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Monday, May 14, 2018

The IRS Scandal, Day 1829: Wyland Says Johnston's Op-Ed Contains 'A Number Of Breathtaking Distortions And Omissions'

IRS Logo 2TaxProf Blog op-ed:  David Cay Johnston's Op-Ed Contains 'A Number Of Breathtaking Distortions And Omissions,' by Michael L. Wyland (Sumption & Wyland, Sioux Falls, SD):

In his op-ed Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal', Pulitzer prize winning journalist and author David Cay Johnston has forgotten an old aphorism.  When one points an accusing finger at someone, three fingers of the same hand point back at oneself.  In short, Johnston’s response to Bradley Smith’s Wall Street Journal commemoration of the fifth anniversary of the IRS scandal contains a number of breathtaking distortions and omissions of its own.

I have written more than 25 articles and features for the Nonprofit Quarterly addressing aspects of the IRS scandal since it became public.  In addition, I presented a paper titled “Nonprofit Political Speech in a Post-Citizens United and IRS Scandal Environment” at the 2014 national ARNOVA conference in Denver.  In short, I have had an interest in this continuing saga since it became public.

To those who persist in denying a scandal ever happened, it’s important to remember that public acknowledgement of the existence of the scandal was initially made in an apology by Lois Lerner.  On May 10, 2013, Lerner spoke to a group of tax attorneys at an ABA meeting in Washington, D.C.  In response to a planted question, Lerner apologized for IRS actions to single out tax exemption applications from conservative-sounding organizations for additional scrutiny that resulted in long delays in processing.  [In fact, the last lawsuit filed against the IRS involving the affected nonprofits wasn’t settled until 2018.] 

The apology was made, in large part, to get the news out ahead of the U.S. Treasury’s Inspector General for Tax Administration’s report on the IRS’s practices from 2010 to 2013

There are three key findings in the report, listed on the “highlights” page. First, the IRS “allowed inappropriate criteria to be developed and stay in place for 18 months.” Second, the processes the IRS attempted to implement “caused significant delays in processing certain applications.” Third, the IRS “allowed unnecessary information requests to be issued.”

Johnston says that no targeting of conservative-sounding or leaning organization was performed.  He cites a “be on the lookout” memo, or BOLO, as evidence.  In fact, there were five BOLOs issued during the 2010-2013 period.  Each subsequent BOLO became progressively more all-encompassing in an attempt to correct the bias present in previous versions.  Further evidence of the political bias in the effort was summed up by internal IRS memoranda referring to the handling of “tea party cases.”

There was a 2017 TIGTA audit report that indicated IRS review of applications for tax exemption that included other types of suspected political activity besides conservative, but that report covered a time period that began in 2004, six years before the 2010 inception of the “tea party cases” activity by the IRS.  The Treasury press release (link above) identifies several of the problems associated with attempting to compare the 2017 TIGTA audit report with the seminal 2013 TIGTA audit report.

Those who point to the 2017 report conveniently ignore a prior 2014 TIGTA report issued in response to assertions by Democratic members of Congress who sought to document the ecumenical nature of the IRS activity.  That report confirmed that the overwhelming majority of the applications flagged were indeed from conservative-sounding organizations, and that the small minority of applications that were also flagged during that time appeared to be included in the group accidentally for reasons not related to their presumed political ideology or assumed activities.

Another error in Johnston’s piece is his implication that the scandal affected applications for exemption by 501(c)(4) groups only.  In fact, about a third of the applications from groups subjected to delays and inappropriate questioning came from organizations seeking exemption as 501(c)(3) public charities.  This widespread confusion, whether accidental or intentional, obscures the difficulties inherent in regulation of political activity by nonprofit groups seeking federal tax exemption.

The events of 2010-2018 related to the flagging of tax exemption applications, as well as the actions by the IRS, Congress, and the Obama administration after Lerner’s apology and the release of the first TIGTA report are of historical interest and should influence federal policymaking.  For history, I recommend the 223-page December 23, 2014 final staff report issued by U.S. Rep. Darrell Issa (R-CA), chair of the House Oversight and Government Reform Committee.  Although overreaching in a couple of places, the report’s chief virtue is its unrelenting reference to primary source material as it builds its case.  At this point, however, time, partisan overreach by both Republicans and Democrats as well as changes in both presidential administrations and key Congressional leaders indicate that planning for the future is more important that rehashing the past.

Bradley Smith’s solution to the issue is to house exclusive investigation of political activity by tax-exempt entities with the Federal Election Commission (FEC).  David Cay Johnston correctly points out that there have been instances of what appears to be impermissible political activity by both 501(c)(3) and 501(c)(4) groups for decades and chastises the IRS for doing nothing.

The IRS did attempt to address the issue in 2013 by issuing proposed regulations governing permissible and impermissible political activity by 501(c)(4) groups.  The proposal ignited a firestorm of opposition from all points of the political spectrum.  In fact, the Treasury Department received more comments on the proposed rule — almost all in opposition — than it had received for all rules in the preceding six years combined.  The proposed rule was never moved forward.

Regardless of the future of federal regulation – and how such regulation might be tested in the U.S. Supreme Court in a post-Citizens United, post-McCutcheon environment – it is crucial that policymakers have a broader awareness of the issues and history involved.  Johnston needs to take to his own heart the admonishment he gave to Smith and review the entire record rather than be selective in drawing his opinions and lessons.

http://taxprof.typepad.com/taxprof_blog/2018/05/the-irs-scandal-day-1829-wyland-says-johnstons-op-ed-contains-a-number-of-breathtaking-distortions-a.html

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Comments

DCJ is like Paul Krugman: he was once a fine academic and scholar, but he has long since morphed into a partisan hack and shill for the progressive wing of the Democratic party, prone to selective application of standards and use of evidence.

Which is his right, I just wish his articles came with disclaimers for those unaware of his hyper-partisanship.

Posted by: Todd | May 14, 2018 9:39:28 AM

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