Archives for April 2017

A Former IRS Official Chimes In – and Reminds Us Why Change is Necessary

In a letter published earlier this week by the EO Tax Journal, a former branch chief of the IRS Exempt Organizations Division, inadvertently confirmed just what our recent report argued – that the IRS is focused on its own reputation, not its duty to taxpayers.  Conrad Rosenberg, who retired from the agency 20 years ago, doesn’t seem to realize that government agencies have a purpose beyond avoiding criticism:

I find a certain irony in the complaints about the IRS’ use of Sensitive Case Reports to alert upper management about potentially controversial rulings. Imagine the cries of anger and incredulity if the Service issued some ruling that received notoriety in the media.  The very same complainants would be issuing furious pronouncements along these lines: “What!  How is it possible that this terrible mistake never received attention above the level of a GS-13 reviewer?  Surely you don’t expect us to believe that!  Sheer incompetence!  Why weren’t responsible managers rung in on this decision?!”

This letter is a failure of logic and of law. Your rights do not vary based on how “potentially controversial” you are in the eyes of the media, Congress, or the IRS itself.  An organization either satisfies the law’s requirements for tax-exempt status, or it does not.  By trying to concern itself with predicting controversy instead of determining tax status, the IRS risks becomingly overly focused on organizations opposed to a current administration – as was amply demonstrated by the number of “Tea Party” and “patriot” groups treated inappropriately merely because of their names.

The letter is also a prime example of how the government solution to bad government is always more government. Low level staffers were not the ones making “terrible mistakes” in the targeting scandal – in fact, because of the Internal Revenue Manual (IRM) rule discussed in our report, they weren’t making many decisions at all.  They were forced to look upward if an application “might receive media of Congressional attention,” a fact irrelevant to the application’s merit but very relevant to the job prospects of IRS management.

The targeting scandal is not a story of insufficient oversight by senior leaders but of suffocating micromanagement from them. The kind of “cries of anger and incredulity” that Mr. Rosenberg mocks were due to years-long delays and invasive questioning that improperly prevented concerned citizens – including more than one Occupy organization – from fully joining in the democratic process.  Those delays were not caused by junior staffers twiddling their thumbs but by IRS leaders who insisted on centralizing the decision-making.

In the free time taxpayers will inevitably have waiting for the IRS to process their applications, they may find it interesting that the GS-13 employees portrayed by Mr. Rosenberg as too junior to be publicly trusted with doing their job will be paid as much as $127,000 this year.  At what point do they become trustworthy?  $150,000?  $200,000?  Refusing to let these employees make decisions does not increase the quality of the process, only the length of it.

Lastly, our report explains that the other criteria specified by the IRM for issuing Sensitive Case Reports “fall comfortably within the agency’s area of expertise: whether an application affects a large number of taxpayers, presents unique tax issues, or involves $10 million or more.” We are not against the IRS being diligent; we are against it continuing to use internal rules that have nothing to do with the laws it is empowered to enforce.  Criticism of the IRS is not such a terrible outcome that all else must be sacrificed to prevent it, particularly when taxpayers are the ones suffering the brunt of the sacrifice.

John McGlothlin is counsel at Cause of Action Institute

WSJ’s James Taranto on FOX News discusses our IRS targeting report

Hits&Misses

James Taranto: A miss to the Internal Revenue Service which claims to have ended the ideological targeting of non-profit organizations. But as the Cause of Action Institute points out, the rule that enabled this targeting is still on the books. It tells agents to investigate any non-profit that might, and I quote, “attract media or congressional attention,” which suggests the IRS is more interested in protecting its image than the rights of Americans.

You can access our full report, “Sensitive Case Reports: A Hidden Cause of the IRS Targeting Scandal” HERE