Paul L. Caron
Dean


Tuesday, June 21, 2016

The IRS Scandal, Day 1139

IRS Logo 2The Surly Subgroup:  IRS Scrutinized Mostly Conservative Nonprofits: Evidence of Targeting?, by Philip Hackney (LSU):

Documents recently released in a court case demonstrate that 282 of 426 organizations caught in the IRS political advocacy, “Tea Party,” nonprofit organization net that caused such a hullabaloo three years ago, were in fact conservative. This comes three years after Lois Lerner apologized to Tea Party groups on behalf of the the IRS because, she said, it “inappropriate(ly)” selected these conservative groups’ applications for tax exemption for scrutiny based on name alone rather than legal cause.

An NPR report by Peter Overby concludes about the new information: “Whatever the IRS meant to do, this hodgepodge of a list illustrates how the agency bollixed the nonprofit application process.” In this post, I examine this seemingly “common-sense” claim and find it wanting. Additionally, because I have written publicly about this matter both at the time and more recently. I re-examine my conclusions in those writings in light of this new information.

Early on, I assumed that only about 1/3rd of the organizations caught in the IRS net were conservative. I made this assumption based on the TIGTA report because it noted that 96 of 298 applications, or 1/3rd of the organizations, were Tea Party, Patriot or 9/11 groups. I left wiggle room in my writing, but in the back of my mind, this was my assumption. I assumed TIGTA would have reported every conservative group that was in the lot. But, it turns out that about 2/3rds of the organizations  were conservative. Thus, my assumption was wrong. The vast majority of the organizations caught in the net were conservative. Nevertheless, I don’t think this new information demonstrates some additional level of bungling by the IRS that was hitherto unknown. And, frankly, a list like this with little context does nothing to tell us about whether the IRS was fair or not.

The most significant indictment of the IRS in this Tea Party matter has always been that the IRS “targeted” conservative organizations. No one has ever quite given any content to what this exactly means. Presumably it means that the IRS intentionally scrutinized conservative organizations in the application process in order to harm those conservative organizations and did not do the same to liberal organizations. The Inspector General reviewed whether the IRS “targeted” conservative organizations and found that the IRS used “inappropriate criteria” in selecting the Tea Party cases and that this could lead to impartial results. He found no evidence of some animus on the part of the IRS to support a targeting claim.

The targeting assertion, and the Inspector General’s assessment, give us a couple claims that new information could go towards proving: 1) the IRS scrutinized conservative nonprofits more than liberal nonprofits in its application process, and (2) either (a) the IRS did this intentionally, or (b) the IRS did this negligently.  ...

What does this information say about my prior conclusions? In my first quick analysis after the TIGTA report came out I argued that the IRS failed to adopt a careful selection process, asked too many intrusive questions, and subjected them to too great of delays. However, I suggested the IRS was set up for this failure because it had too many complex applications and not enough staff to review all applications with care.

It has to pick and choose organizations to focus upon and it is likely to miss applying appropriate scrutiny to many applications that should have received greater scrutiny while applying that scrutiny to a few organizations in a similar position, and to apply too much scrutiny to applications that should have received little or none. I argued that because of application volume and IRS staffing, the IRS was set up for the type of failure identified in the Tea Party affair.  I still think this is about right, and the new information says nothing new about that conclusion.

Later in Should the IRS Never Target Taxpayers I argued that  TIGTA wrongly took a position that the IRS is prohibited from using names as a means for selecting organizations for audit or for scrutiny of particular applications. It had no firm legal basis for making this claim. TIGTA based it on the principal that the IRS should be unbiased in its work. While certainly true, it seemed to be asserting that there was a duty of consistency as to every application that comes before the IRS. With the quantity of applications and staff, this is not even close to possible. And yet, TIGTA’s claim of “no using names” has become the measuring stick with which the public and commentators review this matter. ...

In the Tea Party cases the IRS had many reasons to believe these organizations might be violating the law by engaging in too much political activity for a section 501(c)(4) social welfare organization. In fact their names alone were evidence of such a potential intent. Additionally, given the substantial numbers of these cookie-cutter-like organizations, the IRS had good reasons to review all of the Tea Party and Patriot groups to ensure uniformity of treatment and a proper understanding of all of the relevant facts. However, because the IRS was enforcing a legal provision that impacted political speech it should have exercised greater care in its selection process. This new information tells us nothing about these basic conclusions.

Overby seems to suggest that this new information further damns the IRS’s behavior in the Tea Party matter. I find the evidence does not support this conclusion.

https://taxprof.typepad.com/taxprof_blog/2016/06/the-irs-scandal-day-1139.html

IRS News, IRS Scandal, Tax | Permalink

Comments

Organizing For America got speedy tax exemption. It seems that Democrat activist groups that engage in politics never have any problems but when non-Democrats try and organize the same way, Democrats get upset and sic the IRS on them.

Posted by: wodun | Jun 21, 2016 3:52:43 PM

Check out IRS denials to a democratic group called Emerge, and to its litigation with the Democratic Leadership Council.

Posted by: Philip Hackney | Jun 21, 2016 8:47:37 PM