As detailed in our recent report, the IRS targeting scandal has a hidden cause which remains unaddressed to this day – a rule in the agency’s own manual that directs employees to treat applications differently if they might “generate media or Congressional attention.”  This rule is what initially prompted low-level IRS tax specialists to hold up applications from Tea Party groups, ultimately resulting in both years of delays for taxpayers and widespread embarrassment for the agency.

The report was accompanied by an op-ed in the Wall Street Journal and was reported on by, among other outlets, Fox News and the EO Tax Journal.  Both of these news reports included quotes from an IRS statement responding to our findings – or at least the agency’s interpretation of them.  Although the aggressive tone of the IRS response surprised the editor of the EO Tax Journal, it serves as a classic example of the bureaucratic mindset that led to the targeting scandal happening in the first place.  Here is the IRS statement in full, as reported in the EO Tax Journal:

“The IRS strongly disputes the [Cause of Action] report and any suggestion or allegation that Exempt Organizations is targeting taxpayers. The IRS emphasizes that this point has been confirmed by independent third parties, including the Treasury Inspector General for Tax Administration. There should be absolutely no doubt on that point, and the continuing commitment by the IRS to be guided by the tax law and nothing else.”

“[Sensitive Case Reports] are used within the IRS to bring to upper management’s attention cases that may generate press or Congressional attention, present unique or novel issues, or affect large numbers of taxpayers. It’s important to note that IRS internal guidelines on sensitive case reports do not instruct the employees to stop working a case or direct employees on how to work a case.

It is head-spinning that the IRS can argue in one sentence that it should be guided by tax law “and nothing else” and then insist in the very next sentence that it is proper to consider “press or Congressional attention” as a criterion, delaying a final decision on tax-exempt applications as a result.  The only purpose of this rule is to avoid possible embarrassment.  Yet an application for tax exempt status is no more related to the notoriety of the applicant than a driver’s license is to the fame of the driver – if you pass the test, you should get the status

The problem with rules that mandate this kind of PR-minded defensiveness is that, as amply documented by the many investigations into the targeting scandal, it drags the application process through multiple echelons of bureaucracy and involves higher officials with strong political leanings. The IRS’s statement claims that it was absolved by the Treasury Inspector General for Tax Administration (TIGTA), but in reality, a report from that office repeatedly criticized the IRS for “using inappropriate criteria” to scrutinize applications – criteria which ended up focusing overwhelmingly on political opponents of the administration in power.  IRS officials insisted on seeing every application from Tea Party-affiliated groups because of the “media attention” they were attracting, and as shown in the same TIGTA report, the result was an endless array of delays and invasive questioning.

John McGlothlin is counsel at Cause of Action Institute