4 key findings from the Inspector General's report on the IRS scandal

The agency used "inappropriate criteria" to flag Tea Party groups for scrutiny

An internal report says the White House had no hand in the IRS-Tea Party scandal.
(Image credit: REUTERS/Jonathan Ernst)

The Obama administration this week has been beset by a spate of scandals, one of which was the revelation that the IRS targeted conservative political groups that applied for tax-exempt status. Now, a much-anticipated internal report has found that the agency erred in singling out those groups over an 18-month period starting in 2010. The report, conducted by the Treasury Inspector General for Tax Administration and delivered to Congress on Tuesday, offered new insight into the developing scandal.

In response, President Obama said in a statement that he had instructed Treasury Secretary Jacob Lew "to hold those responsible for these failures accountable, and to make sure that each of the Inspector General’s recommendations are implemented quickly, so that such conduct never happens again."

Here, four key findings:

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1. Staffers developed "inappropriate criteria" to flag applications

According to the report, the IRS office in Cincinnati that processes all applications for tax-exempt status deliberately targeted Tea Party groups for further review — though the report did not go so far as to say that the targeting was politically motivated. While the IRS admitted as much last week, and even offered a mea culpa for the practice, the report is the first independent verification of its existence.

"The IRS used inappropriate criteria that identified for review Tea Party and other organizations applying for tax-exempt status based upon their names or policy positions instead of indications of potential political campaign intervention," the report states.

The IG report reviewed 296 applications as of last December, of which 108 had been approved, while another 160 had been left pending. About one-third of the applications flagged for further review contained "tea party," "patriots," or "9/12" in their names, the report found.

2. BOLO: "Be on the lookout"

According to the report, the Determinations Unit within the IRS in May 2010 began developing criteria for singling out applications with "Tea Party," "Patriots," "9/12," or other "political sounding" names for added scrutiny. The unit then drafted a spreadsheet of groups flagged under this criteria, which came to be known as the "Be on the Lookout" list, or BOLO.

The department distributed the first BOLO list in August 2010, but the criteria for flagging an organization in the spreadsheet quickly broadened. By mid-2011, the criteria had expanded to include groups focused on "government spending, government debt, or taxes," as well as groups critical of how the government was being run, and those that sought to educate the public about how to "make America a better place to live."

The IRS insisted that the guidelines were "shorthand" that could be used to flag all overtly political groups — not only Tea Party ones — that were trying to receive tax-exempt status as "social welfare" organizations. Yet the IG report disagreed with that assessment.

"Whether the inappropriate criterion was shorthand for all potential political cases or not, developing and using criteria that focuses on organization names and policy positions instead of the activities permitted under the Treasury Regulations does not promote public confidence that tax-exempt laws are being adhered to impartially," the report states.

3. The review process led to "substantial delays"

The increased scrutiny resulted in "substantial delays" for flagged applications, with some left pending for up to 1,138 days. According to the report, some applications sat open through the last two election cycles due to "ineffective management oversight" that left unclear how specialists should process applications.

The report says that agency management "did not ensure that there was a formal process in place for initiating, tracking, or monitoring requests for assistance," and that guidelines for processing pending applications often changed, leaving lower-level staffers unsure how to proceed. In the most egregious instance, the Determinations Unit stopped working on applications entirely for a 13-month period while awaiting further guidance.

"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," the report said.

Some 170 groups received requests for additional information from the IRS. According to the report, 98 of those requests, or nearly 60 percent, were later found to be unnecessary. Those requests sought a range of information, including the names of donors, the size of their donations, and details on how those contributions were used. Other requests asked about organizations' political affiliation and outside activities.

4. Some political cover for the White House

Republicans have demanded to know whether anyone in the Obama administration had a hand in ordering the extended reviews. Yet the report appears to have cleared government higher-ups, determining that the program was limited to "first-line management" within the agency, and that it was not "influenced by any individual outside of the IRS."

Instead, the report pins much of the blame on the agency's management structure, saying that "insufficient oversight provided by management" allowed the program to go on as long as it did.

According to the report, agency executives immediately demanded that the criteria for flagging applications be changed when it came to their attention in June 2011. The requested changes rolled back the program's focus to cover activity simply deemed to be "political, lobbying, or [general] advocacy," with no mention of political affiliation. However, agency specialists charged with flagging applications changed the language back six months later, in January 2012, with no approval from IRS executives because they thought the new guidelines were too vague. Those criteria would stay in place until May, when executives once again ordered that they be changed.

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