On July 14th, the IRS held a public hearing for the debt-equity rule (section 385 of the IRS code) that the Treasury Department proposed last April. The hearing, which had as many as 16 speakers from various industries,...
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BOLO: Inspector General Report Finds IRS Engaged in Inappropriate Review Activity
Last week, the IRS shocked me by dropping its claim that it could read taxpayers' e-mails without getting a warrant. They had lost a court case but had seemed determined to fight it out, so while I was happy about the victory, it was a surprising and sudden change of heart.
As we now know, they were clearing the decks for a late Friday revelation: Tea Party and conservative organizations were subject to intentional delays and unnecessary information demands as they sought 501(c)(4) tax-exempt status. They apologized and promised that changes had been made.
The full report from the Inspector General came out yesterday, and the findings are scathing. From April 2010 to December 2011, the IRS shunted all targeted applications to one employee, creating an enormous backlog. A memo was distributed ("BOLO"=Be On the Lookout) to flag applications with "Tea Party," "Patriots," "9/12," issues on government spending or debt or taxes, educating the American public to "make America a better place to live," and constitutional education efforts. In early 2012, additional specialists had been added but they began demanding absurd amounts of information to process applications, setting a 2 or 3 week deadline. Slate's Dave Weigel obtained one information demand letter from the IRS to the Hawaii Tea Party dated January 26, 2012:
1) You are a membership organization. Provide details regarding all dues and benefits.
2) Provide actual financial information for 2009, 2010 and 2011. Include details regarding each item listed.
3) Provide copies of your monthly newsetters since October of 2010.
4) You will sell merchandise. Provide a list of all merchandise you will sell, your cost and the sale price.
5) Provide details regarding your relationship with the Leadership Institute. Provide copies of their training material.
6) Provide details regarding your relationship with Dylan Nonaka. Provide copies of the training material used by Dylan Nonaka.
7) Provide details regarding all other training you have received. Provide copies of the training material.
8) Have you added or replaced any board members, officers, or key employees since October of 2010? If yes, submit the following information: (a) Provide a resume for each. (b) Indicate the number of hours per month each individual has provided or is providing services to you. (c) Provide a description of all the services each individual provides or has provided to you. (d) Indicate the total compensation provided to each individual. (e) Indicate if any of your current or former officers, directors, and key employees are related to each other (include family and business relationships) and describe the nature of the relationship.
11) Provide minutes of all board meetings since October of 2010.
25) Have any candidates for public office spoken at a function of the organization other than a candidate forum? If yes, provide the following: a) The names of the candidates; (b) The functions at which they spoke; (c) Any materials distributed or published with regard to their appearance at the event; (d) Any video or audio recordings of the event; (e) A transcript of any speeches given by the candidate(s).
And so on. (It looks like that particular one did not demand donor information, but the Inspector General found that others routinely demanded lists of donors, contributions, and use of the money. The IRS demanded one group provide lists of books read by members of the organization; they snarkily sent a copy of the Constitution.) By February 2012, after some organizations began complaining to the media about IRS harassment, the IRS stopped demanding more information and instead granted 60 day extensions to satisfy existing information requests. From May 2012 to December 2012, the IRS began approving applications, telling a number of the organizations that they no longer needed to respond to the information requests. All told, the average organization was approved in 238 days, but the average targeted group took 574 days to get approval.
While there are tax-exempt organizations out there that perhaps don't deserve that status, many of the IRS's questions were unnecessary toward such an inquiry, and in any event, the one-sided scrutiny was evidently designed to be harassing and delaying rather than true investigatory work. It also wasn't one or two renegade employees, and indeed, the current Acting IRS Commissioner is the head of the Exempt Organizations division. The IRS has apologized, but as Jon Stewart noted, the IRS rarely accepts an apology from a taxpayer accused of wrongdoing. They should be held to the same standard.
Inspector General report:
IRS Letter to Tea Party Hawaii:
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