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Tom Williams, CQ-Roll Call Group

The scandal over IRS scrutiny of conservative groups, explained

Between 2010 and 2012, the IRS disproportionately scrutinized conservative groups applying for tax-exempt status.

What, exactly, did the IRS do that was inappropriate?

Between early 2010 and May 2012, the IRS flagged 298 nonprofits applying for 501(c)(3) or 501(c)(4) tax-exempt status as potentially "political," and slowed down consideration of their applications. Scrutinizing political groups applying for tax-exempt status is part of the IRS's job. But the vast majority of the groups that received this level of scrutiny during this period were conservative. The scandal focuses on how the IRS picked out those groups' applications to be flagged, and how the groups were treated afterward. There were four specific complaints:

  1. IRS employees were specifically told to flag Tea Party groups applying for exempt status: From August 2010 to July 2011, specialists in the IRS's Determinations Unit had guidance to be on the lookout for the "emerging issue" of Tea Party organizations applying for exempt status. As a result, every single group that applied with "Tea Party," "Patriots," or "9/12" in its name was flagged as a potentially political group — 96 groups in total. The IRS dropped the specific guidance to target Tea Party groups in July 2011, and has since said it was inappropriate.
  2. Conservative groups were more likely to be flagged overall: According to a Ways and Means Committee analysis, 248 of the 298 groups flagged in this period were conservative-leaning, 29 were liberal-leaning, and the rest had no clear political slant. Analyses from news organizations have found similar results. Now, the full list of terms and topics IRS specialists were told to look out for was broader — it included groups that were "progressive," were "successors to ACORN," or that dealt with "medical marijuana," along with other liberal keywords. But unlike the "Tea Party" keyword, these keywords didn't mean immediate flagging — according to the Treasury Department inspector general, only six out of 20 groups with "progress" or "progressive" in their name were flagged, and all were eventually approved.
  3. Once flagged, applications were left in limbo for years: Of the 298 groups singled out for extra scrutiny starting in 2010, only six had their applications approved by May 2012. Their average wait was more than twice as long as the process typically takes, according to the inspector general's report. The report states there was apparent confusion among IRS employees about what activities were allowed by 501(c)(4) organizations. Some process reforms that month led to 102 other applications being approved by December 2012 — but most groups that had been flagged still waited, and several withdrew their applications because of the delay.
  4. The IRS made onerous requests for information from flagged groups: The report states that while groups' applications were in review, the IRS asked many of them "unnecessary, burdensome questions." This sometimes included information about "past and future donors" from some groups — the agency later admitted it should not have asked about this. Check out these letters sent to the Richmond Tea Party for more examples of these questions — the agency asked for information on every event the group participated in, asked for copies of every handout given out at each event, and wanted to know "detailed contents" of all speeches or panel discussions that took place.

It should be noted that, according to the inspector general, most of the flagged applications did in fact have "indications of significant political campaign intervention" (the IRS argues that all flagged groups had these indications). So, again, it was the IRS's job to make sure that those groups were not primarily created to spend on elections.

But one political side shouldn't be treated differently than the other, and the process for quick resolution to applications was inarguably broken. So congressional investigators attempted to determine which government officials were involved in the agency's actions, and whether there was more to the story.

Why would the IRS look at groups' political activity?

When a nonprofit group wants to be granted tax-exempt status, its application has to be approved by the IRS. But it can apply for this status under a few different sections of the tax code. Depending on which section it chooses, the amount of election spending it's allowed to do can be very different.

  • 501(c)(3) groups are "absolutely prohibited" from participating in political campaigns, though they can be involved in political issues more broadly. Donors can be kept secret, and people who give to these groups can deduct those donations from their own taxes as charitable contributions.
  • 501(c)(4) groups: Some spending on campaigns is permitted, but election activity can't be the group's primary purpose. Donors can be kept secret, but people who give cannot deduct donations from their own taxes — politics isn't charity.
  • Section 527 groups: Unlimited spending on political campaigns is allowed. But donor names must be disclosed, and their donations are not tax-deductible.

The key point here is that donations to groups that spend any amount on campaigns aren't supposed to be tax-deductible, and donor names for groups that spend mostly on campaigns are supposed to be disclosed. So there are big implications to which section of the tax code a new nonprofit group chooses when it applies for tax-exempt status.

The IRS scandal was about new groups that applied for tax-exempt status under those first two sections listed above, 501(c)(3) and 501(c)(4), but that appeared to some IRS employees like they might be heavily involved in political campaigns. Since election spending groups aren't supposed to masquerade as nonpolitical groups, the IRS and its defenders have argued that in flagging many applications, the agency was merely trying to do its job. (However, contrary to some arguments, the IRS wasn't merely attempting to deal with a sudden surge in applications for tax-exempt status — in fact, there was no such rise in the relevant period.)

The agency has admitted that the way it flagged and handled these applications was problematic, and apologized for its actions. The Treasury Department's inspector general's report concurred. "The Determinations Unit developed and implemented inappropriate criteria in part due to insufficient oversight provided by management" and "a lack of knowledge ... of what activities are allowed" by the groups they were evaluating, it said. But many conservative critics argued that there could be more to the story.

Why did many conservatives argue that we didn't have the full story?

As of 2014, many conservatives remained unsatisfied with the IRS's explanations of how so many right-leaning groups applying for tax-exempt status ended up being flagged. In particular, the idea that the Cincinnati-based Determinations Unit initiated the effort that flagged all Tea Party groups seemed implausible to many, who wondered whether some higher-level officials were involved. "Few of the explanations or justifications of this targeting provided by IRS leaders and Obama administration officials have held up," wrote Stephen Hayes of the Weekly Standard.

Particularly, some commentators saw it as highly suspicious that former IRS Exempt Organizations Director Lois Lerner pleaded the Fifth rather than testify before Congress about the issue. "If there isn't a smidgen of IRS corruption, why did Lois Lerner take the fifth?" asked Charles Krauthammer of the Washington Post. And the revelation that many of Lerner's emails during the relevant period were missing only fueled those suspicions further. (CNN's Chris Frates reported that 6,400 of those missing emails were recovered as of April 2015.)

More broadly, many conservatives argued that the IRS's actions toward Tea Party groups were part of a larger pattern in which the agency targeted and harassed conservative groups. They pointed to IRS leaks of donor information for the National Organization for Marriage (a group opposing same-sex marriage) and the leak of the tax-exempt application for the Karl Rove–tied group Crossroads GPS. Some, like Darrell Issa, attempted to conflate the issue of Tea Party targeting with any criticism of "dark money" spending on political campaigns. Here, Issa argued that Obama's rhetorical criticism of the Citizens United decision "led to the IRS's targeting" of conservatives.

Which IRS officials were involved in the scandal?

The investigations focused on the IRS's Exempt Organizations division (EO). Its Rulings and Agreements office is responsible for processing applications from groups seeking tax-exempt status.

As you can see in this chart, the division's leadership (including then-director Lois Lerner) and some of its units were based in Washington. Yet the Determinations Unit, which specifically handles applications that are coming in, was based in Cincinnati, Ohio.

The acting IRS commissioner initially blamed "rogue" agents in Cincinnati for the scandal. But the inspector general's report told a more complicated story of a bureaucratic process initiated by an inquiry from a Cincinnati employee, which involved some consultation with Washington-based employees of Lerner's division.

However, the specific IRS guidance to "be on the lookout" for all Tea Party groups applying was approved by "only first-line management in Cincinnati," the report found. "The Determinations Unit developed and implemented inappropriate criteria in part due to insufficient oversight provided by management" and "a lack of knowledge ... of what activities are allowed" by the groups they were evaluating, the inspector general wrote.

But some later testimony by IRS employees to congressional committees pointed to more of a role for some of Lerner's Washington-based employees. One Cincinnati-based employee, Elizabeth Hofacre, said her work was extensively supervised and indeed "micromanaged" by Washington-based lawyer Carter Hull. Another Cincinnati employee, Gary Muthert, said his supervisor told him to gather Tea Party applications because "Washington, DC, wanted some cases."

However, the supervisor, Screening Group Manager John Shafer, told congressional investigators it was his own idea to start gathering the cases, and it wasn't actually initiated by Washington. Shafer, a self-described "conservative Republican," played a key role in crafting at least one set of IRS guidelines for flagging groups, reported USA Today's Gregory Korte.

Was Lois Lerner herself, or anyone above her or in another agency, involved? Lerner said that as soon as she found out what the Cincinnati office was doing, she put a stop to it: "It was not intentional, and as soon as we found out what was going on, we took steps to make it better." Indeed, an email from a key Lerner deputy, Holly Paz, sent on June 1, 2011, asks, "What criteria are being used to label a case a 'Tea Party case'? We want to think about whether those criteria are resulting in over-inclusion. Lois wants a briefing on these cases."

According to the inspector general report, days later Lerner was briefed for the first time that the Determinations Unit had specific guidance to flag all Tea Party groups, and she "immediately directed that the criteria be changed." But the fact that she twice pleaded the Fifth rather than testify to Congress about what happened, and the revelation that many of her emails from the period were missing, fed conservative suspicions that they don't have the whole story.

As of early 2015, no evidence had emerged to indicate any White House involvement in these IRS actions.

Who is Lois Lerner?

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Lois Lerner, at the first congressional hearing where she pleaded the Fifth. (Karen Bleier — AFP/Getty)

From 2006 to 2013, Lois Lerner led the IRS's Exempt Organizations division. She was responsible for overseeing IRS treatment of organizations that seek and receive tax-exempt status — the treatment that's at the center of the current scandal. Lerner, an attorney, worked in the Department of Justice early in her career, and then spent 20 years at the Federal Election Commission before joining the IRS in 2001.

Lerner first got into the national headlines by making a statement, days before an inspector general's report was to be released, in which she apologized for the IRS methods that placed extra scrutiny on Tea Party groups. She ascribed it to "our line people in Cincinnati," saying, "It was not intentional, and as soon as we found out what was going on, we took steps to make it better." The inspector general's report states that when Lerner was briefed on the specific guidelines that flagged all "Tea Party" groups in mid-2011, she expressed concerns about them, and they were soon dropped as a result.

Yet when Lerner was asked to testify before Congress about the issue, she pleaded the Fifth. After giving an opening statement, in which she said, "I have not done anything wrong. I have not broken any laws," Lerner said that on the advice of her counsel, she wouldn't answer questions on the topic of the hearing.

It's highly unusual for a federal employee to plead the Fifth in front of Congress, and Lerner's refusal to testify fed suspicions that she had something to hide. She was placed on administrative leave soon afterward — reportedly, she was asked to resign by the administration, but refused. Several months later, she retired. In 2014, she was again asked to testify before Congress, and again pleaded the Fifth. So that May, the House of Representatives voted to hold her in contempt of Congress, because of her refusal to cooperate with the investigation, and asked the Justice Department to consider criminal charges against her. She returned to the headlines a month later, when the IRS revealed that it was missing many of her internal emails due to a computer crash. (Thousands of those emails have since reportedly been recovered.)

House Republicans have been poring over the many Lerner emails. As of 2014, they'd found several that they argue are particularly incriminating — though critics said they were banal or taken out of context. For instance:

  • House Republicans released an exchange in which Lerner cautioned her employees "to be cautious about what we say in emails," because Congress had been asking for electronic documents. She also asked whether the agency's instant message conversations were searchable. To many conservatives, this is yet another example of Lerner trying to cover her agency's tracks. Others point out that people routinely write things in emails that would not sound good if read before Congress — perhaps because they're puerile, or written in a moment of anger or frustration — and Lerner's caution was simple prudence.
  • The House Ways and Means Committee released an email exchange that it said showed Lerner's bias against conservatives. In this exchange, which touches on several other topics, including a Lerner trip to England, someone whose identity has been redacted sends a three-sentence email to Lerner complaining about "the whacko wing of the GOP" that believes "the US is through, too many foreigners sucking the teat." Lerner responds with the brief email, "Great. Maybe we are through if there are that many assholes." The redacted person responds: "And I'm talking about the hosts of the [talk radio] shows. The callers are rabid." Lerner answers, "So we don't need to worry about alien teRrorists [sic]. It's our own crazies that will take us down." Committee chair Dave Camp argues that this exchange demonstrates that Lerner was biased against conservatives. However, leading Republicans like John McCain have used similar language to describe the far right.

In September 2014, Lerner gave a rare interview to Politico's Rachael Bade. She spoke extensively about her experience as the leading figure associated with the scandal, and asserted again that she "didn't do anything wrong."

What's the controversy over Lois Lerner's missing emails?

Since the scandal broke, GOP-led House committees have asked that the IRS turn over various documents — including emails of officials involved, like Lois Lerner. At first, the IRS used search terms to narrow down and provide relevant emails — in 2013, the agency handed over more than 10,000 emails Lerner sent or received.

But GOP committee chairs Darrell Issa and Dave Camp weren't satisfied, and wanted to see all of Lerner's emails since 2009. In March 2014, the IRS finally agreed to supply them all, and set about collecting them — an expensive, time-consuming process. According to the agency, while doing so, it realized that many of Lerner's emails prior to April 2011 were missing, and sought to ascertain why.

In June, the IRS told Congress of its findings — Lerner's computer crashed in mid-2011, and many of her emails appear to be gone. A computer crash wouldn't usually wipe out email — except that the IRS had a policy that only 500 megabytes of data could be stored on the email server at any one time, and that if this limit were hit, older emails would have to be moved to the employee's computer. The agency did manage to reconstruct and supply some emails by pulling them from other employees' accounts — and 67,000 emails that Lerner wrote or received were handed over. But congressional Republicans were unsatisfied, to say the least, as you can see in this angry statement from Rep. Paul Ryan:

There's documentation of this alleged computer crash. On June 13, 2011, reference first turns up in internal IRS emails that Lerner's hard drive had crashed. In a series of emails afterward, Lerner repeatedly attempted to get technical help restoring her data — but on August 5, 2011, she was informed that it was unrecoverable.

Yet though this occurred two years before the IRS scandal actually broke, and a year before the Treasury Department's inspector general began his audit, some observers have been suspicious of this timing. Ten days before the email crash is first mentioned, on June 3, 2011, House Ways and Means Committee Chair Dave Camp sent a letter to the IRS requesting various documents, including some from Lerner's division. The letter mainly focused on whether the IRS was improperly enforcing a "gift tax" on certain donors, but it alluded to broader questions about whether the IRS was acting with improper political bias. While many of Lerner's emails to other IRS employees can be retrieved from their own computers, the agency said some other IRS employees may also be missing emails from the same period. Details on just how many of these other employees' emails were lost, or why they were lost, aren't yet known.

Attention then focused on whether Lerner's emails were backed up somewhere. The IRS initially said it only backed up emails for six months, and afterward reused the backup tapes "for cost efficiency." (They've since changed their policy.) IRS employees are also supposed to keep hard copies of some important emails, but as Philip Bump of the Washington Post explained here, the policy is vague, and it's not clear whether Lerner saved any.

On April 28, 2015, CNN's Chris Frates reported that 6,400 formerly missing emails to and from Lerner's account had now been recovered, and that they would soon be turned over to Congress.

What are some primary sources about the IRS scandal?

  • The inspector general report that started the controversy, from the Treasury Inspector General for Tax Administration, released in May 2013.
  • The timeline from that inspector general's report.
  • A report from Oversight Republicans on Lois Lerner and the IRS scandal, March 2014.
  • A report from Oversight Democrats, arguing that there's no evidence for White House involvement or political motivations, May 2014.
  • A report from Oversight Republicans arguing that there were political motivations, June 2014.
  • Some of the BOLO (be on the lookout) documents the IRS used to flag certain groups.
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