of correspondence was received from Congressional sources complaining about the aggressive tactics, she ordered a stop to the process. Nonetheless, according to her testimony, those actions continued. Some organizations have yet to receive final determinations of their status as of May 31,2013; in some cases, that means the applications have been under consideration for nearly two years.
It is known, from recent news sources, that many of the letters sent, particularly to the conservative groups, such as those with 'Patriots', 'Patriot 365', or 'Tea Party', in their title received letter stamped with the signature of Ms. Lerner, and others. It is also know through a number of sources that the practice was apparently not limited to Cincinnati, nor necessarily to conservative groups. In one case, at least, a pro-Israel lobby group was targeted, as were other groups.
A number of these groups have now entered suit to force the IRS to grant their exemptions. those actions bring the issue to another venue, one where IRS employees will be required to testify under oath before a court, and subject to the Perjury Statutes. The actual determination of who specifically approved the use of the extended review procedures, and how far up in the agency chain approvals were likewise given, will probably have to wait for court determination.
Question #2, Why the extended reviews were conducted, is, on its face, both a reasonable question, and it potentially has a reasonable answer. Prior to the election of 2012, a large number of organizations filed for Section 501(c)(3), and Section 501(c)(4) exemptions as charitable and community-based organizations. The IRS, at some management level, so far 'unknown', approved a procedure to categorize these applications into charities and public interest groups, both of which had their sections devoted to review of the applications under those sections of the Act.
The employees, it would seem, were simply trying to make things easier for themselves in their reviews.
Had that been the case, however, especially under Section 501(c)(4), all the filing organizations should have received the same treatment, and all would have been subject to the expanded reviews. That does not, as we have already stated, appear to be the case. IRS staff 'targeted' conservative, Tea Party, and so-called Patriot groups, while moving others along through the processing. One particularly embarassing disclosure, for example, involved a relative of President Obama, whose request for exemption was approved in only 31 days, while others are still waiting, over three years later.
What little is known seems to show that this targeted approach started shortly after President Obama spoke at one of his political rallies about the dangers of groups in this category. While there is no evidence to show the two directly related to each other, the possible coincidence of the two actions occurring in a very short time, and, with the lack of similar scrutiny on other groups, the question naturally arises of political influence in the review process. The problem here is proving the assertion, and, so far, that has not been done, either in the Congress or by the media.
The concerns posited by Question #3 are the most troubling. We have already alluded in the paragraphs above to what might appear to be selective decision-making, and for purposes other than administrative efficiency. What started as a small operation in Cincinnati, at least according to Lerner, has since seen complaints from those served by other offices as well.
Let's look at the actual record here, starting with the Inspector General's (IG) Report. On page 6 of the report is a table, Figure 3, titled 'Criteria for Potential Political Cases', which lists the following as possible categories for examination:
(1) "Tea Party," "Patriots," or "9/12 Project" is referenced in the case file;
(2) Issues include government spending, government debt or taxes;
(3) Education of the public by advocacy/lobbying to "make America a better place to live" [sic]; and,
(4) Statement in the case file criticize [sic] how the country is being run.
None of these activities are prohibited activities for Section 501(c)(3) or Section 501(c)(4) organizations. Nonetheless, the list of criteria is interesting, especially because it mirrors many of the major speech topics of Obama during the campaign, particularly those which disparage either the Republican candidate Romney, or Republicans in general. Is that illegal? Possibly not. Is it illegal for employees of the IRS to take these topics, having heard them from their president, and use them as selective criteria for application delays and/or audits? Possibly so. It all depends on the intent of the employees, their supervisors and managers, and what they actually did with their criteria, in terms of reviewing applications.
So, there are really two issues here, and those issues need to be dealt with separately in our assessment. First is the issue of scrutiny. The Act requires review, and IRS regulations provide that the Exempt Organizations Determinations Unit, in Cincinnati, do those reviews. That office may ask for assistance from other offices, and that has apparently happened at least one time, with the Washington DC office being asked to review two cases, at least according to the IRS IG. There may be others, and, as they arise, they also need to be scrutinized to determine the appropriateness of the reviews.
The first issue, scrutiny, is quite different from illegal manipulation of the provisions of the act by unscrupulous employees and/or managers for political reasons. The question of manipulation leads us to the reasons, aside from administrative efficiency, which may have caused the decisions to seek out some groups for additional scrutiny, beyond that of Presidential speeches. The most prominent seems to be a letter from six US Senators, among them Max Baucus (D-MT), Chairman of the Senate Finance Committee, and five others, including two Republicans, who, in 2010, according to the New York Times, specifically asked for an investigation of Section 501(c)(4) organizations.
Another, similar letter was sent in 2012 by a group of seven Democratic Senators, asking for a similar investigation. Shortly after the first letter was sent, the investigations started. Coincidence? Possibly so. As the Times reported back in 2010, "The Internal Revenue Service is caught in an election-year struggle between Democratic lawmakers pressing for a crackdown on nonprofit political groups, and conservative organizations accusing the tax agency of conducting a politically charged witch hunt." An interesting, and un-winnable, argument that continues to evolve.
The other side of the coin - involvement by IRS Headquarters - seems to be coming into clearer perspective as well. NBC News, and other news services, have reported extensively that employees in the Cincinnati Office have told a number of the groups that all decisions on exemptions are 'being made in Washington' and 'by a special task force', a curious choice of words. One Cincinnati employee actually apologized to one group's attorney, saying the delays were Washington's fault. Concurrently, Bonnie Esrig, a now-retired manager in the IRS Cincinnati office, is quoted by several news services saying that there was no such thing as a 'rogue agent' in Cincinnati -- they were responding to the 'management team' for their direction, and she was sure those directions were coming from Washington. In her view, during her interview with NBC, agents could not have made those delays work without management direction. She quickly added she did not personally believe those management-directed delays and extended reviews were politically motivated.
It's still, in my view, a bit early to be seeing a good response to Question #4. There are direct actions the Agency can take, of course, if they have the guts to do so. Members of the Senior Executive Service (SES) can re-assigned, voluntarily or involuntarily. If they decline the transfer, they automatically revert to their previous General Service grade. The administration can do this without union problems, since the members of the SES are not covered by collective bargaining agreements. Managers who are supervisory, and decline to accept new assignments, can be ordered to retire within 31 days, under current Civil Service Regulations. Only time will tell if the Administration actually takes action, other than at the lowest possible levels, so it is not possible, at this point to determine whether they are following applicable laws and regulations.
Overall, in in assessment of this administration problem, there are still significant actions that need to be taken by the Treasury and the IRS. First, the mess needs to be resolved; If there are cogent reasons for non-approval of a Section 501(c)(3) or Section 501(c)(4) application, then those determinations should be made quickly. The IG needs to conduct a FORMAL INVESTIGATION, not another audit with no fault-finding, and employees found to be in violation of the law AT ALL LEVELS should be removed and prosecuted. If threads to the White House are found, they should be publicly uncovered, then the House and Senate needs, through their hearings process, to get to those responsible. It is not yet time for impeachment on this problem, although it remains, in my mind, the most important of the several problems ongoing which require more than white-washed answers.