Transcript: Testimony by Treasury Inspector General J. Russell George on the Internal Revenue Service’s targeting of conservative groups applying for tax-exempt status before the House Ways and Means Committee on May 17, 2013
Partial transcript of testimony by J. Russell George, Treasury Inspector General for Tax Administration, on the Internal Revenue Service’s targeting of conservative groups applying for tax-exempt status before the House Ways and Means Committee on May 17, 2013:
Chairman Camp, Ranking Member Levin, members of the committee, thank you very much for the opportunity to discuss our report concerning oversight by the Internal Revenue Service of groups that applied for tax-exempt status.
As you are aware, the organization that I lead – the Treasury Inspector General for Tax Administration – protects the integrity of the federal tax system.
Our audit was initiated based on concerns expressed by members of Congress because of taxpayer allegations that they were subject to unfair treatment by the IRS.
Our report issued earlier this week addresses three allegation:
First, that the IRS targeted specific groups applying for tax-exempt status.
Second, that they delayed the processing of these groups’ applications.
And third, that the IRS requested unnecessary information from groups it subjected to special scrutiny.
All three allegations were substantiated.
The IRS used inappropriate criteria to target for review Tea Party and other organizations based on their name and policy positions. This practice started in 2010 and continued to evolve until June of 2011.
As the monitor shows, the IRS was following inappropriate criteria. Let me read to you these criteria from a briefing held by the IRS’s exempt organization function in June of 2011.
The criteria included the words “Tea Party”, “Patriots”, or “9/12 Project”. Another listed criteria included “government spending”, “government debt”, or “taxes”. Yet another listed criteria appeared as “education of the public by advocacy or lobbying to “make America a better place to live”. Finally, the criteria consisted of any statement in the case file criticizing how the country is being run.
The reason for these criteria were inappropriate is that they did not focus on tax-exempt laws and Treasury regulations.
For example, 501(c)3 organizations may not engage in political campaign intervention. 501(c)4 organizations can but it must not be their primary activity.
Political campaign intervention is action taken on behalf of or against a particular candidate running for office.
Although these criteria appeared in the IRS’s own documentation as of June 2011, IRS employees actually began selecting Tea Party and other organizations for review in early 2010.
From May of 2010 through May of 2012, a team of IRS specialists in Cincinnati, Ohio – referred to as the “determinations unit” – selected 298 cases for additional scrutiny.
According to our findings, the first time that executives in Washington, D.C. became aware of the use of these criteria was June 2011 with some executives not becoming aware of the criteria until April or May of 2012.
The IRS’s inappropriate criteria remained in effect for approximately 18 months.
After learning of the inappropriate criteria, the director of exempt organizations changed the criteria in July 2011 to remove references to organization’s name and policy positions. However, Cincinnati staff changed the criteria back to target organizations with specific policy positions but this time they did not include Tea Party or other named organization.
Finally, in May of 2012, after learning the criteria had again been changed, the organization’s director of rulings and agreements changed the criteria to be consistent with laws and regulations.
The organizations selected for review for significant political campaign intervention – again, 298 in all – experienced substantial delays in the processing of their applications.
The organizations experiencing these delays include Tea Party organizations, Patriot organizations, 9/12 organizations, among other organizations.
As shown on the monitor, the status as of December 2012 of the 296 cases that we reviewed – was 108 cases have been approved, 28 cases were withdrawn, and 160 cases were still opened. Zero cases have been denied. Of the cases still open, some have been in progress for over three years across two election cycles without resolution. Of the 108 cases approved, 31 were Tea Party, 9/12 or Patriot organizations.
My final point is that the IRS requested non-necessary information for many political cases. In fact, 98 of 170 cases that received follow-up requests for information from the IRS had unnecessary questions. Our evidence indicates that staff at the determinations unit in Cincinnati sent these letters out with little or no supervisory review.
The IRS later determined that these questions were unneeded, but not until after media accounts and questions by members of Congress were posed in March of 2012.
Examples of the unnecessary information requested included the names of past and future donors, listings of all issues important to the organization and what the organization’s positions were regarding such issues, and whether officers or directors have run for public office or would be running for public office in the future.
Months after receiving these questions, 12 of the 98 organizations either received a letter or a telephone call from the IRS, stating that their applications were approved and they no longer needed to respond to the additional requests. The IRS informed another 15 organizations that they did not need to respond to previous requests for information and instead they were sent a revised request for information.
Regarding the donor information received from applicants, the IRS informed us that they destroyed that information.
In closing, our audit found clear evidence that each of the three allegations were correct. Was the IRS using inappropriate criteria in its review of organizations applying for tax-exempt status? Yes. Was the IRS delaying their applications? Yes. And finally, did the IRS ask inappropriate and unnecessary questions of applicants? Again, yes.
These findings have raised troubling questions of whether the IRS have effective management oversight and control, at least in the exempt organizations function, so that the public can be reassured that the IRS is impartial in administering the nation’s tax laws fairly.