What did IRS officials know and when did they know it?
Obama fires IRS Acting Commissioner

Tax inspector office agrees with IRS: Mistakes were made

You remember the summer of 2010. That was when the Tea Party movement showed that it was a group to be reckoned with, backing a notable number of candidates who later that year were elected to Congress.

Tea Party protesters gather in Washington DC September 2009
Tea Party members gather in Washington, D.C., in September 2009. Photo via Wikimedia Commons.

That year the Tea Party also got itself more organized, taking advantage of the Super PAC movement.

These organizations are able to collect unlimited money from donors who remain anonymous. And as long as the group's activities are, according to tax rules, primarily for social welfare, not political ends, the organizations get the 501(c)(4) stamp of tax-exemption approval.

As 501(c)(4) applications flowed into the Internal Revenue Service in 2010, the agency's Cincinnati office where they were processed set up a system to manage them.

And boy did they mess that up in a major way.

Improper screening of tax-exempt requests: As we all now know, the IRS office established screening criteria that focused on conservative groups in general and the Tea Party in particular.

The Treasury Inspector General for Tax Administration finally released its long-awaited report on this situation and the title says it all: Inappropriate Criteria Were Used to Identify Tax-Exempt Applications for Review.

Exactly what were the troubling words? The table below from the report spell them out.

IRS tax-exempt inappropriate criteria

Inquiring Capitol Hill minds want to know: Official investigations, both by Congress and the Justice Department, have begun on how the IRS came to focus on applications with the trigger words and phrases.

Friday's Ways and Means hearing will likely spend a lot of time on what did IRS top officials know and when did they know it.

The TIGTA report has some handy time lines to help answer those questions. But it also offers insight into the agency's operations, especially in this tax-exempt review area.

I'll let you peruse the full report at your leisure, but here are a few items that caught my eye.

The IRS is slow. This is not news. Just ask individual taxpayers during the annual filing season.

But in the case of the 501(c)(4) applications in question, the TIGTA report notes that, "Although the processing of some applications with potential significant political campaign intervention was started soon after receipt, no work was completed on the majority of these applications for 13 months."

In fact, noted the report, as of Dec. 17, 2012, many organizations had not received an approval or denial letter. That's more than two years after they submitted their applications. Some cases have been open during two election cycles, 2010 and 2012.

The IRS is a honking huge bureaucracy. And sometimes the right hand doesn't know what the left hand is doing.

To the agency's credit, after learning in June 2011 of the discriminatory method of reviewing tax-exempt applications, the director of Exempt Organizations "immediately directed that the criteria be changed."

However, notes the TIGTA report, the team of specialists working on the applications "subsequently changed the criteria in January 2012 without executive approval because they believed the July 2011 criteria were too broad."

Three months later, the Director, Rulings and Agreements, learned the criteria had been changed by the team of specialists and subsequently revised the criteria again in May 2012.

As a result of changes made to the criteria without management knowledge, the Director,
Rulings and Agreements, issued a memorandum requiring all original entries and changes to
criteria included on the "be on the look out" (BOLO) listing be approved at the executive level prior to implementation.

Whew! That's an awful lot of back and forth on the same matter.

So TIGTA recommends that the IRS should ensure that final review by the Director, Rulings and Agreements, on changes to criteria used in tax-exempt applications be formalized in the appropriate Internal Revenue Manual.

The IRS agrees with this suggestion and says it will ensure that this procedure will be established as normal operating procedure.

Squeaky political wheels get the grease. Yes, the IRS improperly used hot-button political terms were used to cull the flood of tax-exempt applications.

And yes, the folks running those groups are entitled to complain, to each other and their lawmakers.

But conservative groups weren't alone, as the pie chart below shows, in getting special unwanted IRS attention.

Breakdown of IRS reviewed political cases by name

TIGTA found that approximately one-third (32.2 percent) of the applications identified by IRS examiners for special attention included Tea Party, Patriots or 9/12 in their names. The remainder did not.

I wonder why we haven't heard from these "other" folks. It looks like they need to be complaining, too.

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