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Saturday, May 12, 2018

The IRS Scandal, Day 1827: Johnston Calls Smith's WSJ Op-Ed A 'Breathtaking' Distortion Of The Facts

IRS Logo 2TaxProf Blog op-ed:  Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal', by David Cay Johnston:

Bradley Smith’s WSJ op-ed is breathtaking in failure to rely on well-established facts regarding the IRS handling of gratuitous 501(c)(4) applications. Smith is entitled to his opinion, parts of which I agree with, but not to rely on falsehoods, as I will show from the public record that he clearly does.

Smith’s failure to know the facts is disturbing because we expect those who teach to care first and foremost about integrity. Smith has an academic and moral duty to deal in facts and to not premise his opinions on falsehoods. So, too, do the WSJ opinion page editors.

Smith’s op-ed is about an “unresolved” IRS issue. The resolution to that is simple and easy, I showed when I was a Tax Notes columnist. The law Congress passed does not allow C4s to be engaged in political activity, but a 1959 IRS regulation does. Regulations should implement, not expand or contract the will of Congress. The solution would also comport with Smith’s stated desire to remove burdensome regulations.

Now to the facts —

The record shows that there was no “targeting” of right wing groups and the “hassling” Smith writes about was against all dubious applicants.

Likewise, there was no favoritism for liberal or centrist or establishment or any other C4 organizations. Indeed, the only C4s who had their status revoked were two liberal organizations.

The record shows that the number of conservative groups whose applications were given extra scrutiny was larger than the number of centrist and liberal groups. That, however, tells us nothing about IRS bias, only about the competency and propriety of the applicants. I expect drunks in bars to misunderstand such issues, but not professors.

The record shows that the C4 applications set aside for scrutiny stated or indicated plans to engaged in prohibited activity. Among applications declaring such intent, the facts show, more were in the Tea Party zone of politics than centrist or liberal zones.

One obvious question this raises is whether there are lawyers and other advisers to conservative groups who simply did not understand the C4 law and, logically, saw nothing amiss in the applications they prepared. Was there bad advice circulating among conservative groups? That issue has, as best I can tell, never been investigated.

The Be On the Lookout (BOLO) directive for applications was even handed. It included “Tea Party” because many questionable applications used those two words, making it like some other terms shorthand for identifying which applications were most likely to be problematic.

The BOLO memo also cited “progressive,” “blue” and “medical marijuana.” Only the last of those might be affiliated with conservative groups, likely libertarian.

The BOLO directive came from a mid-level manager, a self-described conservative Republican who testified that he acted on hown authority. The record shows he did so with good reason.

Many C4 applications — on their face — stated or indicated the organization would engage in prohibited activity or strongly suggested that. The facts show that more of these flawed applications, came from right wing groups that the center or left. Had the IRS approved any or all of them without scrutiny THAT would have been a scandal.

The proper comparison would be to a building inspector reviewing plans for a structure so poorly designed that his or her training tells him that if built the structure would likely collapse. The building inspector orders further review, not denial. (See 1/ Wright, Frank Lloyd on 1937 stress load tests for S.C. Johnson & Sons Wax Co. headquarters in Racine and 2/ Watts Towers, 1959 stress load tests.)

The IRS sent all problematic applications for further review, regardless of political zone.

Without question the IRS asked more than it needed of groups whose C4 applications seemed on their face to be inappropriate. But all groups were asked exhaustive questions, not just conservative organizations.

Using my building inspector analogy, if most of the structural plans suspected of being deficient were for hotels instead of motels, would Smith promote the idea of a government bias against overnight accommodations with an elevator in the lobby versus exterior walk-ups? Or would he recognize that the problem was not with the building inspector, but with the deficient applicants being more from hotel owners than motel owners?

The record here shows not bias but IRS professionalism. Further, there was no White House or Obama operative involvement, which is a key falsehood perpetuated by Smith.

Also, C4 applications are gratuitous.

Not one C4 organization was blocked from getting underway in any election cycle. You can start a C4 tomorrow without advance IRS approval so long as you timely comply with subsequent reporting requirements, unlike the advance approval required for C3s. No one reading Smith’s op-ed would have a clue about this central fact. I wonder if Smith even knows that – which he should, given his academic position.

There is a robust public record on what actually took place, as opposed to the endlessly repeated distortions, fabrications and outright lies that Smith relies on.

You can read the relevant testimony, with minimal redactions, of the IRS manager in charge here. The full testimony is available here.

Why is Smith so badly misinformed? Why are so many other Americans? Why does this grotesque lie continue to infect our civic debate and degrade out understanding of law enforcement?

Understanding the conventions of journalism and how politicians exploit them provides the first clue. Anyone who can get a false story out cleanly has a chance of making it part of the zeitgeist, an enduring lie.

Mendacious conduct by Issa launched this episode in intentionally inflicting damage on our democracy. Not only did Issa seek a report that by its very nature distorted reality, but he later sought to keep the full record from the public. Such conduct by lawmakers of any stripe is despicable.

Issa asked for an inspector general report, but only about C4s applications by conservative groups. The initial news reports should have been all over this but were not. That aided Issa’s goal, which was not a search for truth, but to cherry pick facts and weaponize them. Instead, general assignment reporters not steeped in either tax law or administrative procedure accurately repeated what they were told by Issa and his flacks.

BTW, the IRS commissioner at the time was a George W. Bush appointee who continued in office under Obama. The IRS must be apolitical. The evidence shows it was, Smith notwithstanding.

The Treasury Inspector General for Tax Administration compiled a one-sided report just as Issa requested, ignoring IRS scrutiny of any groups not deemed conservative. It is relevant here to note that the IG is a former Republican political operative and that only when asked by the minority did he issue further audit findings that showed the C4 reviews were not aimed at groups because they were conservative, but rather at all organizations whose applications suggested a lack of qualification for C4 status. That gets lost, but it should not be forgotten or ignored.

For those who care about actual facts, here is a concise explainer from CBS News.  An excellent WSJ reporter looked at the nuances hereHere is FactCheck.org account of how both sides in Congress mishandled this issue: 

The FBI found no evidence of “enemy hunting” at the IRS and did not seek any prosecutions.

None of this excuses Lois Lerner's atrocious handling of the issue after Issa created a problem by seeking and then promoting only partial facts, not the whole truth.

I was the first person to call for Lerner to resign, ahead even of House Republicans. Her ring-and-run trick at a tax conference was appallingly bad judgment. What she did tarnished tax law enforcement needlessly. It was childish. But that has nothing to do with the underlying facts, only with her unprofessional approach to putting out the news.

Issa compounded the distortions by making it clear that if Lerner testified before his committee he would seek to prosecute her for any flaw in her testimony. Any competent lawyer would have advised Lerner to assert her Fifth Amendment rights. Issa’s conduct strikes me as a setup to make sure we did not hear from Lerner, who then could be excoriated without defense, not that this is a new tactic for lawmakers who put partisanship ahead of their oath of office.

We should all be appalled at Issa’s conduct.

Likewise, President Obama foolishly entered into this issue and embraced the false narrative inspired by Rep. Issa’s one-sided request that started this all off. Obama should have never allowed himself to be drawn into this, but especially not on the basis of falsehoods.

The IRS has long known that C3s and C4s have been improperly involved in political activity. There is an informing 2008 memo issued from Lerner’s office.

Overall, however, the IRS has done next to nothing about all sorts of abuses of exempt organization status going back decades. THAT is a bona fide scandal.

Way back in the mid-1970s, in the Detroit Free Press, I exposed illegal political campaign contributions by an exempt organization. The IRS did nothing. A few years ago, my local newspaper in Rochester, N.Y., revealed that an exempt organization created by local government officials made campaign contributions with public funds. Again, the IRS did nothing. Many more examples exist.

Smith’s piece also ignores the work of the estimable Professor Harvey Dale, who does research first to ensure that his writings have deep factual basis. Any professor should be expected to have familiarized himself with the public record, but Smith clearly has not (or else cares not).

Integrity is a foundational requirement for self-governance. It is mandatory for professors, lecturers and teachers and should be rigorously enforced by their academic superiors. We want to encourage the broadest range of opinions in the marketplace for ideas, but we also want to expose and remove from falsehoods and proven distortions of fact, which are as dangerous to democracy as botulism is to canned vegetables.

We all make mistakes. The test of character is whether we correct those mistakes promptly and forthrightly.

Smith now has the opportunity, and the moral obligation, to do the scholarship necessary to learn the facts and to correct the record promptly and forthrightly. He is entitled to his opinion, but that opinion needs to be grounded in facts, not the falsehoods he relied on and perpetuated in his WSJ op-ed.

http://taxprof.typepad.com/taxprof_blog/2018/05/the-irs-scandal-day-1827-david-cay-johnston-calls-bradley-smiths-wsj-op-ed-a-breathtaking-distortion.html

IRS News, IRS Scandal, Tax | Permalink

Comments

DCJ's facts starts with "The record shows that there was no 'targeting' of right wing groups...." With "facts" like that, why would anyone read further?

Posted by: Woody | May 12, 2018 7:31:09 PM

Woody, I do find it curious when people declare they are not interested in facts.

Read on and learn what TIGTA actually found as opposed to the mendacious abuse of audit findings and testimony to House investigators.

Posted by: David Cay Johnston | May 14, 2018 10:11:04 AM

What nobody, DCJ included, has ever addressed to my satisfaction is why Lois Lerner and the Obama DOJ exchanged millions of pages of confidential tax returns on non-profit groups right after the Citizens' United decision. Beyond a fishing expedition that is, which the law prohibits engaging in with organizations' tax returns. A case must be opened against a specific organization for tax malfeasance, which did not happen in the IRS targeting scandal.

Posted by: MM | May 15, 2018 7:03:36 PM

DCJ: "I do find it curious when people declare they are not interested in facts."

On that note, to your claim that the IRS never targeted any conservative groups, how do you explain (away?) the facts in the True the Vote case?

https://www.nationalreview.com/2013/05/true-scandal-jillian-kay-melchior/

They ultimately received an apology from the IRS, years later and only after bad publicity and Congressional investigations.

http://taxprof.typepad.com/taxprof_blog/2018/01/the-irs-scandal-day-1722-irs-apologizes-for-targeting-tea-party-group.html

How do you explain the fact that the ranking Democratic member on the Oversight Committee, Elijah Cummings, had been working with Lois Lerner at the IRS prior to 2013 to go after this group specifically for scrutiny, and never mentioned that publicly during the investigation?

Quite a lot of coincidences there. But no targeting, I guess?

Posted by: MM | May 17, 2018 9:56:45 PM

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