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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.)

In another digression, Smith asserts that Obama argued “sans evidence” that foreign money influenced conservative groups. Apparently, the professor hasn’t been following the news because evidence abounds, from a top Kremlin appointee attending the annual NRA convention to the conservative Weekly Standard describing Vladimir Putin, who frequently expresses contempt for democracy and works to undermine America, as “the pre-eminent statesman of our time” to a curious plank in the 2016 Republican platform that is presumably part of the special prosecutor’s investigation. I’ve got a couple of bankers’ boxes of files on foreign money and conservative groups in America (and the U.K., France, etc.) going back decades, but somehow Smith missed every bit of this or else chose to ignore the published facts before writing his digression.

Smith writes that “it’s not clear that any of the harassed conservative groups were engaged in ‘political activity’ as defined by the IRS.”

Asking for information from any organization whose application form, on its face, indicates potential lawless activity constitutes harassment? And what of non-conservative groups asked the same questions, why no mention of them?

Actually, it was crystal clear from applications made public by some groups that they intended to engage in prohibited “political activity” and that promoting or damaging candidates was their focus, not “social welfare.”

There were news stories at the time about groups that spent more than half of their C4 revenues on electing or opposing specific candidates for partisan office or did little to no social welfare work. Maybe we should allow this, which Smith suggests is his view. The topic is ripe for debate. My concern is with Smith’s lack of fidelity to the facts central to that debate, which cannot foster anything good.

Smith raises an interesting point on the definition of “social welfare” as it applies to C4s and the 1959 regulation. Smith asserts that “…. the IRS could just as easily have written its original [1959] regulation to define ‘social welfare’ to include political activity, entirely or in limited amounts…”

Actually, no. Congress declared that C4s are “civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare…”

So, an organization created “entirely” to engage in political activity could not qualify as a C4, though Congress could change that in the future. If one of my 3L law students had said what Smith wrote I’d have directed him to read the statute and try again.

Smith’s point prompted me to revisit dictionaries — from Blackstone to the O.E.D. to a collegiate Merriam-Webster — and my collection of Founders and Framers era laws and other documents, including the relevant Code of Federal Regulations. Nowhere could I find so much as a hint that “social welfare” encompasses “political activity” or Smith’s implicit point that “political activity” is synonymous with “social welfare.”  If anyone can show otherwise, please contact me via [email protected] because my policy since 1966 is to use verifiable facts and to promptly and forthrightly correct errors of fact or context.

Smith also cites a 1970s law to justify a 1959 regulation, the very definition of anachronism.

Repeatedly, Smith misstates what TIGTA audits showed.

IG Russell George testified that low-level IRS people undertook scrutiny of “Tea Party and other organizations applying for tax-exempt status…”  Remember that George was initially asked to limit his report to conservative groups, not to conduct a rounded audit. Now notice that adroit phrase, “and other organizations,” because it will become more significant in a moment.  

The 2013 TIGTA disproves Smith’s statement-as-fact “that President Obama’s IRS targeted conservative groups for more than two years prior to the 2012 presidential election.” For starters, the IRS commissioner was a George W. Bush appointee. If Smith knows something he can prove about Obama interference, even indirectly, in this independent agency its time pony up with the facts. Otherwise, that’s just a baseless fabrication.

The 2013 TIGTA audit states that “only first-line management approved references to the Tea Party in the BOLO listing criteria before it was implemented.”  

Unless Smith has facts showing the relevant IRS official, in effect a tax police sergeant, is craven and lied to House investigators what Smith writes is nothing but his imaginings. Facts or imaginings, that is the question. Smith should answer with verifiable facts or acknowledge he smeared that tax police sergeant.

Again, noting that Smith got his facts wrong is not ad hominem, but a statement of fact about error and fabrication.

Further, the TIGTA audit report explains that low-level “Determinations Unit employees stated that they considered the Tea Party criterion as a shorthand term for all potential political cases… in June 2011, the Director, EO, immediately directed that the criteria be changed. In July 2011, the criteria were changed to focus on the potential “political, lobbying, or [general] advocacy” activities of the organization.”

In other words, a tax police sergeant and his squad lacking guidance did what they thought was right, TIGTA says.

When the BOLO matter was bucked up to management level at the captain’s level those low-level decisions were reversed concerning terms used, but diligent law enforcement continued. Nothing wrong with that.

TIGTA reported on 298 cases sent for scrutiny. Of these, 202 were not Tea Party (72), Patriot (13) or 9/12 (11).

So, two-thirds were not obviously conservative, but nearly all deserved scrutiny in TIGTA’s opinion. No one reading Smith would have a clue about the facts.

The audit also stated, “We reviewed all 298 applications that had been identified as potential political cases as of May 31, 2012. In the majority of cases, we agreed that the applications submitted included indications of significant political campaign intervention.”

How did Smith miss that TIGTA “agreed” that these applications were problematic? How did he miss that more than two-thirds were classified as “other” in TIGTA’s audit report?

Then there is the 2017 TIGTA report. That audit cited “progressive” and “Occupy” among terms used to select gratuitous liberal applications for scrutiny, House Democrats having asked for a fully rounded audit.

Had only Occupy type groups gratuitously applied for C4 status, for example, it would be wrong to criticize the IRS for ordering scrutiny of Occupy. If 99 percent of rape suspects are men should we criticize detectives for only investigating women suspects one percent of the time? The illogic of Smith’s argument should be clear.

Smith refers to “testimony” and then cites a USA Today news report. Let’s get a better source -- the transcript of what Lois Lerner actually said. (Reminder, I was the first to say Lerner should be fired.).  

This transcript shows, again, that Smith bollixes facts. Here is Lerner, point by point with my comments following:

  1. “…we saw a big increase in these kind of applications, many of which indicated that they were going to be involved in advocacy work.”

Surely Smith would never argue that the IRS should be less than diligent. No honest person thinks the IRS should look the other way when a document suggests a plan to engage in lawless behavior.

  1. “So our line people in Cincinnati who handled the applications did what we call centralization of these cases. They centralized work on these in one particular group. They do that for efficiency and consistency  — something we do whenever we see an uptick in a new kind of application or something we haven’t seen before. Folks might remember from back a few years ago we had credit counseling organizations and we centralized those cases. We had mortgage foreclosure cases and we centralized those cases. We do it for consistency, so they went ahead and did that. How they do centralization is they have a list in their office that they give out to folks who are screening cases that says if it is one of these kind of cases and it can’t be screened it needs to go to group X. So centralization was perfectly fine.”

Note here that Lerner is talking only about the practice of centralization for consistency, which is sound management practice, to explain the base facts.

  1. However, in these cases, the way they did the centralization was not so fine. Instead of referring to the cases as advocacy cases, they actually used case names on this list. They used names like Tea Party or Patriots and they selected cases simply because the applications had those names in the title. That was wrong, that was absolutely incorrect, insensitive, and inappropriate — that’s not how we go about selecting cases for further review. We don’t select for review because they have a particular name.

I agree totally that this was wrong and said so at the time and Smith obviously concurs.

  1. The other thing that happened was they also, in some cases, cases sat around for a while. They also sent some letters out that were far too broad, asking questions of these organizations that weren’t really necessary for the type of application.

My essay noted this was also an IRS wrong. But these delays had no impact, assuming the applicants were not fed bad information by their advisers. Keep in mind that C4 applications are gratuitous; only after-the-fact reporting is required. The IRS did not block any group from opening up shop. That destroys a key Smith argument.

  1. They didn’t do this because of any political bias. They did it because they were working together. This was a streamlined way for them to refer to the cases. They didn’t have the appropriate level of sensitivity about how this might appear to others and it was just wrong.

Note Lerner’s point.  And you don’t have to trust her because we have the testimony of the people involved and they said exactly what is indicated above. No one has shown otherwise, including Smith, but he writes as if he has contrary proof.

  1. So when we found out about it we did a couple of things. First, we said that list that goes around for centralizing cases any changes on that list have to be reviewed and approved at the Director of Rulings & Agreements level so line staff can no longer change or add to that list without calling us to look at it.

Management bucked the issue up, in effect moving it from a tax police sergeant’s office to a captain’s. That was managerially sound and good law enforcement by the tax police, but if Smith wants to argue otherwise I’m all ears.

  1. We also went back and looked at questions that had been sent out to folks because some of them were extensive and where the questions weren’t necessary we gave the organizations flexibility as to which questions they needed to answer and gave them more time to answer them.

I specifically criticized the IRS for intrusive (and irrelevant and pointless) questions. Smith and I disagree only in that he cites only conservatives as victims, creating a false impression.

And, again, only liberal groups two of them, lost their C4 status.

  1. In some cases we told them to just ignore the letter we already sent and sent a new list of questions. In some cases we said we don’t need those questions answered. We can deal with your application without responses to those questions. We also sorted the cases to try and figure out which cases needed a further look and which cases could be handled through almost a screening process. We might need a litle bit more information.

The relevant issue above is that all groups whose applications raised questions about potential lawless behavior were treated alike. That more applicants were conservative than centrist or liberal, again goes to who applied, not to how the tax police applied the law.

  1. The problem in the (c)(4) area is that the kind of activity the organizations were doing is okay for (c)(4)s but it can’t be their primary activity.

Above is the core point. As I read the statute, “primary” is also wrong because Congress said “exclusively.” But no matter, the tax police should not look the other way when presented with gratuitous applications that indicate intended lawlessness. Smith’s op-ed and his response to my criticism could be read to suggest exactly that – look the other way when conservatives flout the law, but not when others do.

That the IRS scrutiny was ham-handed and offensive is not in dispute. But Smith continues to write only about one political perspective, creating the false impression that bias and partisanship motivated the actions of the tax police sergeants and, later, higher ups. He has shown exactly zero evidence to support what he wrote.

  1. So I guess my bottom line here is that we at the IRS should apologize for that, it was not intentional, and as soon as we found out what was going on, we took steps to make it better and I don’t expect that to reoccur.

We all make mistakes. The test is whether we correct them forthrightly. Lerner corrected, but did so in a way that tarnished the image of law enforcement. Had she not been threatened by Issa I would have expected clear, unflinching testimony by Lerner – and would have taken her testimony apart had she been less than candid. Minority members say Issa’s actions were designed to make it impossible for Lerner to testify, which the record lends support to, though it is far from dispositive.

There is no good reason for Smith to distort the facts and make people believe, wrongly, that only conservatives were “targeted.” There was a real issue here that should disturb us all. And when you have a sound argument why diminish it with errors, inaccuracies and fabrications? 

Smith is entitled to his opinion. I’ll defend his right to express any opinion, but never any abuse of facts.

https://taxprof.typepad.com/taxprof_blog/2018/05/the-irs-scandal-day-1830-johnston-says-smith-mischaracterizes-the-record-and-gets-the-facts-of-the-i.html

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