TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, September 20, 2018

Grewal: When IRS Guidance Backfires

Andy Grewal (Iowa), When IRS Guidance Backfires, 36 Yale J. on Reg.: Notice & Comment (Sept. 7, 2018):

This week, the IRS tried to clarify how proposed regulations on state tax credit programs apply to Section 162(a) business deductions. But its attempted clarification has created only more problems.

Under the proposed regulations, a taxpayer who makes a transfer to a Section 170(c) organization must reduce her charitable contribution deduction by the amount of any state tax credits received. See Prop. Reg. § 1.170A-1(h)(3)(i). Some businesses contacted the IRS and presumably expressed concerns that transferred amounts might not be deductible at all. That is, if Section 170 deductions were denied for creditable transfers, then Section 162 deductions might be denied too.

In IR-2018-178 (Sept. 5, 2018), the IRS cryptically announced that “taxpayers who make business-related payments to charities or government entities for which the taxpayers receive state or local tax credits can generally deduct the payments as business expenses.” See also IRS State and Local Income Tax FAQ. The IRS did not provide any further guidance on when a transfer to a state tax credit program will qualify as “business related.”

Continue reading

September 20, 2018 in IRS News, Scholarship, Tax | Permalink | Comments (0)

Wednesday, September 19, 2018

Zelenak: Comments On The New SALT Proposed Regulations

Lawrence Zelenak (Duke), Comments on Proposed Regulations, "Contributions in Exchange for State or Local Tax Credits" (Reg-112176-18):

These comments offer three recommendations, of which only the first involves a change in the proposed regulations themselves. First, rather than treating state tax credits as an exception to the general rule that a charitable deduction is not reduced by benefits a donor receives from third parties, the final regulations should set forth a general rule that the amount of a charitable deduction is reduced by benefits a donor receives from any source on account of the donation.

Continue reading

September 19, 2018 in IRS News, Tax | Permalink | Comments (1)

Tuesday, September 18, 2018

WSJ: The IRS Is Still Going After Offshore Tax Cheats

Wall Street Journal Tax Report, The IRS Is Still Coming for You, Offshore Tax Cheats:

On Sept. 28, the Internal Revenue Service will end its program allowing American tax cheats with secret offshore accounts to confess them and avoid prison. In a statement, the IRS said it’s closing the program because of declining demand.

But the agency vowed to keep pursuing people hiding money offshore and said it will offer them another route to compliance.

Continue reading

September 18, 2018 in IRS News, Tax | Permalink | Comments (0)

Monday, September 17, 2018

NY Governor Cuomo Calls For Inspector General To Investigate Politicization Of The U.S. Tax System

Governor Cuomo Calls for Inspector General to Investigate Politicization of the U.S. Tax System:

Call for Investigation Comes After Last Week's Egregious IRS Regulation "Clarification" Aimed at Benefitting Red States

Governor Andrew M. Cuomo today sent a letter to the Treasury Department's Office of Inspector General, calling for an investigation into the politicization of the U.S. tax system after the federal government's continued attempts to block New York's efforts to provide relief to middle class taxpayers while continuing to support programs in states that voted for President Trump. 

Continue reading

September 17, 2018 in IRS News, Tax | Permalink | Comments (4)

Thursday, September 6, 2018

Death Of Former IRS Commissioner Sheldon Cohen

CohenWashington Post, Sheldon S. Cohen Dies at 91:

Sheldon S. Cohen, a tax lawyer and certified public accountant who helped set up the first presidential blind trust, for Lyndon B. Johnson, and then helped fully computerize the IRS as Johnson’s commissioner of internal revenue, died Sept. 4 at a nursing home in Chevy Chase, Md. He was 91. The cause was complications from congestive heart failure, said a grandson, Reuben C. Goetzl.

Continue reading

September 6, 2018 in IRS News, Obituaries, Tax | Permalink | Comments (0)

Grewal: The New SALT Regulations Need A Few More Sprinkles

Yale Notice & CommentAndy Grewal (Iowa), The New SALT Regulations Need a Few More Sprinkles, 36 Yale J. on Reg.: Notice & Comment (Aug. 24, 2018):

My article, The Charitable Contribution Strategy: An Ineffective SALT Substitute, 38 Virginia Tax. Rev. — (2018), argues that the charitable contribution strategy fails under existing law. The article acknowledges several different argumentative paths, but the best analysis characterizes the strategy in two parts. First, the taxpayer’s transfer to the state-controlled fund should be treated as an arm’s length exchange for state tax credits. And second, the state tax credits acquired on that exchange, when applied against the taxpayer’s tax liability, should give rise to tax payments that face the Section 164 deduction limits. See id. at Part II.C.b. The Article argues that the IRS should issue regulations adopting that two-part approach.

The IRS just issued proposed regulations on the charitable contribution strategy, and I was pleased to see that they are consistent with the first part of my analysis. That is, they treat a donation to a state-controlled fund as a quid pro quo transaction for state tax credits. See Prop. Reg. § 1.170A-1(h)(3), REG-112176-18. However, the regulations do not discuss the consequences associated with the later use of state tax credits. ...

Continue reading

September 6, 2018 in IRS News, Scholarship, Tax | Permalink | Comments (0)

Wednesday, August 29, 2018

IRS Clears Path For Student Loan Repayment Tied To 401(k)

Bloomberg Law, IRS Clears Path for Student Loan Repayment Tied to 401(k):

An IRS decision allowing an employer to offer a student loan repayment benefit as an element of its retirement plan could open the door to other employers interested in offering similar benefits.

The Internal Revenue Service Aug. 17 gave the go-ahead to an unnamed employer’s plan to tie 401(k) contributions to student loan repayment contributions. The private letter ruling [2018-33-012], while not precedential, likely will quell concerns from employers interested in offering a student loan benefit through their 401(k) programs, but worried about complying with the law.

Continue reading

August 29, 2018 in IRS News, Tax | Permalink | Comments (0)

Friday, August 24, 2018

IRS Blocks States From Bypassing State & Local Tax Deduction Cap

Friday, August 17, 2018

Whistleblower Accuses IRS Of Tipping Off Members Of Congress In Insider Trading Ring

New York Post, Whistleblower Makes Shocking IRS, Insider Trading Allegations:

A whistleblower made this shocking allegation to me last week: the IRS was tipping off members of Congress to corporate takeovers so the elected officials could profit from insider trading.

My snitch also charged that higher-level employees of the IRS also used that information to enrich themselves.

This may sound crazy but remember: Up until a few years ago members of Congress were allowed to trade stock based on information they got while performing their public duties.

It wasn’t until 2012, during President Obama’s tenure, that the practice was banned.

Continue reading

August 17, 2018 in IRS News | Permalink | Comments (10)

Wednesday, August 15, 2018

How Many Nonprofits Are There?

Nonprofit Quarterly:  How Many Nonprofits Are There?: What the IRS’s Nonprofit Automatic Revocation and 1023-EZ Processes Left Behind, by Michael Wyland:

From the middle of 2010 to the end of 2017, the IRS revoked the tax-exempt recognition of more than 760,000 nonprofit organizations for failing to file Form 990 returns. More recently, it has implemented the 1023-EZ process, which makes applying for federal tax-exempt status easier. What effect have these changes had on the numbers of nonprofits in our sector? Are there marked differences in trends vis-à-vis 501(c)(3)s and 501(c)(4)s?

Continue reading

August 15, 2018 in IRS News, Tax | Permalink | Comments (0)

Tuesday, August 14, 2018

The IRS Scandal, Day 1921: Federal Judge Approves $3.5 Million Payout From IRS To >100 Tea Party Groups To Settle Targeting Claims

IRS Logo 2Washington Times, Tea Party Groups Get Revenge Against IRS as Judge Approves $3.5 Million Payout:

A judge late Wednesday signed off on the settlement between the IRS and hundreds of tea party groups, closing out the last major legal battle over what all sides now agree was unwarranted and illegal targeting for political purposes.

The IRS agreed to pay $3.5 million to groups that were wronged by the intrusive inspections, and insists it’s made changes so that political targeting can’t occur in the future.

A few issues are still being fought over in the courts — including whether former IRS senior executive Lois G. Lerner will be allowed to forever shield her deposition explaining her behavior from public view, and whether the IRS should pay attorney fees — but this week’s decision closes out five years of litigation over the targeting itself. ...

The $3.5 million closely approximates the fines the IRS would have had to pay in damages for each intrusive scrutiny of tea party groups, had the agency been found in violation of the law. The money will be split with half going to the lawyers who argued the case and the other half to more than 100 tea party groups, which will get a cut of about $17,000 each.

Judge Michael R. Barrett called the settlement “fair, reasonable and adequate.”

The settlement doesn’t actually include an admission of wrongdoing by the IRS.

Continue reading

August 14, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (8)

Thursday, August 9, 2018

 The IRS Has Rehired Hundreds of Fired Employees. Congress Should Step In.

Daily Signal, The IRS Has Rehired Hundreds of Fired Employees. Congress Should Step In.:

For one of the most punitive agencies in the federal government, the IRS sure is forgiving with its own employees.

Rep. Kristi Noem, R-S.D., has proposed a bill that would prevent the IRS from rehiring employees fired for misconduct or poor performance. The bill, titled the Ensuring Integrity in the IRS Workforce Act, follows a recent Treasury inspector general report that shows the IRS rehired more than 200 fired workers in a little over a year. A previous inspector general report proves this problem dates back to at least 2009.

According to the Treasury Department’s inspector general, the IRS did not provide officials responsible for hiring decisions with information about employment history, though that information is readily available.  ...

Continue reading

August 9, 2018 in IRS News, Tax | Permalink | Comments (1)

Tuesday, August 7, 2018

ProPublica: The IRS’ Dark Money Decision May Be Less Dire Than It Seems

Pro PublicaProPublica, Why the IRS’ Recent Dark Money Decision May Be Less Dire Than It Seems:

Starting next year, the Internal Revenue Service will no longer collect the names of major donors to thousands of nonprofit organizations, from the National Rifle Association to the American Civil Liberties Union to the AARP. Democratic members of Congress and critics of money in politics blasted the move, announced last week by the Treasury Department, the IRS’ parent agency. The Democrats claim the new policy will expand the flow of so-called dark money — contributions from undisclosed donors used to fund election activities — in American politics. For their part, Republicans and conservative groups praised the decision as a much-needed step to avoid chilling the First Amendment rights of private citizens.

Continue reading

August 7, 2018 in IRS News, Tax | Permalink | Comments (2)

Wednesday, August 1, 2018

Low Income Taxpayer Clinics Celebrate 20 Years Of Taxpayer Service

LITC 20th AnniversaryTaxpayer Advocate Service Blog, Low Income Taxpayer Clinics Celebrate 20 Years of Taxpayer Service:

July 22, 2018 mark[ed] the 20th anniversary of Low Income Taxpayer Clinics (LITC). Low Income Taxpayer Clinics were enacted by Congress on July 22, 1998, as part of the IRS Restructuring and Reform Act of 1998. The LITC program today consists of 134 clinics in 48 states and the District of Columbia. From 2013 to 2016, LITCs:

  • represented more than 100,000 low income taxpayers with IRS controversies; and
  • educated more than 450,000 low income taxpayers along with those for whom English is a second language about their rights and responsibilities under the tax code. ...

Pepperdine Law School is proud to offer a Low Income Taxpayer Clinic at our location on Skid Row in downtown Los Angeles at the Union Rescue Mission, led by Isai Cortez.

Continue reading

August 1, 2018 in IRS News, Tax | Permalink | Comments (0)

Wednesday, July 25, 2018

IRS Chief Counsel Nominee Advised Trump On Taxes

DesmondBloomberg, IRS Counsel Nominee Briefly Advised Trump Organization on Taxes:

President Donald Trump’s nominee for chief counsel of the Internal Revenue Service briefly advised the future president’s real estate company on a tax question several years ago.

Michael Desmond counseled the Trump Organization on “a discrete reporting matter for a subsidiary company that was resolved with no tax impact,” James Wilkinson, a spokesman for Desmond, said in a written statement to Bloomberg News. Wilkinson said Desmond didn’t interact with anyone at the Trump Organization, which was a longtime client of two other partners at his law firm.

Democrats on the Senate Finance Committee have given no sign they plan to scrutinize Desmond’s Trump work at his confirmation hearing Thursday. Still, potential conflicts of interest have drawn attention under Trump, who broke with presidential tradition by refusing to release his tax returns and has mused publicly about using government agencies to punish enemies.

Continue reading

July 25, 2018 in IRS News, Tax | Permalink | Comments (0)

NY Times: Montana Governor Sues IRS, Warning Of ‘Foreign Money’ In Elections:

New York Times, Montana Governor Sues I.R.S., Warning of ‘Foreign Money’ in Elections:

Gov. Steve Bullock of Montana, a Democrat who has crusaded against the loosening of campaign finance rules, is suing the Trump administration to block it from eliminating a mandate that politically active nonprofit groups disclose the identities of their major donors to the government.

The Treasury Department announced last week that the Internal Revenue Service would no longer require a range of nonprofit organizations to identify any contributors giving more than $5,000, in a move it described as bolstering privacy and easing administrative burdens for those groups. Previously, certain nonprofits had to name their large donors to the government even though they were not supposed to be disclosed to the public.

The change in rules stirred immediate political controversy because of its effect on so-called “dark money” groups, which spend money in elections but are not required to reveal the sources of their funding except to the I.R.S. Under the new reporting regime, groups associated with organizations like the National Rifle Association, Planned Parenthood and Americans for Prosperity, the conservative advocacy network backed by the billionaire Koch brothers, would no longer have to list their donors, even to the government.

But in a lawsuit filed on Tuesday in Federal District Court in Montana, Mr. Bullock and his administration alleged that the Trump administration had flouted proper government process in eliminating the disclosure requirements. The suit asked the court to issue a judgment voiding the new I.R.S. policy. ...

Continue reading

July 25, 2018 in IRS News, New Cases, Tax | Permalink | Comments (0)

Friday, July 20, 2018

The IRS Scandal, Days 1801-1900

Wednesday, July 18, 2018

Treasury Department Restricts Donor Disclosure Requirement To § 501(c)(3) Groups

Treasury Department Logo (2017)Press Release, Treasury Department and IRS Announce Significant Reform to Protect Personal Donor Information to Certain Tax-Exempt Organizations:

The Treasury Department and IRS announced today that the IRS will no longer require certain tax-exempt organizations to file personally-identifiable information about their donors as part of their annual return.  The revenue procedure released today does not affect the statutory reporting requirements that apply to tax-exempt groups organized under section 501(c)(3) or section 527, but it relieves other tax-exempt organizations of an unnecessary reporting requirement that was previously added by the IRS.  

Nearly fifty years ago, Congress directed the IRS to collect donor information from charities that accept tax-deductible contributions.  That statutory requirement applies to the majority of tax-exempt organizations, known as section 501(c)(3) organizations, receiving contributions that can be claimed by donors as charitable deductions.  This policy provided the IRS information that could be used to confirm contributions to those organizations.

By regulation, however, the IRS extended the donor reporting requirement to all other tax-exempt organizations—labor unions and volunteer fire departments, issue-advocacy groups and local chambers of commerce, veterans groups and community service clubs.  These groups do not generally receive tax deductible contributions, yet they have been required to list the names and addresses of their donors on Schedule B of their annual returns (Form 990).

Continue reading

July 18, 2018 in IRS News, Tax | Permalink | Comments (2)

Monday, July 9, 2018

Australia, Canada, England, Netherlands & U.S. Launch The J5: Joint Chiefs Of Global Tax Enforcement

J5Joint Chiefs of Global Tax Enforcement:

About Us
The Joint Chiefs of Global Tax Enforcement (known as the J5) are committed to combatting transnational tax crime through increased enforcement collaboration. We will work together to gather information, share intelligence, conduct operations and build the capacity of tax crime enforcement officials.

The J5 comprises the Australian Criminal Intelligence Commission (ACIC) and Australian Taxation Office (ATO), the Canada Revenue Agency (CRA), the Fiscale Inlichtingen- en Opsporingsdienst (FIOD), HM Revenue & Customs (HMRC), and Internal Revenue Service Criminal Investigation (IRS-CI).

Continue reading

July 9, 2018 in IRS News, Tax | Permalink | Comments (0)

NY Times: Government Work Done, Tax Policy Writers Decamp To Lobbying Jobs

New York Times, Government Work Done, Tax Policy Writers Decamp to Lobbying Jobs:

Six months after Republicans pushed a $1.5 trillion tax overhaul through Congress, many of the most influential players who worked behind the scenes on the legislation are no longer on Capitol Hill or in the Trump administration.

They are now lobbyists.

The two-way street between lobbying and lawmaking is well worn in Washington. But after President Trump’s campaign pledge to “drain the swamp,” there was some speculation that the so-called special interests might be sidelined. And while the frenetic two-month sprint last year to pass the tax legislation left some lobbyists marginalized, the businesses now scrambling to navigate the changes are increasingly recruiting the people who wrote it.

Continue reading

July 9, 2018 in Congressional News, IRS News, Tax | Permalink | Comments (0)

Private Tax Collection Agencies Lose Money While Going After the Poor

Washington Post, Private Tax Collection Agencies Lose Money While Going After the Poor:

In its zeal to privatize important parts of the government, the Republican-controlled Congress directed the Internal Revenue Service to use private debt collectors for certain tax delinquencies, a program that began last year.

The Obama administration cautioned against the use of bill collectors before legislation authorizing the program passed in 2015. Those warnings went unheeded.

Now, the program is losing money and unfairly hitting the poor.

Continue reading

July 9, 2018 in IRS News, Tax | Permalink | Comments (1)

Sunday, July 8, 2018

362,000 Americans Will Be Denied Passports Due To Unpaid Taxes

Passport IRSWall Street Journal, Thousands of Americans Will Be Denied a Passport Because of Unpaid Taxes:

At least 362,000 Americans with overdue tax debts will be denied new or renewed passports if they don’t settle these debts, the Internal Revenue Service says.

Recently IRS officials have provided new details on the enforcement of a law Congress passed in late 2015. It requires the IRS and State Department to deny passports or revoke them for taxpayers who have more than $51,000 of overdue tax debt. Enforcement began in February.

An IRS spokesman says the 362,000 people are current tax debtors who are affected by the law. The IRS is sending their names in batches to the State Department, a process the tax agency aims to finish by year’s end. A State Department spokesman confirmed that it has already denied passports to some debtors.

Continue reading

July 8, 2018 in IRS News | Permalink | Comments (1)

Saturday, July 7, 2018

Ventry: Free File Providers Scam Taxpayers; Congress Shouldn't Be Fooled

IRS Free File (2018)The Hill op-ed:  Free File Providers Scam Taxpayers; Congress Shouldn't Be Fooled, by Dennis J. Ventry, Jr. (UC-Davis):

In April, the House unanimously passed the Taxpayer First Act, including a provision to codify the IRS Free File Program.

Making Free File a permanent part of the tax law would mean that the IRS and its private-sector Free File partners — organized as the Free File Alliance (FFA) and including Intuit and H&R Block — would no longer periodically renegotiate the terms and conditions of the program. 

For that reason alone — i.e., preventing the IRS from verifying that FFA companies deliver free tax filing services as promised — codifying Free File is a terrible idea. 

Continue reading

July 7, 2018 in IRS News, Tax | Permalink | Comments (3)

Saturday, June 30, 2018

The IRS Releases New Postcard Form 1040

Following up on Tuesday's  post, NY Times: The New Tax Form Is Postcard-Size, But More Complicated Than Ever:  the IRS yesterday released a draft version of the new Form 1040:

1040

Continue reading

June 30, 2018 in IRS News, Tax | Permalink | Comments (4)

Friday, June 29, 2018

A 'Most Serious Problem' At The IRS: Private Debt Collectors

Taxpayer Advocate (2016)National Taxpayer Advocate Blog, One Year Later, The IRS Has Not Adjusted Its Private Debt Collection Initiative To Minimize Harm To Vulnerable Taxpayers:

Since the IRS implemented the private debt collection (PDC) initiative last year, I have been concerned that taxpayers whose debts are assigned to private collection agencies (PCAs) will make payments even when they are likely in economic hardship – that is, they are unable to pay their basic living expenses. As discussed in my 2017 Annual Report to Congress, this is exactly what has been happening. The recent returns of approximately 4,100 taxpayers who made payments to the IRS after their debts were assigned to PCAs through September 28, 2017 show:

  • 28 percent had incomes below $20,000;
  • 19 percent had incomes below the federal poverty level; and
  • 44 percent had incomes below 250 percent of the federal poverty level. ...

Continue reading

June 29, 2018 in IRS News, Tax | Permalink | Comments (0)

Thursday, June 28, 2018

Senate Holds Hearing Today On Charles Rettig's Nomination To Be IRS Commissioner

RettigThe Senate Finance Committee holds a hearing today on the nomination of Pepperdine Law School graduate Charles Rettig's nomination to be the Commissioner of the IRS.

Bloomberg, Trump's IRS Nominee to Face Questions on Management Experience:

President Donald Trump’s nominee to lead the Internal Revenue Service, Charles Rettig, has spent decades helping wealthy and famous people fight the agency’s efforts to collect taxes.

At a Thursday confirmation hearing, the criminal tax lawyer from Beverly Hills, California, will face questions from lawmakers about whether he’s qualified to run the IRS. Democrats will question whether he has the management skills to run an agency struggling to implement the biggest tax overhaul in a generation. ...

Rettig, 61, who has represented the estate of Michael Jackson and the creator of the "Girls Gone Wild" video franchise, probably will win the 51 votes needed for confirmation in the Republican-controlled Senate.

Continue reading

June 28, 2018 in Congressional News, IRS News, Tax | Permalink | Comments (2)

Wednesday, June 27, 2018

National Taxpayer Advocate Releases Mid-Year Report To Congress

TASIR-2018-143 (June 27, 2018), National Taxpayer Advocate Identifies Priority Areas in Mid-Year Report to Congress:

National Taxpayer Advocate Nina E. Olson today released her statutorily mandated mid-year report to Congress that presents a review of the 2018 filing season, identifies the priority issues the Taxpayer Advocate Service (TAS) will address during the upcoming fiscal year and contains the IRS’s responses to each of the 100 administrative recommendations the Advocate made in her 2017 Annual Report to Congress.

The most significant challenge the IRS faces in the upcoming year is implementing the Tax Cuts and Jobs Act of 2017 (TCJA), which among other things requires programming an estimated 140 systems, writing or revising some 450 forms and publications and issuing guidance on dozens of TCJA provisions. Ms. Olson expresses confidence that the IRS will implement the law successfully. “Make no mistake about it. I have no doubt the IRS will deliver what it has been asked to do,” she writes in the preface to the report.

Continue reading

June 27, 2018 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Saturday, June 23, 2018

The IRS Scandal, Day 1869: In Meeting With Lois Lerner, McCain Staffer Requested 'Financially Ruinous' Audits Of Advocacy Groups

IRS Logo 2Washington Times, McCain's Office Urged IRS to Use Audits as Weapons to Destroy Political Advocacy Groups:

A new report from Judicial Watch reveals a concerted effort from Sen. John McCain’s office to urge the IRS under Lois Lerner to strike out against political advocacy groups, including tea party organizations.

Thanks to the results of an extensive Freedom of Information Act (FOIA) request that has been delayed for many years, Judicial Watch has obtained several key emails from 2013 that chronicle McCain’s and Democrat Sen. Carl Levin’s efforts to reign in the advocacy groups that sprouted immediately following the Citizens United decision from the Supreme Court.

The documents uncovered by Judicial Watch include notes from a high-level meeting on April 30, 2013 between powerful members of McCain’s and Levin’s staffs and Lerner, then-director of tax exempt organizations at the IRS under Barack Obama. The notes reveal the suggestions from McCain’s former staff director and chief counsel on the Senate Homeland Security Permanent Subcommittee, Henry Kerner who urges Lerner to use IRS audits on the advocacy groups to financially ruin them:

In the full notes of an April 30 meeting, McCain’s high-ranking staffer Kerner recommends harassing non-profit groups until they are unable to continue operating. Kerner tells Lerner, Steve Miller, then chief of staff to IRS commissioner, Nikole Flax, and other IRS officials, “Maybe the solution is to audit so many that it is financially ruinous.” In response, Lerner responded that “it is her job to oversee it all:”

Henry Kerner asked how to get to the abuse of organizations claiming section 501 (c)(4) but designed to be primarily political. Lois Lerner said the system works, but not in real time. Henry Kerner noted that these organizations don’t disclose donors. Lois Lerner said that if they don’t meet the requirements, we can come in and revoke, but it doesn’t happen timely. Nan Marks said if the concern is that organizations engaging in this activity don’t disclose donors, then the system doesn’t work. Henry Kerner said that maybe the solution is to audit so many that it is financially ruinous. Nikole noted that we have budget constraints. Elise Bean suggested using the list of organizations that made independent expenditures. Lois Lerner said that it is her job to oversee it all, not just political campaign activity.

Judicial Watch previously reported on the 2013 meeting.  Senator McCain then issued a statement decrying “false reports claiming that his office was somehow involved in IRS targeting of conservative groups.”   The IRS previously blacked out the notes of the meeting but Judicial Watch found the notes among subsequent documents released by the agency.

Julie Tarallo, Senator McCain's communications director, calls Judicial Watch's allegations  "outlandish conspiracy theories that are totally contradicted by the facts":

McCain

Continue reading

June 23, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Thursday, June 21, 2018

Why The Treasury Department's Top Lawyer Sold Off His Bitcoin Holdings

Treasury Department (2018)Law.com, Why the Treasury Department's Top Lawyer Sold Off His Bitcoin Holdings:

The U.S. Treasury Department’s top lawyer sold off up to $30,000 worth of bitcoin in December, a month after Secretary Steven Mnuchin said the department was looking “very carefully” into illegal uses of the cryptocurrency, according to financial disclosures.

Brent McIntosh, a former Sullivan & Cromwell partner who was confirmed as Treasury’s general counsel in August, reported two sales of bitcoin in December, valuing each at between $1,000 and $15,000, according to disclosures released by the U.S. Office of Government Ethics. The sales came at the end of a year that saw bitcoin’s value skyrocket from about $1,000 to a high of nearly $20,000.

A Treasury Department spokeswoman said Tuesday that McIntosh sold his bitcoin to avoid potential ethics conflicts after being asked in late November to participate in a review of digital currencies. Ethics officials advised McIntosh that his continued ownership of bitcoin could raise recusal issues in certain instances, the spokeswoman said.

Continue reading

June 21, 2018 in IRS News, Tax | Permalink | Comments (0)

National Taxpayer Advocate: The IRS Should Provide More Guidance To Participants In The Sharing Economy

Taxpayer Advocate (2016)ina Olson (National Taxpayer Advocate), Participants in the Sharing Economy Lack Adequate Guidance From the IRS:

In my most recent Annual Report to Congress, I included the IRS’s efforts to reach out to participants in the sharing economy (also know as the “gig economy”) as a Most Serious Problem. ...

These new entrants to the sharing economy will need to spend significant time learning about their tax compliance obligations and devote many hours to recordkeeping. For example, the IRS estimates that it takes taxpayers nearly 40 hours to learn about depreciation methods, keep records, and report the depreciation to the IRS. Yet, according to a recent survey conducted by NASE, 69 percent of entrepreneurs who participate in the sharing economy received absolutely no tax guidance from the service coordinators.

The NASE survey results underscore the importance of educating sharing economy participants about certain basic tax obligations (i.e., making required quarterly estimated payments throughout the year to avoid penalties). There is an opportunity to create a culture of tax compliance among participants in the sharing economy from the outset. Establishing the tax compliance norms for this emerging industry in its infancy will assist the IRS as this segment of taxpayers grows.

Continue reading

June 21, 2018 in IRS News, Tax | Permalink | Comments (2)

Thursday, June 7, 2018

Galle: Grand Canyon University’s Misleading Non-Profit Status

GCUBrian Galle (Georgetown), Grand Canyon University’s Misleading Response to My Testimony:

Last week, on May 23, I testified at a meeting of the National Advisory Council on Institutional Quality and Integrity (“NACIQI”). Among my remarks were comments on what I described as the erroneous grant of nonprofit status to a new “charity,” Grand Canyon University. Following that testimony, GCU has issued a press release claiming that I misstated the facts and law related to its exemption application. GCU’s release is, as best I can tell, wrong in almost every respect. ...

Continue reading

June 7, 2018 in IRS News, Scholarship, Tax | Permalink | Comments (1)

Friday, May 25, 2018

Hemel: Two Cheers For IRS Guidance On The New State & Local Tax Cap

Following up on yesterday's post, IRS Warns Taxpayers That Regs Will Prevent States From Circumventing $10k S&L Tax Cap With 'Charitable' Contributions:  Daniel Hemel (Chicago), Two Cheers for IRS Guidance on the New SALT Cap:

Yesterday’s notice by the Treasury Department and the IRS that they plan to propose regulations related to the state and local tax (SALT) and charitable contribution deductions has generated lots of news coverage. ...

Let’s start with what the notice did say. First, it revealed — and this is new news — that Treasury and the IRS “intend to propose regulations addressing the federal income tax treatment of certain payments made by taxpayers for which taxpayers receive a credit against their state and local taxes.” That’s apparently a reference to laws already enacted in New JerseyNew York, and Oregon that allow taxpayers to claim a state tax credit for charitable contributions to certain state-affiliated funds, as well as several similar proposals pending in other state legislatures. Interestingly, Treasury and the IRS signaled no intention to issue regulations addressing New York’s new “Employer Compensation Expense Program,” which allows employees to claim a state tax credit if their employer opts into a new payroll tax regime. Even those who are skeptical of the charitable credit arrangement acknowledge that the payroll tax shift “almost certainly” will pass muster under federal tax law, and nothing in yesterday’s notice suggests otherwise.

Continue reading

May 25, 2018 in IRS News, Tax, Tax Policy in the Trump Administration | Permalink | Comments (1)

Thursday, May 24, 2018

IRS Warns Taxpayers That Regs Will Prevent States From Circumventing $10k S&L Tax Cap With 'Charitable' Contributions

Bloomberg:  IRS Warns Taxpayers About Tactics to Avoid Property Deduction Caps, by Lynnley Browning:

The Internal Revenue Service warned taxpayers to proceed with caution after states including New York and New Jersey approved workarounds involving charitable organizations to circumvent new federal limits on deductions for state and local taxes.

“Taxpayers should be mindful that federal law controls the proper characterization of payments for federal income tax purposes,” the agency said in a press release Wednesday [IR-2018-122], the first time it’s weighed in on the matter. The Treasury Department and IRS intend to propose regulations addressing measures that would allow homeowners to declare property taxes as charitable deductions, which are still unlimited, according to the IRS [Notice 2018-54, 2018-24 IRB ___ (June 11, 2018)].

Continue reading

May 24, 2018 in IRS News, Tax | Permalink | Comments (9)

Wednesday, May 23, 2018

TIGTA: One-Third Of IRS Employees Who Participated In Public Transportation Subsidy Program Received Excessive Benefits

TIGTAThe Treasury Inspector General for Tax Administration yesterday released Review of the Internal Revenue Service’s Public Transportation Subsidy Program (2018-10-033):

The IRS’s Public Transportation Subsidy Program (PTSP) was created to encourage employees to use public transportation when commuting to and from work in order to improve air quality, reduce traffic congestion, and conserve energy by reducing the number of single occupancy vehicles on the road.  In Calendar Year 2016, more than 18,000 IRS employees received more than $17.5 million in public transportation benefits.  Controls in place over the program are important to ensure proper stewardship of taxpayer dollars.

WHY TIGTA DID THE AUDIT
The overall objective of this audit was to determine whether the IRS has effective controls in place to prevent, detect, and deter employee misuse of the PTSP.

WHAT TIGTA FOUND
Controls over the application process provided assurance that applications were complete and limited PTSP usage to only those who were approved for the program.  In addition, controls over PTSP benefits effectively limited participants to receiving benefits that were less than or equal to the statutory maximum of $255 per month.  Lastly, vendor blocks established by the Department of Transportation effectively prevented purchases from being made at non-transportation-related vendors.

However, the PTSP remained vulnerable to misuse by participants.  Based on the results of a statistical sample of program participants, TIGTA estimates that 6,449 participants used almost $1.6 million more in transportation benefits than necessary for commuting to work or used benefits while in a nonpay status, on leave, or while teleworking.  The IRS does not have effective controls in place to prevent employees from receiving PTSP benefits that are greater than the participant’s actual commuting cost.

Continue reading

May 23, 2018 in Gov't Reports, IRS News, Tax | Permalink | Comments (1)

Monday, May 21, 2018

IRS Seeks Grant Applications For Funding Low Income Taxpayer Clinics

LITC

The IRS has announced (IR-2018-121) that it is accepting grant applications through June 27 for Low Income Taxpayer Clinics for the 2019 grant cycle (Jan. 1 - Dec. 31, 2019):

The LITC program is a federal grant program administered by the Office of the Taxpayer Advocate at the IRS, led by the National Taxpayer Advocate, Nina E. Olson. Under the program, the IRS awards matching grants of up to $100,000 per year to qualifying organizations to develop, expand or maintain an LITC. An LITC must provide services for free or for no more than a nominal fee.

For calendar year 2018, the IRS awarded just over $11.8 million in matching grants to 134 organizations across the country for the development, expansion or continuation of LITCs. A listing of the 2018 LITC grant recipients is available on IRS.gov.

Continue reading

May 21, 2018 in IRS News, Tax | Permalink | Comments (0)

Saturday, May 19, 2018

The IRS Scandal, Day 1834: Why Are We Still Arguing Over The Facts?

IRS Logo 2Forbes:  Why Are We Still Arguing Over The Facts Of The IRS Scandal?, by David Herzig (Valparaiso):

There has been a politically charged debate in academic circles for a while now about events that happened in 2013 regarding IRS investigations into groups purportedly because of the use of the term "Tea Party" in their name.

Paul L. Caron on the TaxProf Blog has been running a mostly continuous post (up to around day 1830) about "The IRS Scandal." The blog series is controversial in academic circles because it frames the issue of alleged IRS targeting of a typology of groups as a definite scandal.  As Professor Philip Hackney wrote, "This so-called scandal over what conservatives saw as the persecution of right-leaning nonprofits erupted at a meeting of Washington tax lawyers in May of 2013."  To be sure, it would be true if there was a direct use of the IRS to harm opposition groups.  For example, it was a clear scandal when Nixon used the IRS to target his political enemies. Yet, as we saw over the weekend, the facts associated with this particular allegation are not so certain and open to debate even after many Congressional, internal IRS, and other investigations.

This weekend an interesting feud between Bradley A. Smith (and others) and David Cay Johnston (and others) percolated over the facts associated with Professor Smith's Wall Street Journal Op-ed. In a series of posts on the TaxProf Blog, Mr. Johnston, Professor Smith, and others, continued to debate and litigate the underlying facts related to the IRS investigations.

Professor Smith and others are of the belief that there was a clear scandal and targeting of right leaning groups.  Mr. Johnston, is of the belief that the issue is less opaque.  After all, the IRS did not just use right leaning terms to identify groups for targeting.  What is clear from the series of posts is that even armed with a series of documents, either side in the debate can find clarity in their position and fault in the opposition.

How one interprets the facts, seems to be based on the lens of one's glasses. But, missing in a dispute over the facts, is what they mean. Rather that continue the downward spiral of arguing over the facts of what happened, here I want to offer a more productive use of the spot-light. We should be focused on two important points.

May 19, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

Wednesday, May 16, 2018

The IRS Scandal, Day 1831: Johnston Says Wyland Ignores Inconvenient Facts In The IRS 'Scandal'

IRS Logo 2TaxProf Blog op-ed:  Michael Wyland Ignores Inconvenient Facts In The IRS 'Scandal', by David Cay Johnston

I’m glad that Michael Wyland weighed in, though he begins with diversionary nonsense by asserting that I forgot that others would critique my critique. Then Wyland falsely asserts that I “persist in denying a scandal ever happened” when I explicitly state there was a scandal and, as a Tax Notes columnist back then, was the first person to call on Lois Lerner to resign.

Wyland also faults me for not addressing C3 application scrutiny. Professor Bradley Smith didn’t write about C3s, only C4s.

Let’s stick to the issue — did the Obama Administration target conservatives, exclusively or nearly so, in reviewing gratuitous C4 applications, blocking their engagement in the 2012 elections? Or is this scandal’s nature quite different?

Taxes are the core of our democracy and the very reason (along with the power to regulate commerce) that we live in the Second American Republic under our Constitution. I hope more people weigh in because our democracy will benefit from a full airing of the tax law enforcement issue at hand. My purpose is to show verifiable facts that reveal as false the meme that Rep. Daryl Issa, Smith and now Wyland perpetuate.

False memes damage our democracy. Facts matter.

Demolishing a key aspect of this meme is easy — the blocking part. No one needs IRS approval to open shop as a C4. Only after-the-fact filings are required. That means no one was blocked or could have been. When Smith and others state otherwise they are ill-informed or deceitful. Smith should know the law given his occupation.

There is, also, a larger issue about politics and money and what role Congress should define for the IRS, our federal tax police.

Those issues will be addressed in my next book, tentatively titled The Prosperity Tax, which proposes an entirely new and simplified tax system aligned with the 21st Century economy. My plan would shrink the IRS, use a privatized but licensed system to make cheating extremely difficult (and very painful), level the tax playing field and encourage much more savings and investment more wisely deployed. And is wipes away all the tax code filigree.

For now, let’s stick to the issue at hand.

Continue reading

May 16, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (3)

Tuesday, May 15, 2018

The IRS Scandal, Day 1830: Johnston Says Smith Mischaracterizes The Record And Gets The Facts Of The IRS 'Scandal' Wrong

IRS Logo 2TaxProf Blog op-ed:  Smith Mischaracterizes The Record And Gets The Facts Of The IRS 'Scandal' Wrong, by David Cay Johnston

I’m glad that Professor Smith has responded, though he begins with a false assertion that “most” of my essay “consists of ad hominin attacks.” Noting Smith’s “failure to know the facts” is not ad hominem. And contrary to his assertion, I never questioned his intelligence or anyone else’s. But points for using a rhetorical device to divert attention from the issues.

My essay was rich with specific facts and circumstances which Smith fails to refute. Sadly, Smith presents as facts things he considers so obvious that they need no attribution (See Sunrise, from the East) but which under scrutiny turn out to be bogus.

Anyone who checks Smith’s sources will see that Smith mischaracterizes the record and, in some cases, gets the facts totally wrong.

Worse, Smith asserts that he knows things for which there is not a scintilla of evidence. His reiterated argument that the IRS did Obama’s bidding is nothing but conjecture, directly contradicted by the testimony of the IRS manager who volunteered that he is a conservative Republican. Smith relies on TIGTA, but its audits do not support him, they contradict him.

Smith refers to documents without quoting them. That may explain a reason Smith does not even come close to getting his facts straight, although that does not excuse his errors and falsehoods. When one has been shown the facts and repeats a falsehood it becomes a much more serious matter, a lie.  (See my pieces, for example, AG Eric Holder lying here, here and here.)

Continue reading

May 15, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (0)

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.

Continue reading

May 14, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (1)

Sunday, May 13, 2018

The IRS Scandal, Day 1828: Smith Responds To Johnston's 'Ad Hominem Attack' On His WSJ Op-Ed

IRS Logo 2TaxProf Blog op-ed:  David Cay Johnston's Ad Hominem Attack On My WSJ Op-Ed, by Bradley Smith (Capital University Law School; former Chair, Federal Election Commission):

David Cay Johnston claims that I have a “moral obligation” to address the claims of his op-ed, Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal'. Well, OK then.

In fact, most of Mr. Johnston’s reply consists of ad hominem attacks on the integrity, motives, and intelligence of me, the Treasury Inspector General for Tax Administration, the Chairman of the House Oversight and Government Reform Committee, the very groups that were singled out for harassment, and unnamed “lawyers and advisors to conservative groups.” But he does make a few claims that actually can be addressed.

First, Mr. Johnston begins by arguing that “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.” Thus, he suggests that 501(c)(4) organizations should not be allowed to engage in any political activity at all, and that the IRS regulation permitting (c)(4) organizations to engage in political activity so long as that is not their primary activity (26 C.F.R. 1.501(c)(4)-1)) is ultra vires, because “[r]egulations should implement, not expand or contract the will of Congress.”

Now, first, it’s not clear that any of the harassed conservative groups were engaged in “political activity” as defined by the IRS. But let’s leave that trivial fact aside. The law originally passed by Congress (the Revenue Act of 1954) did indeed create section 501(c)(4) for “[c]ivic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare.” But it did not define “social welfare.” It is only because of IRS regulations that “social welfare” was defined to exclude “direct or indirect participation or intervention in political campaigns on behalf of or in opposition to any candidate for public office.” One of the key points of my op-ed is that this definition is not required by statute, and is ill-conceived as a matter of policy—in a democracy, it is hard to understand how political engagement is not part of the “promotion of social welfare.”

In any case, what the IRS taketh away, the IRS giveth back—its regs go on to provide that a group qualifies as a “social welfare” organization so long as it is operated “primarily” for social welfare, thus allowing (c)(4) organizations to engage in other activities, including political activities. It is true that, taken in isolation, this language would seem to contradict the “exclusively” requirement of 26 U.S.C. 501(c)(4), but in fact the IRS could just have easily have written its original regulation to define “social welfare” to include political activity, entirely or in limited amounts, and that would have yielded the same result with no apparent conflict.

Further, some allowance for political activity by (c)(4) organizations is a necessity to make sense of the statute at all. Why? Because in the 1970s Congress added Section 527 to the code for “political organizations,” which are defined as organizations organized and operated “primarily” for “influencing or attempting to influence the selection, nomination, election, or appointment of any individual to any Federal, State, or local public office … .” As 501(c)(3) organizations are prohibited from engaging in political campaigns, and 527 organizations must be primarily engaged in political activity, there must be some section of the tax code for organizations that engage in limited political activity. (Or perhaps Mr. Johnston agrees that they should simply exist outside the Internal Revenue Code, as they did before section 527 was added in the 1970s. That would functionally accomplish the same thing as my suggestion in the Journal, so I’m quite open to that, but I don’t think that’s what he has in mind). The IRS, in accordance with the statute, has placed such organizations in Section 501(c)(4). In practice, however, there is no meaningful differentiation in the tax treatment of (c)(4) and 527 organizations. Thus, the modest suggestion of my article is that Congress get the IRS out of trying to police political speech at all, and leave such determinations to the Federal Election Commission, which by statute has “exclusive jurisdiction with respect to the civil enforcement” of the Federal Election Campaign Act.

With that legal primer out of the way, let me respond to Mr. Johnston’s few substantive claims. First, he argues that “there was no “targeting” of right wing groups,” and that any “hassling” was limited to “dubious applicants.”

Of course, this is not the conclusion of TIGTA, which notes that the inappropriate IRS scrutiny began with organizations with the words “tea party” in their names, later expanded to include many other names, starting with “Patriot” and gradually expanding to include many others. (Here is how the U.S. Court of Appeals for the Sixth Circuit summed up the TIGTA Report: “Those findings include that the IRS used political criteria to round up applications for tax-exempt status filed by so-called tea-party groups; that the IRS often took four times as long to process tea-party applications as other applications; and that the IRS served tea-party applicants with crushing demands for what the Inspector General called ‘unnecessary information.’”)

Oddly, Mr. Johnston later admits that extra scrutiny was in fact applied based on nothing more than the names of applicants, and defends the use of the “Be On the Lookout (BOLO)” list as having eventually included many names likely to be associated with progressive organizations. But it really can’t be both, can it? That is, extra scrutiny could not have been limited to “dubious applicants,” if at the same time that extra scrutiny was triggered by nothing more than certain words in an organization’s name.

Mr. Johnston’s claim that there was no targeting is not the finding of the House Oversight and Government Reform Committee, and it is not the testimony of Lois Lerner, who stated flat out that agents in her division had targeted organizations with “tea party” and “patriot” in their names, and that "It was an error in judgment, and it was not appropriate, but that's what they did," before clamming up and invoking her 5th Amendment rights the rest of the way. (Mr. Johnston brushes aside Ms. Lerner’s 5th Amendment invocation on the grounds that “any competent lawyer” would have advised her to invoke the 5th. I’m all in favor of 5th Amendment rights, but in civil cases judges and juries are free to draw adverse inferences from their invocation. It strikes me as a curious defense of the legality of IRS targeting that “any competent lawyer” would have told her to take the Fifth.)

It is true that the IRS had eventually expanded the BOLO list to include other words, and that some liberal groups were also flagged. But just because a few liberal groups were snagged doesn’t wash away the stain, and the fact is, far more conservative groups were targeted. In fact, Judy Kindell of the IRS’s Exempt Organizations office wrote to Lerner in 2012 that “Of the 199 (c)(4) cases [to that time], approximately ¾ appear to be conservative leaning, while fewer than 10 appear to be liberal/progressive leaning groups.”  TIGTA, Review of Selected Criteria Used to Identify Tax-Exempt Applications for Review (p. 102). As exempt organizations expert Barnaby Zall explains, there is simply no comparison between the treatment of conservative and liberal/progressive groups.

We might think of it a bit like we understand disparate impact in the race arena. If an employer adopts facially neutral criteria such as “no curly hair,” we know this will have a disparate impact on African Americans, and it is illegal. Similarly, as a campaign finance attorney, scholar, and regulator, I’ve long pointed out that it is easy to draw up campaign finance regulations that are facially neutral, but will mainly hit one’s political opponents. You just have to know how different groups are engaging in politics. That doesn’t mean your side will escape unscathed, only that the other side will bear the brunt of the rule. That’s how the BOLO list worked in practice, but all this is lost on Mr. Johnston.

Also lost on Mr. Johnston is the other point of my op-ed: that the IRS crisis was a natural response to partisan political pressure. Mr. Johnston argues that there was no involvement of the “White House or Obama operative[s].” Of course not, if by “involvement” you mean a direct order or specific approval. The very point I make in the WSJ editorial, and in numerous other publications over the years, is that there didn’t need to be. Instead, President Obama repeatedly and publicly denounced tea party and other new conservative groups as “a threat to democracy” and worse, and repeatedly claimed, sans evidence, that they were possibly funded by foreign operatives. Meanwhile, numerous Democratic Senators did the same, and indeed pressured and sometimes threatened the IRS in letters, committee hearings, and speeches, to deny applications from, or to prosecute, both conservative organizations generally and certain specific organizations. They also accused specific organizations of operating unlawfully (though presumably they hadn’t seen their filings).  See Congress Abetted the IRS Targeting of Conservatives, Wall St. J. op-ed, June 2, 2014. Indeed, in the congressional testimony that Mr. Johnston cites as justifying the use of BOLO lists, the IRS manager who first instigated the list specifically states that he did so because of “media attention” that had been focused on these groups, making them “high profile” cases. ). That’s my point.

Finally, we know from the TIGTA reports that after the lists were started and revealed, IRS higher ups simply sat on the issue rather than acting to end it. Why? Either they were blind to a major and obvious mismanagement problem dropped in their laps, or they decided that this was a desirable course of action. If the latter, again, why?

I will admit that I had never heard of Mr. Johnston before this, so I looked him up. I quickly learned that earlier this very week, he accused President Trump of being “in the cocaine trafficking business.”  That left me wondering if he was really the best guy to accuse me of a “breathtaking” “failure to rely on well-established facts.”

Readers of this blog can look back on Paul Caron’s extensive compilation of IRS coverage and decide for themselves, I guess.

Continue reading

May 13, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (5)

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.

Continue reading

May 12, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (4)

Friday, May 11, 2018

The IRS Scandal, Day 1826: The Five Year Anniversary

IRS Logo 2Wall Street Journal op-ed:  The Unresolved IRS Scandal, by Bradley Smith (Capital University Law School; former Chair, Federal Election Commission):

Imagine if liberal groups discovered that President Trump’s Internal Revenue Service was targeting them for heightened scrutiny or harassment. The media and Democrats would decry this assault on the First Amendment and declare the U.S. on the brink of autocracy. The scandal would dominate the midterms, and the legitimacy of the election would be called into question.

Strangely enough, the IRS did target organs of the opposition party during the last administration, but the episode has largely faded from public memory without resolution. May 10 marks the fifth anniversary of the revelation that President Obama’s IRS targeted conservative groups for more than two years prior to the 2012 presidential election.

While some of the faces at the IRS have changed, the law that enabled their misuse of power has not. Congress’s failure to address the problem leaves the U.S. democratic process vulnerable to further abuses. 

Lois Lerner, the career official at the center of the IRS scandal, retired on full pension after invoking her Fifth Amendment right against self-incrimination before Congress. John Koskinen, appointed IRS commissioner by Mr. Obama to lead the agency “in difficult times,” served his full term, spending the better part of four years stonewalling congressional requests for information. On his watch, the IRS destroyed evidence subject to subpoena.

The response from the political system showed early promise but quickly fizzled. ...

[M]any conservatives seem to think Washington has turned the page on IRS abuse. Meanwhile, too many Democrats seem to think that this could never happen to them. Both are wrong. The IRS scandal was not the result of a few rogue IRS employees; the problem is that the IRS is involved in regulating political activity. ...

The easy fix here would be for Congress simply to scrap restrictions on political activity by social-welfare organizations, thereby stripping the IRS of authority to decide which groups are “political committees” and which aren’t. In a democracy, political activity is part of social welfare. Such a change would not affect federal revenue, as contributions to social-welfare organizations are not tax-deductible. There would be no “subsidizing political activity.”

The Federal Election Commission—a bipartisan agency staffed by experts and created to oversee election-related activities—is the proper authority to determine whether an organization should be subject to regulation under campaign-finance laws. The IRS—an agency under control of the president, with no bipartisan checks, subject to congressional pressure, and tasked with collecting revenue—is not.

There is a long history of presidents from both parties using the IRS to harass political opponents. Democrats and Republicans alike should recognize that, fix the law, and get the IRS out of politics.

Update:  David Cay Johnston, Bradley Smith's WSJ Op-Ed Is A 'Breathtaking' Distortion Of The Facts Of The IRS 'Scandal'

Continue reading

May 11, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

The IRS Scandal, Days 1701-1800

Friday, May 4, 2018

Third International Conference On Taxpayer Rights Concludes Today In The Netherlands

ThirdThe National Taxpayer Advocate hosts the Third International Conference on Taxpayer Rights today and tomorrow in The Netherlands hosted by the International Bureau of Fiscal Documentation. For a list of the panels and participants, see here.

Continue reading

May 4, 2018 in Conferences, IRS News, Scholarship, Tax | Permalink | Comments (0)

Sunday, April 29, 2018

5,000 Pastors Rally To Defend Housing Tax Break Ruled Unconstitutional

Christianity Today, 5,000 Pastors Rally to Defend Housing Tax Break Ruled Unconstitutional; Appeal: Exemptions Do More Than Just Save Pastors $800 Million a Year:

When a pastor responds to late-night prayer request or invites congregants to his home for Bible study, is he just doing his job or going beyond the call of duty?

The lawsuit over the longstanding benefit, launched by the Freedom from Religion Foundation (FFRF) seven years ago, has entered another round of appeals. The Christian defendants, represented by Becket, filed their written appeal in the Seventh Circuit Court of Appeals late last week.

Continue reading

April 29, 2018 in IRS News, New Cases, Tax | Permalink | Comments (3)

Tax Implications Of President Trump's Deregulatory Agenda

Treasury Department Logo (2017)Following up on my previous post, Treasury Proposes Repeal Of 298 Tax Regulations:  Press Release, Treasury Releases Report Highlighting Regulatory Reform Accomplishments:

The U.S. Treasury Department today released a report detailing its accomplishments in support of the President’s regulatory reform agenda. ... The Department’s regulatory reform accomplishments include:

  • Eliminating, reducing, or proposing to eliminate more than 300 regulations in total, including ineffective, unnecessary, or out-of-date “deadwood” regulations;
  • Reducing Treasury’s regulatory agenda by approximately 100 items, year-over-year, from Fall 2016 to Fall 2017;
  • More than 250 specific Treasury recommendations to reform and reduce the burdens of regulation in the U.S. domestic financial system;
  • Introducing zero new significant regulatory actions under Executive Order 13771.

Continue reading

April 29, 2018 in Gov't Reports, IRS News, Tax | Permalink | Comments (0)

Monday, April 23, 2018

The IRS Scandal, Day 1813: Did The IRS Buy Off The Tea-Party?

NorCal (2018)Stu Bassin (Former Tax Partner, Baker & Hostetler, Washington, D.C.; Former Senior Litigation Counsel, U.S. Department of Justice Tax Division), Did the IRS Just Buy Off the Tea-Party?:

You may have missed the small item in the tax press describing the latest embarrassment for the Service arising out of the agency’s handling of applications for tax exempt status submitted by “tea party” organizations. The taxpayers, their supporters in the press, and many in Congress have long contended that the IRS action was politically motivated and evidence of an agency running amok. Meanwhile, the Service bungled its response, adding fuel to the fire. While public discussion of the scandal has subsided in recent months, we learned last week that the Government had settled a class action brought by the Tea-Party organizations with a $3.5 million payment from the Treasury. NorCal Tea Party Patriots v. Internal Revenue Service, No. 13-cv-00341 (Order of April 4, 2018).

For any of you who do not know remember the back story, the underlying dispute began nearly a decade ago with filing of a spate of applications for tax-exempt status by organizations with political agendas, including many organizations associated with the Tea Party movement. The applications attempted to skirt the prohibition against political activities by tax-exempt organizations, although the political focus of the applicants was readily apparent. The exempt organizations specialists within the Service’s National Office, headed by Lois Lerner, eventually transferred the applications to a small office in the Cincinnati Service Center, where they largely languished in inaction. The motive for the Service’s action is a subject of dispute—many have contended that the Service was implementing the political agenda of the Obama administration. The official explanation of what happened provided by senior Service officials kept changing, Ms. Lerner refused to testify at Congressional hearings, the Service “lost” the data from Ms. Lerner’s computer, and IRS Commissioner Koskinen’s appearances before congressional committees only added to fears of political wrongdoing. Years later, several senior Service officials have left office with their reputations damaged, the public standing of the Service has declined even further following congressional hearings, and many of the complaining organizations have quietly received tax-exempt status.

Naturally, the scandal generated a substantial amount of litigation, little of which has gone well for the Government. The Nor-Cal case was brought as a class-action by one of the disappointed applicants for tax-exempt status. According to the plaintiffs, the Service gave increased scrutiny to applications submitted by the taxpayer and other politically conservative groups, delayed action on some of the applications and, in some cases, requested additional and unnecessary information from the applicants to delay review of their applications. Substantively, the plaintiffs’ legal claims asserted violations of the First Amendment and the Section 6103 prohibition against disclosure of taxpayer return information. ...

The settlement is remarkable in part because the taxpayers’ claims appear to have had massive legal and factual holes, even accepting the taxpayers’ allegations regarding the Service’s mis-handling of their exemption applications. ...

Under the circumstances, the Government’s willingness to settle the case by paying damages to the class is remarkable. This blogger’s experience has been that the procedures employed by the Government for reviewing settlement proposals of tax cases involving multi-million dollar payouts from the Treasury would have required formal written review by several officials in the Justice Department’s Tax Division, including the Acting Assistant General. Several Service employees would also have reviewed the proposal, with formal written approval given by someone acting on behalf of the current Acting Chief Counsel. Depending upon application of some nuances in the procedures governing settlements, a review by the Congressional Joint Committee on Taxation may have been required under Section 6405.

So, this blogger asks: What induced these officials to approve the settlement and the multi-million dollar payout? Did the Government’s evaluation of the litigating hazards (likelihood of success multiplied by potential damage award) justify a payment of $3.5 million to the class? Or, was the payment justified by other considerations (e.g., a desire to buy a quiet resolution to embarrassing litigation)? And, if so, is that a proper reason for the government to pay litigants? As much of that process was conducted internally within the government and is privileged, we will all be left to ponder the possibilities.

Continue reading

April 23, 2018 in IRS News, IRS Scandal, Tax | Permalink | Comments (2)

Sunday, April 22, 2018

When Is A Church Not A Church For Tax Purposes?

New York Times op-ed:  When Is a Church Not a Church?, by Katherine Stewart:

Now that tax day is upon us, consider that through the miracle of tax breaks some of your tax dollars will effectively be going to support groups that finance campaigns against same-sex marriage and gun safety. A number of these groups are also entitled to raise money from other sources for political purposes, without filing the disclosures that are required of other individuals and entities. Why? They’ve got God on their side.

Last fall, for example, according to forms filed with the Internal Revenue Service, Focus on the Family, a conservative Christian organization that promotes socially conservative views on matters of public and family policy, declared itself a church.

Focus on the Family doesn’t have a congregation, doesn’t host weddings or funerals and doesn’t hold services. What it does do, with its nearly $90 million annual budget, is deliver radio and other programming that is often political to an estimated audience of 38 million listeners in the United States and beyond. It has funded ads against state legislators who support bills intended to prevent discrimination against L.G.B.T. people and it leads programs to combat what it calls “gay activism” in public schools.

Why would such a group want to call itself a church? Short answer: money. Churches can raise tax-deductible contributions more easily, and with fewer restrictions, than other nonprofits can. They also enjoy additional tax shelters, such as property tax exemptions for clergy members — or was that conservative radio personalities? ...

Continue reading

April 22, 2018 in IRS News, Tax | Permalink | Comments (0)

Wednesday, April 18, 2018

IRS Website Crashes On Tax Day; Millions Of Last-Minute Filers Told 'Come Back On Dec. 31, 9999'

IRSNew York Times, I.R.S. Website Crashes on Tax Day as Millions Tried to File Returns:

Millions of taxpayers who waited until Tuesday to file their 2017 tax returns and make payments through the Internal Revenue Service’s website were thwarted by a systemwide computer failure that advised last-minute filers to “come back on Dec. 31, 9999.”

Continue reading

April 18, 2018 in IRS News, Tax | Permalink | Comments (2)

Monday, April 16, 2018

WSJ: Hedge-Fund Star John Paulson Owes $1 Billion In Taxes Tomorrow

Wall Street Journal, Worried About Your Tax Bill? Hedge-Fund Star John Paulson Owes $1 Billion:

John Paulson won fame after he made one of the greatest financial bets of all time. What comes next? One of the largest-ever personal tax bills.

By April 17, the hedge-fund manager must make federal and state tax payments of about $1 billion, on top of roughly $500 million in taxes he paid late last year, said people close to the firm. That sum is so big it dwarfs the maximum amount the Internal Revenue Service will allow any single taxpayer to pay with a single check. (That’s $99,999,999, in case you’re wondering.)

Mr. Paulson bet big against subprime mortgages ahead of last decade’s financial crisis, earning about $15 billion of profits for his funds and approximately $4 billion for himself. He deferred the bulk of the taxes on these profits, using a tax provision available at the time to hedge-fund managers, said the people close to the firm. Now the bill is due. ...

Continue reading

April 16, 2018 in IRS News, Tax | Permalink | Comments (0)