The U.S. Department of Justice has filed a proposed consent order settling a federal case in which scores of organizations allege that the IRS violated their rights to free speech, free association, and equal protection of the law when it screened their applications for tax-exempt status on the basis of their names and policy positions alone. In the consent order the IRS admits its process was wrong and the Court will declare that “discrimination on the basis of political viewpoint in administering the United States tax code violates fundamental First Amendment rights.” That’s a spectacular settlement and a welcome outcome for the plaintiffs. But it will not end the IRS’s continuing practice of preparing sensitive case reports for supervisory review whenever an application or request for information might “attract media or Congressional attention.” The Internal Revenue Manual provisions that authorize sensitive case reports are where the scandal of political targeting by the IRS began. And until those provisions are withdrawn, cases and requests that an administration considers “sensitive” but outside the terms of the new consent order may still get special treatment within the IRS.
In a 2013 Audit Report, the Treasury Inspector General for Tax Administration (“TIGTA”) found that the IRS “inappropriately identified specific groups applying for tax-exempt status” whose applications would receive special scrutiny. Over a two-year period beginning in May 2010, the IRS inappropriately identified those groups “based on their names or policy positions instead of developing criteria based on tax-exempt laws and Treasury Regulations.” The result was a process by which the IRS demanded and examined additional information from these groups after labelling them “Tea Party cases,” and the ensuing controversy was dubbed the “IRS Tea Party targeting scandal.”
In its new 2017 Review, published earlier this month, TIGTA recounts how the IRS developed and used 17 “selection criteria” between 2004 and 2013 to identify which groups and applications for tax-exempt status deserved extra attention. Politicians and media outlets are claiming that the 2017 Review proves there never was an “IRS Tea Party targeting scandal” because the IRS also used names and policy positions to select progressive, liberal, and Democratic-affiliated groups for heightened scrutiny. A Washington Post headline sums up the revisionist interpretation: “Four years later, the IRS tea party scandal looks very different. It may not even be a scandal.”
This 2017 Review provides new information, disclosing that the IRS sometimes used names and political positions alone as selection criteria for heightened scrutiny of tax-exempt applications instead of the organization’s activities and the requirements of the Internal Revenue Code and related regulations. The initial 2013 Audit Report was limited to two years of IRS practice beginning in May 2010 because that was “the first date that [TIGTA was] informed that the Determinations Unit was using criteria which identified specific organizations by name.” 2013 Audit Report at 9 n. 20. Yet the 2017 Review shows that the same kind of “inappropriate” practice began at least five years earlier, and neither the new 2017 Review nor the early press and political commenters recognize the significance of this revelation.
Yes, as the early reactions suggest, two of the overtly partisan criteria identified in the 2017 Review are tied expressly to the Democratic Party and “progressive” partisans. But the IRS first used these criteria to choose applications for heightened scrutiny way back in 2005 and 2007, during the George W. Bush administration.
At the end of 2007, the IRS selected applications from groups named in the “Emerge network of organizations” whose purpose “was to train women to run as Democratic candidates for public office.” By September 2008 the IRS highlighted the “Emerge” criterion in an e-mail alert and training. Up to 12 applications may have been affected by the Emerge criterion, either initially or upon subsequent review.
In October 2005 the IRS began using the “Progressive” criterion, identifying “the word ‘progressive’” and the “Common thread.” In April 2007, the IRS noted further that the groups “appear as anti-Republican” with “references to ‘blue’ as being ‘progressive.’” Up to 74 applications may have been affected by the Progressive criterion.
These two criteria are no small potatoes. Together, the Emerge and Progressive criteria may have played an inappropriate role in more than half (96 of 181) of the applications considered in the 2017 Review.
Two other criteria identified in the 2017 Review are overtly partisan for the other side. Just before the 2010 mid-term elections, the Obama IRS looked for “Pink Slip” and “We the People” in names or titles as proxies for Tea Party groups to select tax-exempt applications for special examination. And in the run up to the 2012 general election in which President Obama was re-elected, the IRS began using “Paying the National Debt” to identify applications for extra scrutiny, a criterion which overlapped with “We the People.”
So, reporters and politicians who claim that the IRS’s inappropriate use of names and policy positions was never a scandal are ignoring the important chronology revealed in the new 2017 Review. By claiming that this selection process was not scandalous because goose and gander got the same sauce without considering who applied that sauce and when, they are condoning politically influenced tax decisions at the IRS so long as the law allows presidents of both political parties to harass their political opponents. But wrongs on both sides don’t make a right. As John McGlothlin of Cause of Action Institute opined last week in “The Hill,” the 2017 Review shows that “neither side focused on the larger point – that citizens from both sides of the political spectrum, were being denied their rights.”
Politics periodically infects tax enforcement and administrations of both parties have used political targeting by the IRS. But as Cause of Action Institute has discussed many times, the larger point is that the IRS and Congress have turned blind eyes to the identifiable, current provisions in the Internal Revenue Manual that allow such meddling. So inappropriate political targeting by the IRS remains a threat under the agency’s own regulations, even now under President Trump. Leviathan’s nature is to flee reform, so let’s hope Congress exercises its power to tame that beast, and soon. Without those reforms, the IRS can and inevitably will continue to use inappropriate, politically-charged criteria in enforcement, investigatory, and compliance decisions, to evade congressional reforms, and to avoid accountability.
Mike Geske is counsel at Cause of Action Institute.
