IRS is often accused of politicking, and always exonerated
When I first came to Washington in January 1995 to cover the Internal Revenue Service for Tax Notes magazine, one of the first stories I began pursuing was allegations that the Clinton administration was using the agency to target its political enemies. To me, still very much a cub reporter who had spent two years working for daily newspapers in Ohio, it was an enticing story with all the requisite intrigue and potential danger to make a big splash if I could break it. So, I investigated.
After two years, during which I learned an awful lot about the inner workings of the IRS, I concluded the story was without merit. Yes, there were complaints by conservative groups that the tax agency was selecting them for closer examination. The Washington Times newspaper in particular was advancing that story line, and it was the loudest voice about it (remember, this was before Fox News, and the World Wide Web was in its infancy).
The "smoking gun" in the Washington Times' coverage was that some IRS official had told someone working for one of the conservative groups that the extra attention was "political." I concluded, after much investigation, that there existed a misunderstanding between the group and the IRS: Where the group believed the IRS said the audit was "politically motivated" the IRS was simply saying that it was examining the group because of concerns the group was engaged in prohibited political activity.
So, I wrote some stories that said as much. And Washington Times reporters called and screamed at my editors. Unfortunately, the stories are buried deep in Tax Notes' archives behind a pay wall, and I cannot link to them. However, several are cited in a 2000 report by the bipartisan Joint Committee on Taxation
that exonerated the IRS of any wrongdoing. Among the many findings:
-- The Joint Committee staff found no credible evidence that tax-exempt organizations were selected for examination, or that the IRS altered the manner in which examinations of tax-exempt organizations were conducted, based on the views espoused by the organizations or individuals related to the organization.`
-- The Joint Committee staff found no credible evidence of intervention by Clinton Administration officials (including Treasury Department and White House officials) in the selection of (or the failure to select) tax-exempt organizations for examination.`
That was an important lesson. However, allegations continued to surface through the years that the IRS was abusing its powers. Judicial Watch, a conservative legal group, in fact sued Clinton administration officials including then-IRS Commissioner Charles Rossotti, saying an examination of its tax-exempt status was politically motivated. The group lost.
-- The Joint Committee staff found that certain cases involving high-profile tax-exempt organizations and individuals received intense internal review and scrutiny by the IRS; however, the Joint Committee staff found no credible evidence that such increased review or scrutiny was politically motivated.
Then, during the 2004 campaign, President George W. Bush was accused of using the IRS to audit opponent John Kerry's allies, most notably the NAACP.
The Treasury Inspector General for Tax Administration investigated. The outcome was the same as it was from the JCT investigation in 2000, it found no evidence to support the allegation
and totally exonerated the IRS. As then-Commissioner Mark Everson (a Bush appointee) said, "This report confirms what we’ve said all along. Political considerations played absolutely no part in the inquiries we launched last summer."
Now, the IRS stands accused of "targeting" groups bearing the Tea Party name or making references to "patriots." Lois Lerner, who was named by Everson to head the IRS exempt organizations unit in 2005, said that employees in Cincinnati whose job it is to scrutinize applications for tax-exempt status, paid special attention to applications from these groups, who are generally viewed as political opponents of the President. According to news reports, Lerner apologized for singling out the groups. According to a report by the Associated Press
, she said: "That was absolutely incorrect, it was insensitive and it was inappropriate. That's not how we go about selecting cases for further review. The IRS would like to apologize for that," she added.
Lost in the coverage is Lerner's insistence that the scrutiny was not "politically motivated" and rather that lower level employees got overzealous in their enforcement of the law.
Based on what I've seen I believe her. Here is what I think has happened:
There are patterns evident in tax non-compliance. Examiners see clusters of individuals claiming a bogus tax credit such as one for reparations. A bunch of companies might start claiming the same tax shelter. I used to go to the US Tax Court to examine petitions and for a while there were hundreds from people claiming that because they worked for a contractor on Johnston Atoll in the 1990s they didn't live inside the US and were exempt from tax. There was a similar cluster of cases involving claims for living and working in Antarctica
I believe that in this case, IRS employees were doing their job and noticed a pattern of improper applications for tax-exempt status bearing similar names and selected them for scrutiny based on that fact pattern alone. Again, I could be wrong. But history suggests I'm right.
But, I that doesn't make as great a story.
Former IRS Commissioner Don Alexander was one of my best sources when I was on the tax beat. Mr. Alexander, who died in 2009
, is a hero in the tax world because he was the one to stand up to President Nixon when Nixon tried to use the IRS to investigate his enemies. He would say, and I would agree, that this should be investigated. Any evidence that the IRS might be abusing its powers should always be investigated, no matter how circumstantial.
But my guess is it'll take a couple of years before the results of yet another investigation reach the same conclusion as the two others mentioned in this post. For the sake of the tax system, I hope I'm right.