How big is the IRS scandal?

IRS employees used a couple different sets of criteria to scrutinize tax-exempt applicants, and some look pretty bad

IRS building
(Image credit: AP Photo/Susan Walsh)

Across the political spectrum, there's a pretty broad bipartisan consensus that the Internal Revenue Service's targeted scrutiny of conservative applicants for 501(c)4 nonprofit status is a big deal that needs to be investigated. Lois G. Lerner, the head of the Cincinnati-based IRS division that oversees tax-exempt organizations, got the ball rolling on Friday when she apologized for her division's flagging of groups with "Tea Party," "Patriot," or "9/12" in the title. But the scandal is bigger than that.

How big? The IRS inspector general will release an audit sometime this week, but congressional aides gave several media outlets a draft of the audit. According to the document, IRS employees in the Cincinnati office used several troublesome phrases to single out 501(c)4 applicants for review — including, at various points between 2010 and May 2012, groups that "criticize how the country is being run," aim to educate Americans "on the Constitution and Bill of Rights," and lobby to "make America a better place to live."

In order to avoid paying taxes under section 501(c)4 of the tax code, groups are supposed to have "social welfare" as their primary goal. And while advocating for issues and legislation can be a secondary goal, outright politicking is forbidden, especially for individual candidates. After the Supreme Court's Citizens United decision in January 2010 allowed 501(c)4 groups to raise unlimited amounts of money, the IRS was flooded with applications.

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Any groups that apply for tax-exempt status have "opened themselves up to scrutiny" by the IRS, Loyola Law School professor Ellen Aprill tells The Washington Post. "It's part of their job to look for organizations that may be more likely to have too much campaign intervention." Where the IRS appears to have flubbed here is that "it is important to try to make these criteria as politically neutral as possible."

Probably the biggest questions are who knew about this, and when. On June 29, 2011, according to the inspector general's timeline, Lerner discovered at a meeting that her staff was scrutinizing groups based on partisan-sounding criteria, like groups with "Tea Party" in the name or those focused on government debt and spending. She "raised concerns" and "instructed that the criteria be immediately revised," the report says. And they were.

By July 5, 2011, the criteria had been changed to the more politically neutral "organizations involved with political, lobbying, or advocacy for exemptions under 501(c)3 or 501(c)4." Still, "repeated revisions of the lookout list kept lapsing back to the original search," say Jonathan Weisman and Matthew L. Wald in The New York Times. By February 2012, Lerner ordered her office to stop sending applicants requests for more information. And in May 2012, the Cincinnati office finally settled on flagging "organizations with indicators of significant amounts of political campaign intervention (raising questions as to exempt purpose and/or excess private benefit.)"

In March 2012, then–IRS Commissioner Douglas Shulman told a House Committee that his agency was absolutely not targeting tax-exempt applicants based on ideology. Shulman was a George W. Bush appointee, and there's no evidence so far that he or anyone else in the IRS' Washington leadership knew about the targeting of conservatives. Is it plausible that some lower-level staffers were making these decisions on their own? Juliet Eilperin explains in The Washington Post:

The staffers in the Cincinnati field office were making high-level decisions on how to evaluate the groups because a decade ago the IRS assigned all applications to that unit. The IRS also eliminated an automatic after-the-fact review process Washington used to conduct such determinations. [Washington Post]

Further complicating the partisan malfeasance angle is that as a result of Richard Nixon's using the IRS to target his enemies, only two IRS employees are political appointees: The commissioner and the general counsel. But The Washington Post lays out in an editorial why any political interference is an "appalling" deal:

A bedrock principle of U.S. democracy is that the coercive powers of government are never used for partisan purpose. The law is blind to political viewpoint, and so are its enforcers, most especially the FBI and the Internal Revenue Service. Any violation of this principle threatens the trust and the voluntary cooperation of citizens upon which this democracy depends....

The IRS insisted emphatically that partisanship had nothing to do with it.... If it was not partisanship, was it incompetence? Stupidity, on a breathtaking scale? At this point, the IRS has lost any standing to determine and report on what exactly happened. Certainly Congress will investigate. [Washington Post]

The employees who did this "should be fired immediately," says Joe Klein at TIME. But that won't stop the bleeding. President Obama has been scandal-free for four years, but this IRS outrage can be tied to his "unwillingness to concentrate — and I mean concentrate obsessively — on making sure that government is managed efficiently." The fallout is "just poisonous at a time of skepticism about the efficacy of government."

The big surprise is the IRS' "clumsy handling of the whole thing," says Kevin Drum at Mother Jones. "And I'm being charitable by calling it 'clumsy.'" The story is "explosive," even if the "evidence suggests this affair probably wasn't quite as outrageous as it seems at first glance." The IRS really was facing a problem: 501(c)4s "have grown like kudzu" and "lots of them really are used primarily as electioneering vehicles," so it makes sense that some IRS employees tried to find a shortcut to highlight dubious applications.

But understandable or not, they bungled it horribly, leaving themselves open to equally understandable charges of politicizing the IRS. Conservative groups are as outraged as liberals would be if the Bush-era IRS were flagging groups with "environment" or "progressive" in their names. So even if, as seems likely, this whole thing turns out to have been mostly a misguided scheme cooked up by some too-clever IRS drones, it doesn't matter. Conservatives are right to be outraged and right to demand a full investigation. They suspect there might be more to it, and so would I if the shoe were on the other foot. We need to find out for sure whether this episode was just moronic, or if it had some kind of partisan motivation. [Mother Jones]

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